Hard seltzers – a category just five years old – are already capturing nearly 10% of the total beer market in the US, according to the latest figures from Rabobank. And with the category already accounting for $4bn in sales, 50% growth next year – ‘an achievable goal’ – would see the category make further leaps forward.
And hard seltzers could reach 20% of total beer sales over the next 5 years, adds Rabobank.
'The industry is putting its money where its mouth is'
In the US, hard seltzers success is driven by a number of factors. They offer a highly approachable, entry-level alcohol drink. The high amount of flavor innovation holds interest in the category; while also appealing to drinkers who flit between categories. They also offer a new drink for the next generation – hard seltzers skew younger than overall beer. And they have also been driven by on-point launches and marketing from White Claw and Truly Hard Seltzer.
The question, of course, is whether this growth can be sustained in the coming years. The answer, says Rabobank, is a resounding yes.
“We expect significant sales growth in the hard seltzer market, and could see the hard seltzer category reaching 20% of total beer over the next five years. This would still be far less than the peak of the macro-light lager share, decades back (the market is far more fragmented now) but easy-drinking, very accessible products will always naturally have a large place in the industry
“Predictions from the industry are equally bullish, and the industry (both leaders and challenges) is putting its money where its mouth is, investing not just in marketing, but putting large cap-ex into production capabilities to keep up with surging demand
“We don’t expect more years of >100% growth [as in previous years] but with the seltzer category already accounting for $4bn in sales, 50% growth next year – an achievable goal – would represent massive gains.”
But why the confidence this growth can be sustained? There are three key reasons.
Firstly, the trends that have driven hard seltzer’s success to date will keep pushing the category forward. Secondly, retailers are recognising the importance of the category (“we expect more shelf space for the category – nothing else is growing this fast… increased shelf space and prominence create a virtuous cycle”). And thirdly, Big Beer is continuing to power into the category.
Big Beer meets superstar seltzer
Sluggish beer volumes have been plaguing big beer for years: promoting diversification of portfolios. In this sense, there’s been a ‘race for white space’ among brewers to find successful categories to complement their core beer portfolios.
Big brewers had already been making inroads into the seltzer category pre-pandemic. For many brewers, seltzers have now proved to be a notable bonus in a challenging pandemic 2020. And looking forward to 2021, ‘virtually every player in the US beer space has major plans for new products in 2021’.
One of the attractions of the hard seltzer category is that switch-over costs between beer and seltzer are reasonable and make use of existing equipment. Sugar is cheaper than malt and hops; and yet pricing of products is at a premium to the beer category.
Most interesting, however, is incrementality. “AB InBev reported that 75% of Bud Light seltzer sales were incremental to the top-line. Constellation has said that 90% was incremental – this means beer is stealing consumers from other categories. Seltzer is not cannibalizing beer volume, but greatly adding to the strength of the beer category.”
Big Beer's hard seltzers
AB InBev: Bud Light Hard Seltzer; Bud Light Platinum Seltzer; Bon & Viv; Natty Hard Seltzer
Constellation Brands: Corona Hard Seltzer; Press Hard Seltzer (minority stake)
Molson Coors: Vizzy Hard Seltzer; Cours Seltzer, Topo Chico Hard Seltzer (with Coca-Cola), Henry's Hard Sparkling Water.
Heineken: Canijilla; SunRise Hard Seltzer (with AriZona)
As well as increasing the size, the interest of Big Beer in the category will undoubtably change the shape of the market in the coming years.
“This category is still in its infancy – only about 5 years old – but still very highly concentrated behind the two leading players, Mark Anthony Brands and Boston Beer Co. While these two companies would love the category to stay highly concentrated, like energy drinks, over the long term we expect competitors to steadily take share.
“AB InBev’s own portfolio in the space already shows that many different approaches are possible and shows the massive speed at which they can be introduced (Molson Coors and Constellation Brands similarly have an array of entries into the category). New brands are using a wide array of flavors, normally only seen on a non-alcohol shelf, a wide range of alcohol bases, ABVs, and even leaning into health and wellness with organic labels and added vitamins.”
At the end of the day, however, with the size of the hard seltzer market continuing to grow, there appears to be enough for everyone to have a decent sized slice of the pie.