After Stumbling Start, Newport Firm Finds Booze Taste-Alike

Freeze-drying tequila didn’t work.

Running wine through a fish tank filter wasn’t any better.

But United Spirits Co. persevered and the Newport Beach company has finally come up with a way to use cheap, white wine as a base for lower-alcohol drinks that the company says taste like schnapps, vodka, rum and tequila.

Because the creation is wine based, United Spirits expects its biggest market to be convenience stores and beer-and-wine bars that otherwise cannot sell cocktails. In California alone, the company figures that that means 30,000 retail beer-and-wine licensees who can buy its creations, then sell them to customers in mixed drinks.

“It’s a huge, untapped market with an audience ready and waiting,” said Roy Hibbet, company president.

United Spirits--as well as at least one giant competitor--sees that market as perhaps just the tonic for the ailing liquor industry.

For years, sales of hard liquor have been on the skids. Nationwide, sales of distilled spirits were down almost 12% last year, to 168 million cases from 190 million in 1980, according to Market Watch, a New York-based industry newsletter. With the crackdown on drunk driving and more Americans than ever worried about their waistlines, 1987 sales again are expected to show a 2 to 3% decrease.

Wine-based drinks, on the other hand, could have more appeal for younger, health-conscious drinkers who prefer their alcohol light. And the fermented base and lower alcohol content means that any neighborhood beer and wine joint in the country could start serving chichi cocktails that would look, taste and smell entirely different from what they actually were.

The idea first came to Hibbet and his partner, Dale Pyle, several years ago when they were marketing consultants with a Hawaiian rum company that one day mixed up a batch of rum tasting faintly of tequila. If that were possible, the two started thinking, there might also be a way to make wine taste like alcohol.

So, when the rum company went bankrupt, the two entrepreneurs went into the kitchen. Pyle--whom Hibbet describes as “sort of a kitchen chemist”--began cooking up mixtures, tastes and flavors.

Working with a fish tank, Pyle tried pouring a bottle of wine through the filter system “to filter out the vinous taste.” The result? “A gray, yucky mess of charcoal wine.”

Then there was the idea of freeze-drying tequila with the thought of adding it to wine. This time, Pyle recalled, “we got a bunch of powdered flakes.”

Months later, after “working with industry people and listening a lot,” Pyle hit upon something that worked--a sort of genetic engineering without the genes. By ionizing, or treating, the wine--a method used by other companies to treat water for beer--United Spirits changes cheap wine into base ethanol with a strong boozy--but basically neutral--flavor.

After that, it’s a matter of working with a chemist to add the right flavorings to the now tasteless brew. “It’s a lot like cooking chili--you play with different flavors until you get the one that’s right,” Pyle said.

Hibbet, Pyle and a third partner, Ted O’Toole--all of them formerly in sales and marketing for Brown-Forman Corp. distillers--formed United Spirits in June, 1985, with a fourth partner, Bedford Westco, a San Francisco alcohol bottler and wholesaler.

Much of their $145,000 investment went into figuring how to make cheap white wine taste like schnapps--a more expensive cordial with 24 to 30% alcohol that has been bucking industry trends for the past two years.

United Spirits got its first taste of the schnapps market 10 months ago when it began test-selling a line of imitation schnapps under the Wm. Snapps Co. label. The product is 14 to 17% alcohol--depending on the state where it’s being sold--and sells for about $4.99 for one-fifth bottles of wine flavored like peach, peppermint, apple or root beer.

Sales since then have been better than respectable: United Spirits’ depletions--cases shipped to retailers--total 58,000 to 62,000 cases. Wm. Snapps has expanded into 16 states, including California, and a new raspberry flavor should be in stores next week.

The company is still too new to show a return. But partners expect gross profits of 48% on 12-bottle cases that wholesale for about $35 apiece, with an eventual net return of 14 to 15%.

With Snapps on its way, United Spirits began experimenting with more flavors and tastes. The result is a 20% alcohol-content wine that tastes like high-proof hooch: Coral Reef, a rum-flavored product, and Sobolov, a vodka-flavored drink, should be in shot glasses next month. La Quinta, a wine-based tequila flavor, should be behind bar-counters by fall.

Meanwhile, customers who swill the concoctions aren’t the only ones who have noticed the new knock-offs.

A spirited battle has begun between United Spirits and Farmington, Conn.-based Heublein, which has its own wine-based imitation schnapps. Heublein’s Max Schnipps line of peach- and root-beer-flavored schnapps is being test-marketed in Florida and Texas and soon should be in 24 states, a Heublein spokesman said.

Both sides claim the other has imitated its imitation. United Spirits last month filed a complaint against Heublein with federal authorities in Washington for alleged violation of its Wm. Snapps Co. trade mark.

Whether or not United Spirits succeeds with its complaint, the owners acknowledge that they will have to raise some real money before they can win the bigger battle for consumer dollars.

So the company is seeking up to $3 million in new capital which United Spirits could use to expand into 10 more states. More importantly, the funds also could be poured into advertising--a step that United Spirits and experts say is crucial to getting the company’s brands known as the leader.

“Consumers are extremely fickle, and the market’s already saturated. Everybody is coming out with a variation of something,” said Ohla Holoyda, a liquor industry analyst with J.W. Charles-Busch Securities in Boca Raton, Fla. “Without an advertising buck--unless the products have phenomenally great taste--it’s hard to see them competing.”

A spokesman with James B. Beam Distilling Co., which owns the schnapps leader, DeKuypers, agreed: United Spirits is hardly “a major distillery,” said Lane Barnett, vice president and marketing director. “And products tend to be driven by effective distribution and promotion.”

On the other hand, Barnett added, “if they really have a low-alcohol substitute product, they maybe have struck upon a great product idea . . . and we’re all competing for the same drinkers. . . . We’ll watch them carefully.”