Why AriZona iced tea is betting on spiked beverages

AriZona Beverages — famous for its booze-free, 99-cent tallboys — has read the tea leaves and decided there may be a future in fermentation.

The Woodbury-based business has loomed large in the chilled drink section of convenience stores for decades. Checkered patterns, rich colors and southwestern motifs set apart its 22-ounce iced teas and juices — even when their 99-cent price isn't visible.

Now AriZona has set its sights on scaling the ready-to-drink alcoholic beverage market, chairman and founder Domenick "Don" Vultaggio said.

Americans have been throwing back more spiked seltzers, hard teas and canned cocktails in recent years, tempting several big-name beverage brands to mix their classic recipes with alcohol.

AriZona launched hard products in Canada and entered the frothy domestic market about a year ago. The manufacturer plans to bring cans spiked with up to 5% malt alcohol to Europe and Mexico next, Vultaggio said. AriZona aims to release 100-calorie, cold-brewed tea and vodka drinks near the end of 2024. 

The family-owned firm even crafted new flavors for a line of mixed drinks with 8% alcohol modeled after nutcrackers — homemade boozy concoctions often hawked at parks, parties and beaches in New York City. 

The original cans make up the bulk of AriZona's business despite the manufacturer adding an assortment of consumer goods: gallon jugs, branded acrylic nails and more traditional swag.

But hard refreshments have the potential to shake-up the company, Vultaggio said. Ready-to-drink alcoholic beverages, once the purview of a few brands like Smirnoff Ice and Mike's Hard Lemonade, have exploded in popularity and are expected to grow about 3% annually from 2023 to 2028, according to IWSR, an alcohol-focused market research firm. Hard beverages currently account for 5% of AriZona's sales by volume, Vultaggio said. 

"We think we're going to be number one in it," said Vultaggio, 72, of Sands Point, while referring to one part of the ready-to-drink market: flavored malt beverages. "And if we are, then it's going to be bigger than our nonalcoholic drinks."

The tactic follows years of declining sales of prepared teas — cans and bottles blended with sweeteners, juices and other flavors, and poised for drinking, said Duane Stanford, editor and publisher of Beverage Digest, a trade publication. Teas may have a harder time drawing health-conscious consumers since it is challenging to temper the plant’s bitterness while curbing sugar and calories, he said. Some tea drinkers also may have moved on to chilled coffee drinks, Stanford said. 

The volume of prepared tea sold in the U.S. fell about 4% in the first half of 2024, but 0.8% when looking at just AriZona’s products, according to Stanford's estimates. Retailers sold about $500 million of AriZona teas in the first half of 2024 — enough for the brand to maintain a 21% share of the segment in the U.S., he said. That's second only to Pepsi, which produces chilled Lipton, Pure Leaf and Brisk products.

"Carbonated soft drinks and tea and some of these other categories, they’re all maturing, and there’s lots of competition out there. It’s more challenging to find the kind of growth rates that they’re looking for," Stanford said. "The nonalcoholic beverage companies are now willing to say: OK, [alcoholic drinks] might be a good place to extract some value."

But the business side of adult beverages is a bit muddled, analysts said. Alcohol consumption has been declining in the U.S., according to some estimates. But sales have surged for elixirs that come ready-to-drink, including flavored malt beverages, which contain fermented malt that has often been stripped of flavors typically associated with beer and overpowered by other ingredients. Hard teas are especially hot. The amount of spiked tea sold in the U.S. grew 36% from 2022 to 2023, and the category is expected to increase about 19% annually from 2023 to 2028, IWSR said.

Portable drinks

Many manufacturers are trying to capture the ready-to-drink segment’s momentum, potentially saturating the market, analysts said. Americans are drawn to more flavorful, portable drinks, which may be cheaper than buying premium liquor and mixers, they said. New launches still draw curious consumers, suggesting we’re in the seventh inning of the ready-to-drink matchup, said Scott Scanlon, executive vice president of alcoholic beverages at Circana, a market research firm.

AriZona's boozy Arnold Palmers were included in a list of the 25 fastest growing flavored malt beverages in the U.S. compiled by Bump Williams Consulting, a market research firm serving distributors, manufacturers, retailers and packagers. Boston Beer Company’s Twisted Tea has most of the market-share, and AriZona will need to leverage its reputation and a strong network of distributors to compete, said Bump Williams, the firm's founder. 

Vultaggio, who worked as a beer distributor, said AriZona should be able to quickly get its new cans before consumers through its existing network of distributors and retailers. About 130 wholesalers carry the nutcrackers in the U.S., but Vultaggio wants to sign on all 400 of those distributing his boozy teas, he said. The Farmingdale Walmart stocked 22-ounce cans of spiked tea with lemon for $2.98, and sold a variety pack of 12-ounce hard Arnold Palmers for $17.73. 

