Is Powdered Alcohol the Next Four Loko?

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.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 22, 2014, at 10:49 AM, Aquest wrote:

    There is a high probability that Palcohol is fake. Chemically, it is hard to impossible how a liquid can be made into a powder. Next, they will be advertising Pwater.

  • Report this Comment On April 24, 2014, at 3:50 PM, The1MAGE wrote:

    Aquest, Time Magazine states that Kraft had 2 patents for powdered alcohol in the 70's, and Popular Science listed one possible way to make it.

    If Pop Sci is right, then it isn't dehydrated alcohol, but a power infused with alcohol.

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