The War on "Supersized Alcopops"

Roughly a year ago, it looked like it might be last call for Four Loko, the notorious fruit-flavored malt liquor that was allegedly as lethal as a Mexican drug cartel. While even the strongest incarnation of the beverage contained only 12 percent alcohol by volume (ABV), or about as much as your average white zinfandel, Four Loko also contained caffeine, guarana, and taurine, and these ingredients had made the brand both a college party staple and a convenient target for critics who charged its manufacturer, the Chicago-based Phusion Products, with irresponsibly pandering to young consumers who had already turned the non-alcoholic energy drink market into a multi-billion-dollar business. On November 17, 2010, the Federal Drug administration (FDA) sent a warning letter to the company that essentially advised Phusion Projects to remove Four Loko from the marketplace or else face potential product seizures, injunctions, and prosecutions.

While Phusion had announced a day earlier that it was planning to remove the caffeine, guarana, and taurine from its products, the threat of imminent FDA action produced a substantial chilling effect in convenience-store coolers everywhere. In the wake of the FDA's letter, Phusion's three co-founders would later recount at the 2011 Industry Beer Summit, the company lost more than 30,000 distribution points as retailers balked at selling the product. In addition, Phusion was stuck with as much as $30 million worth of unsalable inventory, which according to Phusion vice president of communications, Chris Short, it eventually "destroyed and recycled into ethanol."

Ironically, the FDA warning letter produced a similar quandary for Four Loko's foes as it did for Four Loko's creators—how to proceed when caffeine was no longer part of the mix? While Phusion Products was busy reformulating its product line, Alcohol Justice, a non-profit advocacy organization formerly known as the Marin Institute, reformulated its argument against Four Loko, Anheuser-Busch's Tilt, and similar products. "They took the caffeine out of their drinks, but now they are fueling youth binge drinking with giant single-serving cans of alcopops," exclaimed Alcohol Justice's Executive Director Bruce Lee Livingston in a January 2011 press release. Eliminating caffeine from flavored malt beverages was a start, the organization suggested, but it also proposed that the container sizes of these products be limited to 12 ounces at most, and that their alcohol content not exceed 6 percent by volume.

As it turns out, both Four Loko and Four Loko's critics have been surprisingly successful in the post-caffeine era. While Phusion faced some temporary setbacks in the wake of the FDA letter, it quickly brought caffeine-free versions of its products to market and experienced strong sales. According to Phusion's Chris Short, 106,000 retail outlets currently buy Phusion's products, and there are roughly 600,000 distribution points in those 106,000 accounts. "We've been able to regain most of those distribution points we lost [after the FDA ruling]," he says.

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[In December 2010, Reason.tv explained why the feds banned Four Loko and asked whether your favorite drink was next. Click to watch.]

Having lost the cash cow that created a 2,966 percent sales revenue increase in 2009 and a 306 percent sales revenue increase in 2010, Phusion also made efforts to diversify its product line and penetrate new markets. In the caffeinated 
Loko era, its primary retail channels were convenience stores and liquor stores. In March, in an effort to obtain more placement in grocery stores, drug stores, and mass merchandisers, it introduced a new bottled version of Four Loko. The bottles are 11.2 ounces in size, they contain 8 percent alcohol by volume, and they're sold as six-packs or twelve-packs. In September, it launched Poco Loko, a 16-ounce can version that contains 8 percent alcohol by volume. According to SymphonyIRI Group, a Chicago-based market research firm, total U.S. sales for Four Loko in convenience stores, supermarkets, drug stores, and mass market retailers excluding Wal-Mart for the 52-week period ending October 2, 2011 were $152 million, a 17 percent increase from the previous year. (SymphonyIRI does not include liquor store sales in this total.)

