Faced with sluggish beer sales growth, big brewers are launching new hard seltzer brands in 2020 with the hope of tapping into a fast-growing trend.
Anheuser-Busch launched Bud Light Seltzer on Jan. 13.
Source: Bud Light
Anheuser-Busch InBev SA launched Bud Light Seltzer in the U.S. on Jan. 13 and Constellation Brands Inc. plans to debut Corona Seltzer in the spring. Molson Coors Brewing Co. also has a new hard seltzer in the works called Vizzy Hard Seltzer. The new seltzers will compete with Mark Anthony Brands Inc.'s market-dominant White Claw and Boston Beer Co. Inc.'s Truly Hard Seltzer, each of which posted triple-digit sales growth in 2019 as they splashed across social media and bubbled up in popularity.
The drink's explosive growth has raised expectations. Experts predict hard seltzer sales will double in 2020 with the introduction of new brands, and the category could continue to grow during the next few years.
"The bull case is this is the next light beer. It's going to become that big, and this is really here to stay. The bear case is it's another boom-splat scenario until the next whatever comes out that gets consumers' interest and this thing falls precipitously," Jefferies analyst Kevin Grundy said in an interview.
Boston Beer, Constellation Brands and Molson Coors did not respond to requests for comment. Anheuser-Busch did not respond to specific questions from S&P Global Market Intelligence.
Seltzer sales poised to bubble up
Estimates for hard seltzer's growth vary, but analysts generally agree that the drink's best selling days lie ahead.
"Unlike other innovations, seltzer was built off-premise and not only aligns with today’s health and wellness desires, but its consumption spans across demographics, income, and regions," said Credit Suisse analyst Kaumil Gajrawala in a Jan. 14 note. "Seltzer is also less seasonal than initially thought, legitimizing it as a proper strategy."
Sales of hard seltzer are expected to double to $3.5 billion in 2020 and reach $6.5 billion by 2024, according to Grundy of Jefferies. In 2019, hard seltzer sales grew 226.4%, while total beer sales grew less than 1%, according to an analysis of data from NielsenIQ tracked channels (extended all outlet combined) by Jefferies for the year ended Dec. 28, 2019.
UBS analyst Sean King estimates that hard seltzer sales will grow from about $1.75 billion in 2019 to $4.7 billion by 2022.
Within the U.S. alcohol industry, the category of drinks that includes hard seltzer grew to $514 million in 2018, the most recent year for which data is available, from $2.8 million just three years earlier, according to Euromonitor International. The overall U.S. alcohol industry grew to $114.21 billion in 2018 from $103.82 billion in 2015, according to Euromonitor.
Clawing after a category leader
Large brewers are hoping to make a splash in the category now dominated by smaller companies.
Constellation Brands intends to spend $40 million in marketing on its 2020 launch of Corona Seltzer. and recently bought a minority stake in Press Premium Alcohol Seltzer.
Molson Coors' Vizzy Hard Seltzer launches in the U.S. in 2020 to go along with its Henry's Hard Sparkling Water, which took 2% of the market in the year ended Jan. 25, according to Jefferies.
Carlos Brito, Anheuser-Busch CEO, has said a portfolio approach is key to success for hard seltzer consumers demanding more choices. The company's Bon & Viv Spiked Seltzer took 5% of the market for the year ended Jan. 25, according to Jefferies. Bud Light Seltzer's launch will follow the 2019 debut of fellow Anheuser-Busch brand Natural Light Hard Seltzer, which wound up claiming 2% of the market for the year ended Jan. 25.
The category's overwhelming market leader is White Claw, which overtook Truly in 2017. Sales of the brand grew 315.9% in the year ended Jan. 25 to $1.23 billion total, giving White Claw 59% of the hard seltzer market for the period, according to Jefferies.
The brand's market share grew from 37% in 2016 to 58% in the year ended Dec. 28, 2019, according to Jefferies.
Mark Anthony Group, White Claw's owner, declined to comment, though the company provided annual sales volume based on data from IRI, a market research company. In 2016, when White Claw was launched, it sold 388,584 24-pack cases. The figure grew to 7.3 million cases in 2018 before exploding to 29.1 million cases in 2019, according to the data.
Diageo PLC also wants to expand its hard seltzer lineup to include more brands and markets. The company's line of Smirnoff Seltzer had 4% of the U.S. market in the year ended Jan. 25, according to Jefferies.
Smirnoff Seltzer is also on sale in Canada, and Diageo plans to launch the product to Europe, Australia and New Zealand in 2020, Krista Kiisk, flavored malt beverages brand director, said in an email.
"We also saw a huge shift in the category over the summer from a 'Better for You' category that originally attracted people interested in consuming less calories and sugar with their beverages, to a category that now also attracts consumers looking for a more fun alternative to beer," Kiisk said.
Tapping into consumer preference
Analysts attribute the success of White Claw and the appeal of hard seltzer in general to increased demand from health-conscious consumers. White Claw is marketed as all-natural, low carb and gluten-free, while many seltzer brands tout low-calorie counts and a lack of sugar.
"I think it's consumers' desire for lower-calorie offerings, and I think it's also taste-driven," King of UBS said in an interview. "Some of the best performing brands in the space have been known to be the best-tasting brands."
Boston Beer revamped Truly's flavors in October 2019 to remove any "lingering bitterness" from its taste. Truly captured 45% of the U.S. market in 2016, the same year it launched, eventually dropping to 26% in 2019, according to Jefferies.
The company expects Boston Beer to maintain its market share if the hard seltzer category doubles in 2020.
"There hasn't been anything like this that got to scale so fast since light beer 40 years ago," founder and Chairman C. James Koch said during a third-quarter call with analysts.