A Sparkling Success: Why Hard Seltzer Is A $500 Million Category Worth Watching

Posted: Jun 21, 2018



Temperatures are up and Memorial Day has come and gone, kickstarting the unofficial start of summer alongside the official busiest time of year for beer sales. According to the National Beer Wholesalers Association, Memorial Day is only behind the Fourth of July as the top two American holidays for beer sales, with an average bump of 20% in the summer months. Warm and sunny weather means cold and crisp beer—but it means other drinks, too.

On a macro level, beer may be battling wine and spirits for favor across major alcohol categories, but in recent years, another beverage has proven to be a buzzworthy complement during beer’s most important months. As drinker tastes have changed and consumers increasingly become more mindful about their health and wellness, low-calorie, low-carb, gluten-free hard seltzer has taken on a prominent role in the months between May and September, right alongside beer.

At the height of summer, between July and September 2017, the combined dollar sales of six major hard seltzer brands (Nauti, Spiked, Smirnoff, White Claw, Truly, and Henry's) accounted for just under $60 million in sales across IRI-tracked grocery, convenience, and other stores. That’s a similar amount to the entire portfolio of breweries like Sierra Nevada and Leinenkugel's in those same stores during that same period. It was four times the amount of hard seltzer sold in the same time period in 2016.

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Across all of 2017, nearly $145 million of those six Hard Seltzer brands were sold in IRI stores, more than the combined total of Sam Adams Boston Lager, Sierra Nevada Torpedo IPA, and Stone IPA in the same locations. Companies behind the main Hard Seltzer brands include everything from Brewers Association-defined “small and independent” craft (Boston Beer and Wachusett Brewing Co.) to multinational conglomerates (Anheuser-Busch InBev and Diageo). Constellation Brands is also entering the category this year with a Svedka-branded Hard Seltzer as IRI-tracked sales quickly trend toward $200 million.

The Nauti Seltzer lineup, made by Wachusett Brewing Co. via its Craft Cocktail Co. subsidiary, was the second highest volume brand made by the brewery in 2017, selling nearly 11,000 case equivalents compared to #1 brand Blueberry Ale, which which moved 14,133 last year.

“For anyone who works in the alcohol beverage category, if you’re not seeing what’s happening in the non-alcoholic space, then you’re not ready for consumer trends when they happen,” says Christian McMahan, president of Wachusett, pointing out broader consumer shifts away from soda and toward items like coconut or flavored waters. “Based on what you hear, learn, and see, there are implications to other categories and what we should think about.”

Opportunity abounds, and to really drive the success of this category home, here's one more stat to consider: through the first four months of 2018, the sales volume of these Hard Seltzer brands (almost 1.8 million case equivalents) is the same as the entire New Belgium Brewing Company family of brands, and dollar sales ($59.1 million) is just $5 million less. And that's all before the most profitable time of the year for this boozy, flavored water.

[Disclosure: New Belgium is an underwriter for Good Beer Hunting, and offered the closest, most-direct comparison for nationwide brands.]

“One of the major trends that crosses many different alcoholic categories is a trend toward sessionability and convenient packaging,” says Casey O'Neill, one of the product innovators behind Boston Beer’s Truly Spiked & Sparkling. “Alcoholic sparkling water takes in these trends and more.”

The “more” part is of particular interest, as hard seltzer seems to pull from a host of attributes popular with consumer packaged goods, and especially Flavored Malt Beverages, that range from occasion to flavor variety and how it fits within health consciousness. According to an analysis of U.S. consumers by the Beverage Marketing Corporation, beverage categories with health and wellness attributes are outperforming those without such claims. It’s a big reason why the low amount of calories and carbs are splashed across packaging for Hard Seltzers, which often fall around 100 calories per 12-ounce serving with 0-5 grams of carbohydrates, at 5%-6% ABV. A 12-ounce bottle of Budweiser, by comparison, has 145 calories and about 10 grams of carbs at 5% ABV.

