Consumers couldn't get enough spiked seltzer this summer.
Hard seltzer sales grew about 164% in the four weeks ending July 30 and nearly 200% during the last year, according to Nielsen data. The segment saw so much growth that White Claw, the top selling brand in the category, faced a nationwide shortage in September.
"We are working around the clock to increase supply given the rapid growth in consumer demand," Sanjiv Gajiwala, White Claw's senior vice president of marketing, told CNN Business at the time. "White Claw has accelerated faster than anyone could have predicted."
Sales of White Claw — which is the category leader with a 59% dollar market share — grew more than 265% this summer compared to the same period last year, according to IRI data ending in September that the company sent to Food Dive.
White Claw, which launched under Mark Anthony Brands in 2016, is a 100-calorie, 5% ABV beverage in five flavors: Black Cherry, Ruby Grapefruit, Natural Lime, Raspberry and Mango. Mark Anthony Brands is known for its serial disruption in the alcohol industry. The company also owns Mike's Hard Lemonade, which made the malt beverage space popular about 20 years ago. Food Dive contacted White Claw for this story, but company representatives declined to be interviewed.
"There's nothing that makes a drink more popular than limited availability on the shelf. It's like, 'I better get some before they run out.' "
Jeff Fromm
Partner, Barkley
"White Claw is hitting on a lot of great themes. They give consumers a flavor adventure. It feels like it's not a lot of calories. The can is a great size and shape for people of both sexes," Jeff Fromm, a partner at brand strategy consulting company Barkley, told Food Dive. "It's sort of just a trifecta of innovation."
The drink has been especially popular among millennials, who have essentially been marketing the brand on social media. Posing with the beverage in pictures and using the widely popular phrase "Ain't no laws when you're drinking Claws," the word-of-mouth press the brand has received on social media and the shortage of the product helped create the boom.
"I don't know if they did [the shortage] on purpose or on accident, but it was great," Fromm said. "Because there's nothing that makes a good restaurant more popular than being told, 'I can't get you in now, but I could get in soon.' And there's nothing that makes a drink more popular than limited availability on the shelf. It's like, 'I better get some before they run out.' "
But White Claw is far from the only brand taking advantage of the hard seltzer trend.
Hard seltzer has risen to popularity as the rest of the alcohol industry has struggled to retain young consumers. Legacy alcohol and beer brands have been threatened by new trendy drinks, pushing them to turn to ready-to-drink beverages as well as low- and no-alcohol drinks.
The spiked seltzer category has seen exponential growth in the last year as more companies, from Constellation Brands to AB InBev, are launching new drinks. Companies and analysts told Food Dive the current trajectory of growth is expected to continue in the near term, and the hard seltzer boom represents the innovation defining alcohol's future.
Exponential category growth
Last year marked the fifth consecutive year that beer volumes dropped. As the country drinks less beer, hard seltzer sales have been booming.
Fromm said the hard seltzer segment parallels craft beer in many ways since both took a big chunk of the market when they got popular. Sales for smaller, independent craft breweries grew 8% in 2017 to $26 billion, according to a report from the Brewers Association.
Comparing hard seltzer to craft beer, Fromm said they are both beverages that aren't going away, but will not replace everything else in the category either. According to the Brewers Association's most recent data, craft beer now accounts for 13.2% of the U.S. beer market. Seltzer currently holds about a 2.8% share of the total market for beer, flavored malt beverages and cider, according to Nielsen data sent to Food Dive.
And hard seltzer, which is often put in the larger beer category for marketing statistical purposes, is where the category is finding growth. Because IRI considers hard seltzers, malt beverages and domestic super-premium beers in this category, July's reported sales of beer were up 3.5% since January, totaling $19.5 billion.
"Hard seltzer is arguably the most disruptive entrant into the alcohol category since light beer."
Casey O’Neill
Innovation team member, Truly
Hard seltzer growth is projected to continue. UBS expects the category to reach $2.5 billion by 2021, which would mean a 66% annual growth rate and a consumption spike from 14 million cases last year to 72 million by 2021, according to an UBS analysis cited by Markets Insider. Companies in the category say this trajectory will continue.
