Beam's Not Getting Fat on "Skinny" Drinks

Beam's Not Getting Fat on "Skinny" Drinks

Has the whole "skinny" drinks craze run its course? After viewing this past quarter's earnings from spirits maker Beam , with sales of the ready-to-serve alcoholic beverage tumbling 23% from the year-ago period, you'll be forgiven for thinking it was just a fad.

Beam blames the disappointing results of bad summer weather and tough comparisons from last year. It had launched a brand-awareness campaign and used its distribution model to drive product placement on liquor-store shelves, causing sales to roar ahead more than 80% in the first six months of 2012. Now it's cycled past that growth spurt, and because it's a highly seasonal product, sales crashed.

That might be part of it, but tough competition -- which Beam pretty much dismisses out of hand -- has probably played a part, too. As I pointed out earlier this summer, Diageo jumped into the business with both feet, particularly in vodka, where the industry has seen the biggest gains.

According to Demeter Group, spirits saw 3.4% compounded growth annually between 2005 and 2011, ahead of both wine and beer, with the vodka subset outstripping them all with a 5.2% gain. Indeed, vodka makes up more than a third of the entire spirits market now, and as the spirit's largest distiller, Diageo has gained the most from it.

While Anheuser-Busch InBev introduced some fruit-flavored margarita drinks and even Beam offered flavored bourbons to water down the market more, the bigger threat may be coming from the explosive growth being witnessed in hard cider. Brewer Boston Beer rolled out its Angry Orchard cider brand just last year and has already catapulted to the top of the market, surpassing C&C Group's Vermont Hard Cider, the previous market leader.

I'll have what she's having
According to the market researchers at Rabobank, 55% of hard cider consumers are women under 30. Cider is only a tiny portion of the beer market at the moment -- less than 1%, according to industry numbers -- but it's seeing growth rates equivalent to what Beam saw last year with its Skinnygirl brand. The Beer Institute says the U.S. cider market was about 690,000 barrels in 2012 but grew 88% in the first quarter of 2013. Maybe hard ciders and teas are this year's fad, but that doesn't bode well for Beam, then.

It's planning on investing more capital in the Skinnygirl brand and is counting on reality TV star Betheny Frankel -- who created the concept and sold it to Beam in 2011 -- to add some star power when she launches her new TV show in the fall.

The distiller may be able to turn more palettes to its brand once more, but there are more options for flavorful drinks available, and the decline of its Skinnygirl brand may mean that women's tastes, while not switching to the harder and harsher spirits that men prefer, may have moved beyond the fad of drinking themselves skinny.

Seasonals, ciders, and teas have bolstered the best beer brands these days, even if they've brought with them a bit of volatility. But don't let such swings scare you out of the market. The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

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Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Beam, Boston Beer, and Diageo and owns shares of Boston Beer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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