Domecq in vodka deal with US Miller

WINES and spirits giant Allied Domecq has struck a deal with US brewer Miller to make alcoholic malt drinks based on Allied's spirits brands.

The group, best known for its Ballantine's Scotch whisky and Beefeater gin, also said first-half sales had been hurt by the US slowdown and growing competition. But it still expected to hit first-half profit forecasts.

Full-year profits would be swollen by a £110m boon stemming from excise duty rebates in Mexico. But Allied faced a £20m charge for cutting stocks in its US supply chain.

The Miller deal will focus initially on Allied's Stolichnaya vodka and Sauza tequila. Milwaukee-based Miller will make and distribute the drinks, which will contain 5% alcohol, roughly the same as beer.

The drinks will be launched in the spring through more than 500,000 stores serviced by Miller's nationwide distributor network. The companies will initially invest up to $50m (£33m) in the venture. Allied chief executive Philip Bowman said the deal was the first tangible step of the group's accelerated brand development and innovation programme.

The first four months of Allied's financial year, which ends in August, had been a 'a challenging and uncertain period...(but) underlying earnings for the first half of the year will be up to previous expectations'. Its brands had raised their market share in the UK over Christmas and recent acquisitions were bedding down. The interims will be released in April.

The branding deal comes just weeks after Miller announced a pact to introduce another flavored drink, SKYY Blue, with Skyy vodka maker Skyy Spirits.

The biggest player in the US for such drinks, known as malternatives or flavored alcoholic beverages, is Diageo's Smirnoff Ice. But Smirnoff Ice sold in the US has no vodka in it, even though the Smirnoff name is a prominent part of its success.