Earlier this month, Phusion announced that it had achieved the ultimate badge of mainstream approval—Wal-Mart will begin selling 12-packs of the bottled version of  Four Loko this fall. No doubt wary of Four Loko's growing respectability, Alcohol Justice has ratcheted up its campaign against the brand. In an August 2011 report it published, From Alcoholic Energy Drinks to Supersized Alcopops, it suggests that "supersized alcopops" like Four Loko "may be just as dangerous  as their caffeinated predecessors because of the combination of high alcohol with sweet flavors." In a press release publicizing this study, Bruce Lee Livingston went even further, claiming that the new "supersized alcopops" are an "arguably more dangerous product" than the alcoholic energy drinks they replaced.

Or to put it another way: By removing the caffeine that had ostensibly made Four Loko and other products like it the most dangerous elixirs ever to poison convenience-store coolers, Phusion and other manufacturers have somehow made their products even more dangerous!

While the logic of that argument may elude all but professional prohibitionists, it apparently had an impact at the Federal Trade Commission (FTC). In November 2010, when the FDA issued its warning letter to Phusion Products, the FTC issued one as well. In it, the FTC addressed Four Loko's caffeine content and the fact that the FDA had warned Phusion that caffeine, as used in its product, was "an unsafe food additive" that might "present unusual risks to health and safety." Selling a product that the FDA had deemed "unsafe," the FTC advised, might also "constitute an unfair or deceptive act or practice in violation of the Federal Trade Commission Act, 15 U.S.C. § 45."

While this warning letter noted that Four Loko was sold in 23.5-ounce cans and contained 11 to 13 percent alcohol by volume, it offered no indication that the FTC had specific concerns about these characteristics. On October 3rd, however, the FTC filed a new complaint against Four Loko. (Reason's Jacob Sullum covers it here.) Essentially, its complaint echoes the argument that Alcohol Justice has been promoting over the last year. A 23.5-ounce, 12 percent alcohol by volume can of Four Loko has as much alcohol as 4.7 cans of regular beer, and yet the oversized cans are marketed as single-serving products meant to be consumed by one person on a single occasion. (The FTC assumes that "regular beer" comes in a 12 oz. can or bottle and contains 5 percent alcohol by volume).  And because in the FTC's estimation a person cannot safely drink 4.7 servings of alcohol in a two-hour period, it believes that marketing 23.5-ounce cans of Four Loko as a single-serving product is deceptive.

While the chain of reasoning the FTC uses to reach this conclusion is dubious on many counts—why the two-hour cut-off period for starters?—Phusion has already agreed to change its packaging. "Even though we reached an agreement, we don't share the FTC's perspective and we disagree with their allegations," Phusion's Chris Short told me via email. "Our labeling has always clearly conveyed exactly what's in the can…However, we take legal compliance very seriously and we share the FTC's interest in making sure consumers get all the information and tools they need to make smart, informed decisions."

Thus, while Four Loko's cans already feature six different statements in 10 locations about the product's alcohol content and the fact that an ID is required for purchase, it will add yet another message to the mix. "This can has as much alcohol as 4 1/2 regular (12 oz. 5 percent alc/vol) beers," future cans will read. In addition, Phusion is developing a new reusable cap closure technology that will allow consumers to ration a single can across multiple drinking sessions. Short says the new caps will be the first for any alcoholic beverage worldwide and will be available in stores by Spring 2012.

While Alcohol Justice's advocacy efforts appear to have inspired the FTC's complaint against Phusion, the group is less than pleased with the agreement the two parties have reached. In a letter it sent to the FTC, the organization points out that the new disclaimer about a single can of Four Loko containing as much alcohol as four regular beers may actually backfire and "serve as a marketing device" rather than a warning. It also claims that "it's absurd to even imagine how a [resealable] cap will deter youth from drinking an entire container at once." And ultimately it concludes that "the high alcohol content in the large single-serving container is itself deceptive." In other words, the only real way to make Four Loko and similar products fit for commerce is to pursue the course Alcohol Justice has already laid out it in its model legislation: Limit container sizes and alcohol content.