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Most importantly, Hard Seltzer fits neatly in an area of particular interest, where consumers are decreasing calorie-heavy brands (~45 fewer calories per “refreshment beverage” per day since 2005) and drinking less soda (~1 billion fewer gallons by U.S. consumers since 2012) in lieu of “value-added water,” which includes brands like La Croix. Almost 574 million gallons of non-alcoholic sparkling water worth about $6.1 billion was sold in the U.S. in 2016, which increased to 790 million gallons and $8.5 billion last year.

This all matters in the same way trends in wine and spirits may impact those in beer, or how biology can benefit sales of New England IPAs. Hard Seltzer is a perfect substitute for social occasions in which consumers have already established regular behaviors.

Look at packaging across Hard Seltzer brands and that much is clear. Variations of phrasing around natural flavoring, no calories, and no sweeteners all play a role in marketing, with industry pros behind Hard Seltzer brands all noting a direct connection to items that are already wildly popular.

McMahan points out that “gluten-free” and a focus on carbohydrates and calories—even what type of sugar may be used—are already a part of decision-making processes in non-alcoholic products. “What we can do in labeling is to provide the facts, and then it’s up to consumers to digest what’s important to them,” he says.

McMahan and others specifically noted that branding isn’t meant to create an assumption of health, but use language already in play. Nick Shields, founder and brewer of SpikedSeltzer, says the largest group of consumers for his brand is late twenties, skews female, and is “someone who consumes quite a bit of sparkling water.” He notes that using “regional fruit flavors” like Indian River Grapefruit from Florida and Ventura Lemon from California help create connection among shoppers, too. It’s not about making connections to health, but allowing for information to showcase healthier choices around alcohol consumption.

“There’s been sustained growth and interest in the ‘better for you’ choices which isn’t going away,” says Katie Feldman, associate brand manager for Henry's Hard Sparkling Water. “That’s why we believe this isn’t just a fad, but a long term option.”

The value proposition of Henry’s comes from this thinking, Feldman adds. Based on nationwide surveys of drinking-age adults, MillerCoors found that calories and sugar content were the main drivers of choice within the Hard Seltzer category, which is why Henry’s chooses to play up its 88 calories and no sugar. It may sound stereotypical, but these are points that were found to be important for the category’s biggest demographic—about 70% of Hard Seltzer drinkers are female, according to company research.

“This category is growing leaps and bounds, but still relatively small compared to other flavored malt beverages,” Feldman says. “As a result, consumers are still learning where their loyalties lie, and we think Henry’s Hard Sparkling can drive choice.”

The company won’t disclose specific figures, but does plan to double its media advertising spend in 2018, most of which will take place now through the end of August. It includes a variety of TV spots on channels like HGTV, Food Network, A&E, and Bravo. The outcome seems promising and the timing is certainly ideal. When Henry’s Hard Sparkling debuted last year as an extension of MillerCoors’ Hard Soda line, it sold about three-quarters of its 2017 IRI-tracked volume from April through September.

A big part of that brand’s success—as it has been with practically all the major entries—is the variety pack. Last year, three of the top-five selling Hard Seltzer brands were variety packs, a feat repeated through the first four months of 2018 (a fourth is #6). Boston Beer’s O'Neill says a reason behind it can be tied to consumer choice with non-alcoholic sparkling water. Given the array of options for a product like La Croix, which has 14 different flavors, from lemon, orange, and passion fruit to mango, tangerine, and key lime, there is an expectation and appreciation for a rotating collection of experiences. This is widely common among FMBs, too.

“A category like this, which has grown from trends in the non-alcohol space where there is a lot of variety, has value in focused variety packs,” she says. Truly currently has berry and citrus mixed packs, each with four different brands. “Because the category is still so new, and between last year and this year having explosive growth, we’re beginning to learn more about what the drinker enjoys—and they’re learning about us.”

No matter what amount of mystery may exist, it’s disappearing quickly, as Hard Seltzer prepares for another record-setting year. The recent flip of the calendar has acted as its annual coming out party, with SpikedSeltzer’s Shields saying the category is now valued at $500 million. Meanwhile, projections are indicating another year of triple-digit growth that seems about as likely as the sun rising throughout these heated summer months to come.

By Bryan Roth
June 21, 2018
Source: Goodbeerhunting.com



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