Seltzer sales have been dealt another blow in the United States, with a second major drinks company announcing it over estimated demand.
Constellation Brands revealed this week that its operating profit was US$57million below predictions for the latest three-month period. Chief executive Bill Newlands said Constellation’s entry into the hard seltzer hadn’t met expectations, forcing the company to write off $66million of excess stock.
Constellation launched Corona Hard Seltzer last year and claims to have 7% of the market. In January the drinks giant announced it was doubling its hard seltzer capacity for the year.
However, Newlands admitted this week that the “hard seltzer landscape has shifted considerably in recent months”.
“We still think that seltzer is going to be an important part of the category going forward, but probably at a much lower growth profile,” he said.
Newland believes consumer tastes in seltzer are evolving. He said the area is experiencing a shakeout period, with dozens of smaller competitors exiting the crowded market.
“In the short to medium term, we believe that there will be consolidation within the hard seltzer space primarily due to the chaos of SKU and brand proliferation, with too many new entrants that don’t have the velocity or consumer demand to warrant shelf space,” Newlands said during Constellation’s earnings call.
Constellation Brands is also looking at creating hard seltzer products that don’t focus on low-calorie, low-carb offerings.
“We’ve already started to innovate in this way,” Newlands said, “with distinct products like Refresca and Lemonada. We’ve also discovered that consumers are looking for more robust taste and flavour in their seltzers.”
Lemonada is a “hard” lemonade made with real juice, in flavours including Pineapple, Strawberry, Raspberry, and Passionfruit.
Constellation saw excellent growth in its Mexican beer offerings, such as Modelo and Corona. Newlands noted hard seltzer makes up a “relatively small percentage of our overall growth profile,” so its beer business should offset the challenges its experiencing in hard seltzer.
Boston Beer’s seltzer bubble bursts
Boston Beer Co, which now produces more seltzer than beer, recently admitted the decision had put a major dent in its profits. It owns Truly, the second biggest seltzer brand in the US and announced in August 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.
Boston Beer President and CEO Dave Burwick noted there are now an estimated 220 brands in the US and 1000 SKUs, a figure that is about 50% higher than last year.
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. Corona Hard Seltzer plunged 36%, while industry leader White Claw was down 11% for the period and Bud Light Seltzer fell about 14%.