The hard seltzer category has been buzzing with heady estimations of growth, but Constellation Brands CEO Bill Newlands warns the category has been sluggish over the summer - saying the high number of new entrants has created 'chaos' in the category.
Big Beer has been making big moves into the hard seltzer category, but in this week’s Q2 earnings call, Newlands highlights: “The majority of growth continues to be the robust demand against our core beer portfolio, and that’s where we expect it to continue to be”.
Constellation's beer business delivered double-digit net sales growth driven by the continued strength of Modelo Especial and Corona Extra in Q2, 2021; while its wine and spirits business delivered strong, organic net sales growth driven by solid performance from The Prisoner Brand Family, Kim Crawford, and Meiomi.
Reformulation to pack a punch with flavor
Corona Hard Seltzer was launched off the brand equity of Constellation’s powerful Corona brand: backed by a $40m marketing push at launch last spring and becoming the US’ #4 hard seltzer brand by July. It followed this by announcing it would double hard seltzer capacity.
A slowdown in the US hard seltzer category over the summer, however, has left Constellation Brands with excess inventory.
“The hard seltzer landscape has shifted considerably in recent months. Therefore, we've lowered our growth expectations for Corona Hard Seltzer resulting in a sizable obsolescence charge taken for Q2, which includes our view of the total impact for the fiscal year,” noted Newlands.
In July, fellow beverage giant Molson Coors discontinued Coors Seltzer, saying that launching a hard seltzer as a line extension of a beer brand hadn’t worked out as well as its independent seltzer brands.
Constellation Brands, in contrast, stands by its product: but will reformulate to pull a bigger punch with flavor.
“Let's be clear, we continue to see the hard seltzer and broader ABA [alternative beverage alcohol] space as a meaningful sector in the beer market, and we continue to believe it's important to participate in, and gain our fair share in, this segment to complement the growth of our core imported beer portfolio and to maintain our position as a leader in the high end of the US beer market.
"Going forward, we plan to focus on competing in this space in where we offer meaningful points of differentiation and unique value to consumers.
“We will be altering the flavor and taste profile of our seltzer portfolio to better align with the changing consumer preferences while also introducing single-serve packages to better serve the growing convenience channel, our largest trade channel.
"And we have a solid lineup of innovation that we have yet to introduce.”
'Chaos' of new products
Newlands says the hard seltzer sector has ‘changed a lot versus what everybody anticipated’. While he considers Constellation Brands’ estimates for category growth more conservative than others, it has still seen less growth than expected.
But he highlights that hard seltzers are a relatively small part of the company's portfolio and growth opportunities come primarily from beer.
He says the key to succeeding in hard seltzer will be to take a ‘watch-and-see’ approach to see how the category evolves in the coming months and years.
“In the short to medium term, we believe that there will be consolidation within the hard seltzer/ABA 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.
"We also believe this subcategory will evolve beyond low-calorie, low-carb offerings, and open up to more distinctive consumer value propositions that include things like more flavor, different alcohol bases, and functional benefits. We've already started to innovate in this way with distinct products like Refresca and Lemonada. We've also discovered that consumers are looking for more robust taste and flavor in their seltzers.”