Diageo will change Smirnoff Ice for Oregon market

Modern Brewery Age, Nov 29, 2004

AP--Diageo-Guinness USA Inc. has agreed to change its Smirnoff Ice recipe so that it can continue to sell the brand in Oregon grocery stores.

The announcement is in line with moves by other major manufacturers of what sometimes are referred to as "malternatives" to reformulate their products, Oregon Liquor Control Commission spokesman Ken Palke said Wednesday.

Palke said makers of Mike's Hard Lemonade told the OLCC last month they would change their manufacturing process and followed up with a letter to the commission last week.

The move was prompted by a state law requiring that alcoholic drinks with more than 0.5 percent distilled alcohol be sold only in state-licensed liquor stores.

Most "malternatives" have from 5 percent to 8 percent alcohol, so will have to change their manufacturing process to reduce the proportion of alcohol that comes from distilled spirits and increase the amount from fermentation, said Palke.

To give manufacturers time to make the change, the 2003 Legislature passed a measure allowing continued sales of flavored malt beverages with higher alcohol content in grocery stores until Dec. 31 of this year.

Gary Galanis, vice president of corporate relations for Diageo-Guinness USA Inc., said the reformulated product will taste the same but that prices for the consumer will rise because of the costs of changing the process. "This is about where the alcohol is derived and the costs are passed onto the consumer, because the cost to reformulate the product is an expensive process," he said.

Diageo has sued the OLCC on grounds the agency did not comply with rule-making requirements under state law.

Palke said an OLCC announcement that it would enforce the law was not a "rule," but a reminder that the commission would enforce the law after the Dec. 31 deadline. No rule was needed to take action under the law, he said.

The commission has asked the state Court of Appeals to dismiss the lawsuit.