"Hard seltzer is arguably the most disruptive entrant into the alcohol category since light beer," Casey O'Neill, an innovation team member for Truly Hard Seltzer, told Food Dive. "Given Truly's growth, and the overall growth in the category, hard seltzer isn’t just a trend, it’s here to stay."
O'Neill said Truly is up 185% from this time last year and is already bigger than some established beer brands, but the company is still "just scratching the surface."
Who is the audience for hard seltzer? Can the brand move beyond the young people who built up White Claw? Truly's O’Neill said the brand’s target consumer is anyone looking for an alternative to beer, wine and spirits that tastes great and won’t weigh them down.
Bank of America Merrill Lynch's global beverage survey, which studied millennial drinkers ages 18 to 34 in the U.S. and the U.K., showed a drop in alcohol consumption overall and a continued shift away from beer as the drink of choice. Hard seltzer accounted for 21% of millennial alcoholic beverage consumption in the last year.
Fromm said younger consumers fuel alcohol trends, but aren't the only ones that drink it.
"They're the heavy users and the ones who are inspiring the conversation in the same way that I think mobile pay started with young people, but there are other people who are going to try it once they see that it's easy to use," he said.
Competition is not cooling down
White Claw is the market leader and Truly, which is owned by Boston Beer Company, is in second place with about 30% of the market share, according to The Motley Fool. But many more are flooding the space. How do brands stand out in this crowded market?
"We were one of the first players in the hard seltzer category, which has helped us establish drinker awareness," O’Neill told Food Dive about the Truly brand. "Additionally, as the brand with the most flavors of hard seltzer, we’re uniquely positioned to appeal to more drinkers that may be enticed to purchase Truly based on a specific flavor we offer that our competitors don’t."
Truly recently revamped all 13 of its flavors "in pursuit of being the best-tasting hard seltzer on the market," the brand said in a release. In less than three months, Truly's innovation team spent almost 1,500 hours testing more than 130 recipes to come up with a more refreshing and crisp drink.
"The clear color, lower carbs, low sugar, moderate alcohol, lower calories — all of those things are checking different boxes for people today."
Dan Kenary
Co-founder and CEO, Mass. Bay Brewing Company
The company enhanced the aroma by bringing out the fruit flavor and creating a crisper finish without any lingering bitterness, O’Neill told Food Dive.
"We had the opportunity to take something good and make it great, and after taking a hard look at all 13 styles in market, we can confidently say we’re now the best hard seltzer out there," O’Neill said. "We listened to drinker feedback on the hard seltzer category generally and what they’re looking for, honing in on pressure points before turning the conversation inward to ensure we were making the right moves."
Truly is continuing to innovate in 2020. Next year, the company will launch Truly Lemonade Seltzer — a mix of hard seltzer and lemonade. Each can comes at 100 calories, 1 gram of sugar and 5% ABV.
"We are also committed to innovation and finding new ways to grow the category and bring drinkers to Truly," O’Neill said.
Fromm said the key to brand success in this competitive category is innovating around flavor while keeping price point and calories down.
"Having strong innovation requires tapping into the consumer trend and then being nimble enough to act on it," Fromm said.
Many brands have turned to innovation to stand out. In March, White Claw revealed a limited-edition White Claw Pure Hard Seltzer, which contains only purified carbonated water, alcohol and natural flavor.
"While many other hard seltzer brands continue to release more complicated flavors, we know consumers love the clean, refreshing taste of White Claw and identified an opportunity to launch a hard seltzer in its simplest form," White Claw’s Gajiwala said in a release.
As the trend grows, some brands are expanding their reach. Arctic Summer, which promotes itself as the only spiked seltzer made with bubbles from a seltzer company, recently became available in California. Arctic Summer is now available in 22 states.
Arctic Summer launched earlier this year by Mass. Bay Brewing Company, the makers of Harpoon Brewery beer. At 110 calories, 1 gram of sugar and 5% ABV, the beverage comes in four fruity flavors: Spiked Raspberry Lime Seltzer, Spiked Black Cherry Seltzer, Spiked Ruby Red Grapefruit and Spiked Pineapple Pomelo.
