Is Powdered Alcohol the Next Four Loko?

The company behind the product has approval to sell its mix, but it's already attracting negative attention with content that has since been cleared from its site.

Apr 22, 2014 at 10:40AM

In the old commercials thirsty kids would yell "Hey, Kool-Aid" and a giant pitcher/person would smash through a wall to serve them glasses of the drink that starts as a powder. 

Now Kool-Aid Man (Oh, Yeah!) needs an adult-beverage cousin to help dispense Palcohol, a powdered alcohol product recently approved for sale by the U.S. Alcohol and Tobacco Tax and Trade Bureau.

What is Palcohol?

The product, the company says on a newly sanitized version of its website, was created by Mark Phillips, "an active guy" into hiking, biking, camping, kayaking, and other sports where bringing a bottle of booze along is apparently inconvenient. "After hours of an activity, he sometimes wanted to relax and enjoy a refreshing adult beverage. But those activities, and many others, don't lend themselves to lugging heavy bottles of wine, beer, or spirits. The only liquid he wanted to carry was water," the website explains. "So he thought? Wouldn't it be great to have alcohol in powder form so all one had to do is add water? Since powder is light and compact, it wouldn't be a burden to carry."

Not finding an existing powdered alcohol on the market, Phillips put a team together to create Palcohol -- a powdered alcohol mix where a one-ounce package plus five ounces of water equals the alcohol content of a standard mixed drink. 

So on the current version of the company's website (as of April 21), Palcohol is for responsible sportsmen, travelers looking to avoid having to pack bottles, and other adults who for various reasons have access to water but don't want the hassle of carrying bottles of liquor around with them. It's in no way an attempt to market booze to the large market of people looking to find new ways to become really drunk really fast, the company painstakingly points out on the new carefully scrubbed version of its website.

Just like Phusion's Four Loko was for responsible people looking to make the irresponsible choice of mixing alcohol and energy drinks, Palcohol is for people who plan to consume powdered alcohol responsibly. (Four Loko still exists but it no longer contains the caffeine, taurine, and guarana that made it an energy drink that can mask the effects of alcohol, letting people get really drunk without knowing it.) As of last July, Phusion faced multiple wrongful death lawsuits related to its earlier formulation, yet the company told Crain's Chicago Business that it plans to double its business to $200 million in revenue in the next two years and break into restaurants and bars.

Palcohol can only hope to follow its path to success ... though perhaps without causing any deaths -- wrongful or otherwise -- along the way.

What the old website said

Before the makers of Palcohol sanitized the website, the company clearly had some other marketing ideas, as reported by the blog at bevlaw.com. Pushing the product as a way to sneak booze into sporting events to avoid paying high beer prices at least made good financial sense. But other uses were more troubling. For example: 

We've been talking about drinks so far. But we have found adding Palcohol to food is so much fun. Sprinkle Palcohol on almost any dish and give it an extra kick.... Palcohol is great on so many foods. Remember, you have to add Palcohol AFTER a dish is cooked as the alcohol will burn off if you cook with it ... and that defeats the whole purpose.

The unstated purpose is getting drunk and the company (on the now-removed version of its homepage) offers this suggestion for using Palcohol more directly for that aim:

Let's talk about the elephant in the room....snorting Palcohol. Yes, you can snort it. And you'll get drunk almost instantly because the alcohol will be absorbed so quickly in your nose. Good idea? No. It will mess you up. Use Palcohol responsibly.

Much like heavily hyped vodka tampon and eyeball shots, Palcohol can get you really drunk even if you don't like to drink. But, of course, the company would never suggest you do that, as it makes clear on its new website:

Can I snort it? We have seen comments about goofballs wanting to snort it. Don't do it! It is not a responsible or smart way to use the product.

That's an admirable change in sentiment, which also shows that alcohol companies are not allowed to market the idea that you might use their products to get drunk. 

It's all about clever marketing

The lesson from Four Loko is that it's OK to market to an audience that's drinking in an attempt to get as drunk as possible, but you can't admit that's what you're doing. That's a lesson that companies including Anheuser-Busch InBev (NYSE:BUD) and Diageo (NYSE:DEO) have learned in marketing alcopops -- malt beverages aimed at people less inclined to drink alcohol that tastes like alcohol. 

"We think that the creation of alcopops was a pretty cynical attempt to recruit young drinkers who don't naturally like the taste of alcohol by tempting them with flavors more likely to be found in soft drinks," Emily Robinson, deputy chief executive of Alcohol Concern, a British non-profit, told the BBC.

According to Chicago-based Information Resources, sales for flavored malt beverages increased 23%, totaling more than $1.3 billion for the year ending May 19, 2013. 

"Millennials and Generation X are more likely than their older counterparts to consume flavored malt beverages and/or wine coolers," Mintel beverage analyst Jennifer Zegler told BevIndustry.com.

Palcohol will be competing for that same audience (along with the campers and airplane travelers it now says are its target customers).

Getting people drunk is big business

In 2012 the U.S. market for alcohol was $197.8 billion in retail sales, with beer accounting for 87% of consumption, according to U.S. Beverage Alcohol Forum. Malt liquor (which is classified as beer) only accounts for 2.3% of overall beer sales, which suggests the overall market of non-drinkers Palcohol might cater to is a tiny segment of the overall industry. 

Palcohol will likely get plenty of attention, but its actual sales are likely to be fairly insignificant. Yes, some people might use it to put one over on an arena and have a few cheaper drinks, but when you add the price of a bottle of water at the arena to the cost of a Palcohol packet, is the savings worth it? Similarly the audience looking for cheap, fast ways to get super-drunk exists, but most people interested in doing that will just drink regular alcohol faster. And the market for rum-sprinkled pancakes will never be huge.

The company was lucky to learn the lesson that you should not share illicit uses for your product with potential customers before the the product is available. That likely saved it some lawsuits. But in reality Palcohol will make for an interesting story but have little impact on alcohol sales overall.

UPDATE: Federal Bureau revokes powdered alcohol approval

If you were hoping to see Palcohol at your local liquor store (so you could absolutely not use it to get drunk), you may be waiting a long time.

Though the Alcohol and Tobacco Tax and Trade Bureau originally approved the powdered alcohol, Tom Hogue, a representative for the federal bureau, said in an email to The Associated Press late Monday that the approvals were issued in error.

No details were given about how the error occurred during what is a lengthy approval process and Hogue did not respond to AP's request to provide more details, USA Today reported.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Daniel Kline has no position in any stocks mentioned. He prefers scotch in a glass. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers