Warning bells sounded for US hard seltzer sales last month when analysts at Goldman Sachs downgraded their rating on Boston Beer Co – maker of the second biggest selling brand in the market, Truly Hard Seltzer – shares to sell.
“We are incrementally more cautious on Boston Beer and downgrade our rating to sell from neutral following recent feedback from our beer distributor contacts indicating that Truly’s momentum has decelerated further, driven primarily by the broader slowdown in the hard seltzer category, cycling of tough comps, and an overall weaker pipeline of innovation,” long-time beverage industry analyst Bonnie Herzog at Goldman stated.
It’s a surprising reversal of fortune for a category that went wild during the summer of 2019 thanks to market leader White Claw. Sales of seltzer in 2020 more than doubled the previous year, then growth slowed in 2021 to 16%.
Previously bullish drinks companies saw the writing on the wall and started reconsidering their investment in seltzer. In July, Molson Coors announced that it was shutting down Coors Seltzer in the United States; in October, Boston Beer Company binned millions of cases of unsold Truly, and by March 2022, spending on hard seltzer had fallen almost 2% from the same period the previous year.
Summer is usually the busiest time of year for hard-seltzer sales in the US, but sales data from the country’s largest e-commerce alcohol marketplace, Drizly, shows seltzer sales dipped below 2021 levels during the Fourth of July holiday.
(By comparison, Drizly’s sales of non-alcoholic beer and wine over the July Fourth weekend this year doubled those of 2021.)
So what’s replaced seltzer in American hearts?
Drizly’s head of consumer insights Liz Paquette told The Atlantic that canned cocktails are the skyrocketing new favourite on the e-commerce site. Their share of sales on the platform quadrupled from 2019 to 2021 and are on track for strong continued growth.
RTDs were ranked as the top adult beverage consumers plan to buy more of this year according to a recent survey by Drizly , with 73% of respondents saying they most likely would enjoy RTDs at home.
More than 900 pre-mixed cocktail brands are listed on Drizly. Experts suggest their appeal stems from the fact they are made from spirits, while seltzers are usually malt-based in the US.
As Mashed notes: “The canned cocktails available on grocery and liquor store shelves today are a different species than the overly sweet, malt-based canned cocktails that you may have sipped (and poured out) a decade (or way more) ago. Today, the best contemporary canned cocktails rely on superior ingredients, with real, top-shelf spirits lending canned concoction the taste of freshly mixed cocktails. And sometimes they’re even dreamt up by professional bartenders.”
Premixed cocktails were the fastest growing spirits category in the US last year with 42% year-on-year revenue growth to $1.6 billion, compared to 30% growth for tequila and mezcal and 16% for Irish whiskey, according to the Distilled Spirits Council of the US.
Jessica Spence, brands president of Beam Suntory, said COVID-19 has fuelled sales of canned cocktails.
She told CNBC’s Evolve Global Summit: “There were a lot of people experimenting and had the time to have fun with cocktails, and there were a lot of people who realised they were not the greatest bartender in the world. When you want that cocktail, maybe you don’t want to do all the hard work.”
Drinks giants are racing to lend a hand. PepsiCo, in partnership with The Boston Beer Company, released an alcoholic version of the original Mtn Dew in February. And Diageo and The Vita Coco Company just announced they’re launching a line of canned cocktails together.
Anheuser-Busch InBev said in its May earnings call that demand for ready-to-drink cocktails is growing rapidly. “Despite of the fact that seltzers are growing less or declining, the beyond beer [category] overall is growing and is being led by ready-to-drink cocktails,” said CEO Michel Doukeris.
In June, Coca-Cola and Brown-Forman blew everyone out of the water by unveiling plans to release a Jack Daniel’s Tennessee Whiskey and Coke cocktail around the world.
“This relationship brings together two classic American icons to deliver consumers a taste experience they love in a way that is consistent, convenient, and portable,” said Brown-Forman CEO Lawson Whiting.
“Brown-Forman has been a leader in the ready-to-drink category since we launched our first Jack Daniel’s RTD more than 30 years ago. Coca-Cola perfectly complements Jack Daniel’s and our existing RTD offerings, enabling us to accelerate expansion and continue to grow our business around the world.”
Whiting said Australia was a great example of what a mature market looked like for RTDs.
“Consumers love it. I mean, if you take a place like Australia just as an example, the RTD business is much bigger than what we call glass or the bottle of Jack Daniel’s business. So there is a consumer demand for these products,” he said.
“And when the pandemic hit, the business absolutely went on a rocket ship and really took off.”