Mass. Bay Brewing Company’s co-founder and CEO Dan Kenary told Food Dive Arctic Summer stands out because the brand worked with a well-known company to create it: Polar Beverages, which has been making seltzer for more than 130 years.
"It certainly has gotten crazy with all the competition in the space. A point of differentiation for us has got to start with the liquid and the fact that we are working with Polar Seltzer in making Arctic Summer," he said. "The clear color, lower carbs, low sugar, moderate alcohol, lower calories — all of those things are checking different boxes for people today."
Kenary said the increased competition in the space cuts both ways. It brings attention to the category since more people know about and are interested in the beverage. But companies are also piling into the segment, which can cause consumer and retailer confusion. But, Kenary said, seltzer isn't going anywhere.
"I think it is here for a while and it is going to grab a significant chunk of overall beer sales and continue to grow for the foreseeable future," he said. "We do not think it is going to be a fad."
More Big Beer wants in
Big alcohol companies like Constellation Brands and AB InBev are launching seltzer brands to keep up with the trend.
On an earnings call in October, Constellation CEO Bill Newlands announced the company's plan to launch new seltzers in spring 2020, calling it the "next big innovation for the Corona brand family."
"Everyone has been somewhat surprised by the aggressive growth that we’ve seen in the seltzer business, particularly over the course of this selling season."
Bill Newlands
CEO, Constellation Brands
Because Corona carries strong brand equity as the top beer among drinkers age 21 to 54, the company decided to put the Corona name on the new seltzer, Newlands said. Despite the competition in the space, he said Corona can bring "a unique refreshment profile" to the category.
"Everyone has been somewhat surprised by the aggressive growth that we’ve seen in the seltzer business, particularly over the course of this selling season," Newlands said on the call. "We believe that seltzers are here to stay and will therefore accelerate the volume shift into category from the low end to the high end, where we are the market share leader."
Corona's seltzers will launch with four flavors, including Tropical Lime, Mango, Cherry and Blackberry Lime. The drinks will be 90 calories with zero carbs, zero sugars and 4.5% ABV.
"We said on our prior quarter discussions that we would not be entering this category unless we felt we could do it with a superior product with superior margin and profitability structure. I can assure you that this will be a superior product with superior margin and profitability structure versus other competitors in the marketplace," Newlands said.
But Constellation isn’t the only stalwart entering the segment. In August, AB InBev announced the introduction of Natural Light Seltzer to attract college-age fans of Natural Light. The company set the price point 20% lower than other mainstream brands, and its ABV is 6%, slightly higher than competitors.
"We know plenty of Natty Light drinkers are also trying seltzer, so we want to meet that demand by bringing the fun of Natty into that space with an affordable price offering that fits their lifestyle," Ricardo Marques, vice president of core and value brands at AB InBev, said in a release.
This isn’t AB InBev’s first foray into the category. The brewing giant bought Spiked Seltzer maker Boathouse Beverage in 2016. AB InBev recently rebranded it as Bon & Viv Spiked Seltzer, marketing to millennial women as a better-for-you offering with no sugar and fewer calories. But the company has said it wants to attract more than just women.
"We believe that as the category evolves, consumers will demand more choices and a portfolio approach is key to success. We're expanding and enhancing our hard seltzer portfolio rapidly, starting with our premium brand Bon & Viv, and with the recent successful launch of Natty Light Seltzer, which is positioned at a more accessible price point within hard seltzer," AB InBev CEO Carlos Brito said on an earnings call in October.
Can these bigger companies steal market share from brands like White Claw? It is a larger trend in the food and beverage industry for big companies to launch new product lines once a popular brand hits the market. White Claw seems to be bringing hard seltzer into the big leagues. This happened in the ice cream space a few years ago when Halo Top, which skyrocketed to popularity by becoming the top selling pint ice cream in the U.S., forced other companies to launch low-calorie frozen desserts.
But instead of launching new product lines, Fromm said White Claw could be an acquisition target for bigger beverage companies. He said if he was at a big company, he would be interested in buying White Claw because they created a successful brand, rather than building a new brand from the ground up.
"So could a new brand come in and disrupt White Claw? Sure. It would be easier for them to buy White Claw than to disrupt them, but that doesn't mean somebody can't," Fromm said.
