Diageo sparks fightback as the Smirnoff Ice ban cometh

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Diageo, the drinks giant, is fighting to shore up sales of Smirnoff Ice in one of its biggest American markets, after California voted to ban the drink from supermarket shelves.

The crackdown, which the state's authorities say will help curb underage drinking, is also being accompanied by a tax rise that will almost double the price of the company's leading alcopop.

The California board of equalisation voted late last week to reclassify Smirnoff Ice and similar drinks from their current category – as malt beverages akin to beer – to the more heavily restricted spirits category.

And over the weekend, Diageo triggered a public fightback, stirring debate on local talk radio stations and trying to orchestrate a letter-writing campaign to prevent the new rules coming into effect on 1 July next year.

Guy Smith, executive vice-president of Diageo North America, said: "Underage drinking is a very serious issue, but raising taxes and falsely claiming it will address the issue is fiscally irresponsible and socially misguided. The outcome will affect law-abiding consumers, distributors and retailers in an already fragile market."

Sales of alcopops are falling across North America, but Diageo's most recent full-year results show that it has managed to keep the revenue slide to 1 per cent because of price rises and the launch of new flavours.

California's reclassification of alcopops as spirits rather than flavoured beer is the latest twist in a long-running battle over the status of the drinks in North America. In Europe, where Smirnoff Ice was first introduced, it is a pre-mixed vodka drink, but in order to ensure wide distribution in the US – which bans supermarkets from selling wines and spirits – the drink is made using alcohol mainly derived from malt, as required after a long review by the Treasury department in 2004.

The board of equalisation in California, though, decided on a 3-to-2 vote last Thursday that it would create a presumption that all non-beer drinks are distilled spirits and should be regulated accordingly, hence the ban. "The board is exercising its legal authority to appropriately tax these beverages," said its chairwoman Betty Yee, adding that the ruling would have to be approved by the state's legal department before coming into effect.

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