Hard seltzer continues to take market share from beer in the US and is rapidly gaining traction in the UK, but will it follow the same dizzy trajectory in Australia?
According to the latest Rabobank Beer Quarterly report: “Australia is leading the hard seltzer push in Asia-Pacific and will remain the top destination for companies. Japan has considerable potential for hard seltzers as well. A large flavoured-alcohol consumer base is common to both markets and is the target segment for hard seltzer brands.”
Rabobank says that brewers have a lot to lose to hard seltzers, but even more to gain if they embrace the category.
“We expect significant sales growth in the US hard seltzer market, and could see this category reaching 20% of total beer over the next five years,” says Jim Watson, senior analyst – beverages for Rabobank in the US.
“For many brewers, seltzers provided a notable tailwind in a challenging 2020 – and virtually every player in the US beer space has major plans for new products in 2021,” details Watson.
The UK hard seltzer market is predicted to be worth £75 million by 2023. Francois Sonneville, senior analyst – beverages for Rabobank in the UK, sees similar potential there: “The product will cannibalize their beer sales, but it will also attract consumers from competing segments, as well as bring new drinkers on board. Around half the hard seltzer drinkers in the UK are new to alcoholic beverages.”
In Australia, more than 30 hard seltzer brands launched in 2020 alone, making it hard to stand out on already overloaded shelves.
But Kieron Barton, co-founder of Saintly Hard Seltzer, is undeterred. He told CEO Magazine: ““I think it’ll become bigger than the cider category within 18 months,” Kieron predicts. “A hard seltzer brand was advertised at the Super Bowl, and that’s a US$5 million spot to advertise; you don’t just do that unless a category has become something massive. It’s huge in the US, and it’s going to become really big over here [in Australia].
“I don’t think something like hard seltzers is going to come and go. We’ve got a job on our hands, clearly, but I’m confident we can do it.”
Australia’s alcohol excise code is also proving to be a headache for drinks companies as they fight to get a piece of the hard seltzer action. While hard seltzer is defined as alcohol-infused sparkling water with a hint of fruit flavour, ABC News reports that many craft brewers, such as Sauce Brewing in Sydney, are choosing to go through the complicated process of making seltzer as a beer rather than a spirit-based drink.
Why? So it attracts less tax.
Even then, Australians still pay the fourth-highest beer tax in the industrialised world. A typical carton of beer in Australia sells for $52 and of that 42% — about $22.05 — is tax.
Distillers face even heftier bills – they pay $88 of tax per litre of pure alcohol, making it the third highest spirits excise in the world behind Iceland and Norway.
“We need to do a few things to meet the requirements,” Sauce Brewing founder Mike Clarke explained. “Firstly, the (sugar) needs to come from a grain. So, in our case we use rice to create the sugar.
“We add just a tiny bit of hops or hop extract just to give it the bitterness without impacting any other flavours or colours. And finally, we just need to brew it so we put it in a fermenter and give it time.
“The alternative being an RTD, you would just buy alcohol, mix it with water and flavours and it’ll be done in less than a day.”
Lion told ABC News it had been producing Quincy, the first seltzer to be released in Australia, as a beer “for excise tax purposes”. However, it also imports the world’s biggest selling hard seltzer, White Claw, which is classified as an RTD.
ALDI also confirmed that its seltzer was being taxed as a beer, which meant it could be sold for just $10 for a four-pack or just $2.50 a can.
Diageo, however, is making its seltzer with a vodka base, which means it attracts the same excise as spirits. Managing Director Angus McPherson wants the tax rate on spirits and RTDs lowered to the brandy rate.
“A standard drink of alcohol is a standard drink of alcohol, whether it comes from wine, beer or spirits,” McPherson said.
What’s in a name?
There’s also contention that the term “hard seltzer” may be holding the category back.
In the UK, YouGov conduct a consumer poll in November 2020 on perceptions and understanding of ‘hard’ and ‘hard seltzer’. The results showed 93% of UK consumers had not heard of hard seltzers.
In addition, 68% of those surveyed did not know if the use of the word ‘hard’ was meant to explain the alcoholic strength of a product, the alcoholic content, or both.
Almost two-thirds (64%) of those polled did not think it was a useful way to indicate alcoholic content of soft drinks or alcoholic drinks.
Mark Collins, the co-founder of Basic Babe, says inconsistency in the Australian market is making it difficult for consumers.
“With multiple names and multiple production methods and beers disguised as RTDs, it’s a confusing space for the consumer at present,” he said.
He believes Basic Babe has an advantage in that it is called “alcoholic water” rather than “hard seltzer” or “alcoholic seltzer”.
“We have always been about calling a product what it is and making it plain and simple to understand,” Collins explained. “From the get go it was always alcoholic sparkling water for us. The focus was to be transparent about what Basic Babe is.”
Basic Babe has also been ramping up its marketing activity, with a recent successful Mardi Gras collaboration with Hyde Hacienda in Sydney that featured a two-week pop-up bar. It was a match made in heaven with its Every Berry flavour, which features a striking rainbow can.
As for the future of seltzer, however they’re made or whatever they’re called, not everyone is convinced the seltzer category has staying power in Australia.
Tony Bongiovanni, owner of Cellarbrations at Gisborne, Victoria, says sales are already “starting to fizz out” at his store.
“Beer, on the other hand, is stronger than ever, with craft doing very well,” he said.