Slowing growth for hard seltzer in the US has sparked fears the category is in trouble, but experts insist the category is evolving, not dying. And there are interesting learnings for Australian drinks companies that are innovating in the space.
The first warning bell for the category came when Boston Beer Co, which produces Truly, the second biggest seltzer brand in the US, announced a month ago that it had “overestimated the growth of the hard seltzer category”. The brewer said it expected the error to significantly reduce its second quarter earnings.
The announcement came just three months after the company had issued an upbeat profit report. However, Boston Beer said the market for hard seltzer products had experienced “decelerating growth trends” and suggested volumes could be more than 100 million cases below the target offered in May. The announcement triggered a slump in the company’s shares, which fell 26% the day after the announcement.
Now the brewer is being sued by a group of shareholdersfor misleading them. Kehoe Law Firm of Philadelphia and New York has invited anyone who might have lost more than US$100,000 because of the share price slump to join a class action.
Data from IRI shows that for the 13-week period ending September 5, hard seltzer volume grew just 4.4% year over year. Industry leader White Claw is down 11% for the period, Bud Light Seltzer fell about 14%, and Corona Hard Seltzer plunged 36%.
However, Yahoo Finance Editor-in-Chief Andy Serwer believes the hard seltzer trend is here to stay after experiencing significant growth during the pandemic and eroding beer sales. While the headlines when Boston announced its revised earnings said that the hard seltzer trend was over, he disagrees.
“It’s very much not over,” he insists. “I mean, first of all, you’re just going against, like, incredibly sick comps, right? I mean, 2019 was the hard seltzer summer, the White Claw summer, of course, and then last year as well because it became part of the stay-at-home trade. And when restaurants and bars shut down, people went to convenience stores and picked up a pack of hard seltzer and brought it home. So I mean, the growth was just off the charts.
“And so now you’re getting comps of, like, 4%, and people are crying all doom and gloom. And plus, you have all kinds of saturation going on. So you got a lot of new products. You can see some of them there on the screen. And the thinking was– is that as people went back to work, yeah, there is going to be less consumption of this drink, and people are going to go to bars and they’re not going to be drinking these so much. And there is some of that. But the market share and the growth and the way it’s eroded beer sales is here to stay.”
IWSR Drinks Market Analysis agrees. It notes that despite recent rumours of its imminent demise, “the hard seltzer market in the US is evolving and maturing, with an increasing focus on value over volume growth – and plenty of opportunities for brand owners who pursue the right strategy”.
It added: “Companies worrying about the inevitable slowing of volume growth from the stratospheric levels seen in the US in 2020 risk missing out on beneficial trends such as premiumisation, the reopening on-premise, spin-offs from established brands and the emergence of spirit-based seltzer-like products.
“Hard seltzers, as well as RTDs in general, are still outpacing the growth of most alcohol categories in the US – but, as the category expands and more players enter it, triple-digit and high double-digit growth rates will naturally moderate.”
According to the IWSR, almost 300 new hard seltzer brands were launched in the year to July 2021 in the US, up over 60% on the year before.
“There are hundreds of new hard seltzer brands, as well as RTDs, in the US, so the category is maturing – there is more choice for consumers and people are experimenting,” said Brandy Rand, COO Americas, IWSR. “It’s impossible to maintain triple-digit growth when the overall size of the category is hundreds of millions of cases.”
IWSR expects the hard seltzer category to grow by more than 70% in the US market during 2021.
“The key is that, for beverage alcohol in general, 2021 is a value year, whereas 2020 was a volume year,” says Rand. “Last year, people were at home, they stocked up on large formats and multi-packs, and they did not travel, commute or spend time in the on-premise. In 2021, life is going back to a more ‘normal’ pattern.”
The fast-moving nature of hard seltzer flavour trends can also lead to short-term volatility in sales data as brand owners rush new products to market with limited R&D, experience significant initial trial rates, but fail to secure repeat purchases.
This constant churn of products is accentuated by heightened competition within the category, with a likely ‘shake-out’ as brand owners learn from the past, swiftly and ruthlessly removing underperforming products rather than allowing them to fester.
“This is contrary to years ago, when RTD brands would remain in market even though they experienced year-over-year declines,” says Rand. “The hard seltzer category will remain strong due to underperforming brands being taken out of the segment more quickly – a brand owner won’t let a SKU sit there and lose volume, dragging the category down.”
Meanwhile, spirits-based seltzer-like products are increasing their share of the category, primarily through ‘spirits & soda’ offerings. RTD products with seltzer attributes are being offered by new entrants and established brands, such as Absolut, Bacardi, Jose Cuervo and Ketel One.
“As the hard seltzer category enters a new phase of evolution and maturity, the industry will increasingly innovate with premium offerings in order to stay relevant with consumers,” Rand concluded.
The top seltzer trends
A new study of US hard seltzer drinkers has revealed growth opportunities still remain for the alcoholic beverage industry’s trendiest category.
Veylinx, a consumer insights platform that uses behavioral research to predict purchasing habits, studied eight hard seltzer brands – AriZona SunRise, Bon V!V, Bud Light, Corona, Smirnoff, Topo Chico, Truly, and White Claw.
According to findings, nearly all added benefits tested (high alcohol, low alcohol, vitamins, kombucha, immunity, energy, sustainable packaging and CBD) drove greater purchase interest from consumers. The study found that adding CBD boosted demand by 12% on average, while enhancing the drinks with kombucha lowered demand by an average of 6%.
Other variations, such as sustainable packaging, showed potential for some brands, but not others. Sustainable packaging for Corona boosted its demand by 29%, but shrunk demand for Truly by 23%.
The study also confirmed that White Claw leads the crowded category in overall willingness to pay, with 35% higher average demand than its competitors. Corona and Truly scored second and third, respectively—but trailed the market leader by a wide margin.
“We wanted to study the hard seltzer category because it has disrupted the alcoholic beverage space so profoundly in such a short time,” said Anouar El Haji, CEO of Veylinx. “There are widely divergent predictions about if and how it will sustain its tremendous growth, so we wanted to shed light on which brands and innovations are best positioned for the future.”
The findings showed that all eight brands enjoy a positive product perception across multiple dimensions, including credibility, premiumness, and uniqueness, signaling strong potential for additional growth.
“Refreshing taste” was listed by a majority of respondents (54%) as a primary purchase driver, with Truly, White Claw and Bud Light scoring highest in this category. Somewhat surprisingly, the perceived healthfulness of seltzers compared to other alcoholic beverages was not an important demand driver (only selected by 22% of participants).