"It's a little dangerous because it tastes just like the regular teas," said Chris Healy, 49, an ironworker, while shopping at Flag Beverage in Lindenhurst near his home. "It's good; it's refreshing."

But Alex Costello, of Hicksville, said he could discern the difference between the hard tea and AriZona classics, and was disappointed. 

"The sweetness was a lot more artificial," said Costello, who works in public relations. "It wasn't awful. I didn't spit it out."

Flag Beverage manager Peter Patel said initially it was hard to stock 12-packs of the hard AriZona product, and then difficult to get enough of the large "man can." 

"At the beginning it was wild, crazy," said Patel, noting that production has ramped up and he's able to get the supply he needs. "I had to fight with the distributor to get cases." At a customer's request, Flag Beverage ordered nutcrackers, which are sold for $3.49 a bottle.

AriZona, which owns two bottling plants in New Jersey, produces nutcrackers overseas. The firm was committed to the squat, plastic bottle nutcracker hits the streets in, Vultaggio said. These can go in freezers or coolers to produce slushies, and have a screw-on cap. Few alcoholic beverages come in this sort of container in the U.S., so AriZona produces Nemo's Nutcracker in Europe. (The name alludes to color separation that can occur in the drinks and is a nod to the striped fish in "Finding Nemo.")

Vultaggio is a veteran of the alcohol industry. While working as a beer distributor, Vultaggio was stunned to see a Snapple truck making the rounds in Manhattan in February. He figured there must be unmet demand.

"When I was a kid in Brooklyn, you had iced tea from Memorial Day to Labor Day," Vultaggio said, noting his family used powders that never seemed to entirely dissolve in water and had an ingredient list reminiscent of a chemistry set. "Then you would put it away until next year."

Vultaggio and John Ferolito launched AriZona in Brooklyn in 1992. They avoided preservatives by pasteurizing tea, juice and other natural flavors — a process he described as more complex and costly. Beverages must be heated to 195 degrees to kill organisms, and then cooled to 185 degrees before poured into cans. Plastic bottles are cheaper, but couldn't withstand hot liquids. 

The company's iconic packaging and logos were inspired by aesthetics in Vultaggio's home. He had never been to Arizona, but his wife, Ilene, envisioned the southwest when she decorated one of their homes in Queens.

Move to Long Island

The company relocated to Lake Success a few years later. Vultaggio said the move was motivated by Long Island's lower taxes and more child-friendly environment. In the late 2000s, the company migrated to Woodbury, where 300 people work in its corporate offices that stand atop a distribution hub.

By 1998, Vultaggio said he was running the company day-to-day. (Ferolito formally left the firm in 2015 as part of a court settlement.) Vultaggio's son, Wesley, is chief creative officer and joined the company in 2005; his sibling, Spencer, chief marketing officer, came on board in 2007. Today AriZona is sold in about 70 countries, and Forbes estimates the patriarch has a net worth of $6 billion.

AriZona has a way of generating hype — whether partnering with celebs like Shaquille O'Neal, retailers like Adidas or touting its 1992-era price tag. AriZona has always manufactured two sets of identical big cans: one with the suggested retail price of 99 cents in red, and one without it. Vultaggio said some stores had too high of rent or other costs to sell his products for so little. But when it is possible, the bargain generates consumer loyalty.

"We have consumers who appreciate a company that's fighting for them," Vultaggio said. "We've had lots of positive responses."

Vultaggio declined to provide sales or revenue statistics.

AriZona has taken many measures to maintain this price point: operating lighter-weight trucks at night when there's less traffic; linking a factory to freight rail and outfitting it with efficient equipment. The manufacturer opened a 1 million-square-foot factory in Keasbey, New Jersey, in 2020 with six drink production lines that can produce 1,500 22-ounce cans a minute. About 400 people work at the hub, which operates 24/7 and has an automated pallet-storing system.

Beginning in mid-October, people will be able to make appointments to tour the factory and visit AriZonaland, a section of the space with hands-on experiences and social media appeal, Spencer Vultaggio said. Headsets will take them through the company's history and technical operations — with a track that can be tailored for grade-schoolers up through engineering students, he said. 

"Not many people have been to a factory," Spencer Vultaggio said. "And this is the Willie Wonka of factories."

By Sarina Trangle

sarina.trangle@newsday.comSarinaTrangle

Sarina Trangle covers affordability and cost of living issues and other business topics. She previously worked as an editor and reporter at amNewYork.