Bud Light will add orange soda and cola to its seltzer; Mountain Dew has entered the alcohol aisles, and Molson Coors now offers a whiskey brand.

Beverage companies have been exploring new product categories in their quest for growth. They are blurring the boundaries between soft drinks, beer and spirits to be able to compete for the “share of the throat” from consumers. But some alcohol companies worry about the potential implications of such a change on the three-tier system, which has kept that industry alive — and legal — for 88 years.

In 2020, total beverage alcohol consumption rose 2% — the biggest gain for the industry in nearly two decades, according to IWSR Drinks Market Analysis. True to years-long trends, beer was the only category that saw a decline in volume. Consumers resorted to hard seltzer or making their own cocktails when locked out at home, and they have maintained these habits throughout the year.

Barclays analyst Lauren Lieberman, at Beverage Digest’s virtual conference “Future Smarts”, in December stated that “there are premium dollars going to ready-to-drink canned goods in a cooler and there’s growth again.”

Drink companies have reacted by forming partnerships to share their expertise. Take, for example: Beam SuntoryAnd Boston BeerAnnouced a partnership This summer, well-known brands such as Truly and Sauza would be relegated to new categories.

Non-alcoholic beverage companies, for their part are diversifying as soda consumption decreases. New regulated beverages markets like CBD-infused drinks are also on the horizon.

“We’re seeing it not just from beer competitors, we’re seeing it from nonalcoholic competitors — you’ve got Coke with Topo Chico,” said Ann Mukherjee, CEO of Pernod RicardNorth America. The lines are blurring and the consumers are those blurring them, which is allowing more companies, non-traditional, to enter the market.

Coca-ColaTopo Chico Hard Seltzer was launched Molson Coors BeverageIn the U.S., hard seltzer use exploded in 2021. IWSR reports that the U.S. hard-seltzer consumption grew by 130% between 2020 and 2021, which helped spirits consumption surpass it, though growth has slowed in this year. Topo Chico was the first American alcoholic beverage Coke sold since 1980.

Molson Coors said that Topo Chico, along with White Claw (and Truly) could be the third-most popular hard seltzer. Topo Chico is expected to close out 2021 holding 2% of the $4.3billion U.S. hardseltzer industry, even though it’s only sold in about a third of US states. The nationwide launch of the drink is planned for January.

Molson Coors had net sales in the latest quarter of $2.82billion. This is 2% less than 2017’s. The stock fell 53% over the past five years as the beer market has slowed and the company began to transform its portfolio. Coca-Cola has had its revenue rise 9.9% to $10 billion over the past five year. In that period, Coca-Cola’s stock price has increased 40%.

PepsiCoThe company was not far behind archrival Coke. To announce its collaboration with Sam Adams beer brewer Boston Beer in August Hard Mtn Dew. The flavored malt beverage will contain 5% alcohol by volume and sell on the soda’s brand equity — without the high caffeine content.  

The drink has been controversial since its inception. National Beer Wholesalers Association has voiced concern about its launch scheduled for February. Pepsi granted Boston Beer a licence to make the beverage and established Blue Cloud to distribute it.

“They’re taking an existing product that’s known as a globally recognized soft drink brand and adding alcohol, creating a whole host of challenges as it relates to the regulatory side, but also public health … we’ve never had that before,” said Craig Purser, CEO of the NBWA.

One important concern is that soda branding for an alcoholic beverage could result in underage drinking — accidentally or on purpose. Boston Beer stated that Hard Mtn Dew’s cans will have “adult-oriented graphics”, which emphasize the fact that Hard Mtn Dew contains alcohol. This is part of the company’s efforts to distinguish the beverage from its soda. It also stated that it would limit its marketing efforts to consumers aged 21 and older.

The main argument of the NBWA is Pepsi’s possible impact on the competition and thus the three-tier system which has long governed alcohol industry. Following the 1933 repeal, alcohol producers adopted the three-tier system that separated distributors from licensed outlets. Alcohol producers are only permitted to sell their products to licensed importers, distributors and control boards, which in turn are only allowed to sell to licensed outlets — like liquor stores and restaurants.

It is designed to create a safe and legal marketplace while protecting against any Prohibition redux. Washington is only place where producers can directly sell alcohol to retailers.

Tyler Theile is chief operating officer at Anderson Economic Group and director of public policies. States will need to become more cautious about which products can be sold in each category.

Pepsi has partnered with Boston Beer to license manufacturing. However, many states do not allow large producers to distribute their products. Pepsi is the sole owner of most U.S. bottling plants, so it can distribute about three-quarters all North American beverage sales.

Anheuser-Busch InBevThe U.S.’s largest producer of alcohol, Purser, has self-distributed in some markets. Purser suggests that Anheuser-Busch accounts for 6 to 8% percent of its total volume.

“If successful, [Pepsi’s]A move into alcohol could create a new revenue stream and increase profit. This would be in addition to leveraging the existing distribution network’s extensive distribution assets. It will also challenge the oligopolistic distribution systems of beer. [AB InBev]And [Molson Coors]”A viable third option in beverage alcohol distribution,” Steve Powers, Deutsche Bank analyst, wrote in a December 12 note to clients.

Pepsi’s product lines are blurred, and this means that they have to navigate new regulatory waters. A lot of consumer goods companies charge retailers “slotting charges” to get more space in supermarkets or a premium area. These fees are illegal for alcohol distributors and producers.  

Powers stated that PEP would claim it doesn’t offer “slotting fees” in the US. However, any perceived payment for placing on PEP’s (direct or indirect) part or signs of camouflaging payments could have serious implications for PEP (including suspension or fines for its distributors.”

Powers said also that Pepsi acquired a fleet of trucks for alcohol distribution. However, it is likely to move to ship Hard Mtn Dew directly to retail customers using the same trucks as those that transport its other products such as Gatorade or Quaker Oats.

General manager of Pepsi’s alcohol business unit Emiliano Di Vincenzo stated in a statement that Blue Cloud had filed federal applications to be allowed to trade as a wholesaler of beer in many states. Di Vincenzo said that it will distribute alcohol products made from independent brewers. Hard Mtn Dew and Pepsi bottlers will distribute Hard Mtn Dew.

Cannabis company Canopy GrowthCorona Brewer partially owns the brewer. Constellation BrandsA line of CBD-infused bubbly waters was also launched in the U.S. by Pepsi earlier this year. Pepsi launched in Germany a line of cannabis-infused drinks through Rockstar Energy.

Thiele, Anderson Economic Group, stated that CBD beverages will be a major player in the future. They can get into the alcohol-regulated beverages market, which gives them the opportunity to possibly continue in the CBD-regulated beverage market in the future.