Once relegated to the same staid products on the grocery or liquor store shelf, the alcohol and beverage space has undergone a radical change during the last decade — a pivot accelerted in part by the COVID-19 outbreak.
Despite ongoing challenges in beer, craft remains an influential part of the beverage space even as the pandemic pushed volume sales down more than 9% in 2020, a much sharper decline than the 3% the industry faced as a whole.
For an increasingly larger number of consumers, the beer buzz doesn't necessarily have to come from alcohol. Big beer manufacturers such as Boston Beer, Guinness and Heineken, along with smaller upstarts such as Athletic Brewing, have embraced brews with little or no alcohol.
Consumers are looking past the stigma that dogged nonalcoholic beer a few decades ago as quality improves and trends play a bigger role in their eating and drinking habits. Other people have turned to nonalcoholic beers because they are reluctant to endure the harsh effects that come with imbibing if they plan to exercise or need to work the next day.
In this report, you'll find stories that include:
The plan by Molson Coors' CEO to "fundamentally change" the beer maker.
Has the hard seltzer bubble popped?
How Yuengling survived Prohibition, two World Wars and the pandemic
Why soda makers are wading into alcohol
These are just a few of the many issues impacting the alcohol and beverage sector. We hope you enjoy this deep dive into this current trend.
Coca-Cola and PepsiCo wade into booze amid an uncertain future
By: Christopher Doering• Published Oct. 14, 2021
After making their long-awaited debuts in alcohol, Coca-Cola and PepsiCo are pausing to learn more about the category before deciding whether to make it a bigger part of their multibillion-dollar beverage empires.
Coca-Cola, whose portfolio includes Sprite, Fairlife milk and Honest Tea, is assessing the alcohol category before determining whether to expand its presence, CEO James Quincey said during the company's second-quarter earnings call in July. "We want to learn and understand more before we decide anything one direction or the other," he said.
Beverage companies have been moving aggressively to expand their portfolios in recent years to include teas, sports and energy drinks and sparkling waters as consumers look for more choice while curtailing their consumption of sugar-laden liquids. John Boylan, a senior equity analyst with Edward Jones, said alcohol adds yet another option depending on the occasion or a consumer's beverage preference at the time.
"We don't really think that [PepsiCo and Coca-Cola] are going to morph into full-blown alcohol companies. I think this is out of their bailiwick, but we do think that they'll look at areas where it makes sense," Boylan said. "They're just looking for any avenue where they can put a beverage in front of the consumer."
Alcohol represents a lucrative opportunity for nonalcohol companies whose own industry lacks meaningful growth on a scale large enough to impact the bottom line, said Nathan Greene, an analyst at Beverage Marketing Corporation.
"There's plenty of products hitting the market. In fact, there's all-time high levels of innovation, but the Coke and Pepsi ballpark scale — what they're looking for, what they call success — it's fairly limited right now," he said. "Alcohol represents the greatest margin generation opportunity, even if it is with a partner, compared to various nonalcoholic products."
A major reason the soda giants have chosen to partner is because of the complicated three-tier distribution system enacted in 1933 to prevent any one player from dominating the industry like gangsters had during Prohibition. Federal law says alcohol producers can only sell their product to state-licensed wholesalers. The distributors in turn sell the alcohol products to state-licensed stores where consumers can then purchase it.
For alcohol makers like Molson Coors, AB InBev and Boston Beer, their decades of experience navigating the convoluted system has proven useful in attracting new partners to the space. It's also provided them with opportunities to add to their portfolio a potentially lucrative brand with instant market recognition and minimal upfront investment.
"We don't really think that [PepsiCo and Coca-Cola] are going to morph into full-blown alcohol companies. I think this is out of their bailiwick, but we do think that they'll look at in in areas where it makes sense. They're just looking for any avenue where they can put a beverage in front of the consumer."
Senior equity analyst, Edward Jones
Quincey noted that unlike soda, tea, juice, water or coffee, where Coca-Cola dominates along with PepsiCo, alcohol is a different industry altogether with unique characteristics and regulatory requirements. The fact that Coca-Cola is noncommittal could indicate just how crowded it considers the category to be, or that it wants to see how demand plays out in the coming months before deciding how to respond.
PepsiCo appears to be taking a similarly measured approach. In an email, PepsiCo told Food Dive the partnership with Boston Beer allows both companies to tap into their expertise. In the beverage giant's case, this includes its iconic Mtn Dew brand and deep customer base, combined with the alcohol maker's insight in brewing and developing hard seltzers and hard teas.
In June, PepsiCo filed a trademark application that indicated the beverage and snack giant could eventually decide to sell alcoholic beverages under the Rockstar brand name. For now, PepsiCo downplayed any further expansion plans, telling Food Dive: "We currently do not have plans to launch alcoholic versions of any other brands, but [we're] always evaluating."
Even before PepsiCo announced plans to enter alcohol through its Boston Beer partnership, the beverage and snack giant dabbled in the category through a pair of nonalcoholic cocktail mixer brands this year called Neon Zebra and Unmuddled. The drinks are designed to appeal to consumers spending more time at home who want to avoid complicated cocktail recipes or large-format mixers.
Greene speculated the partnerships with alcohol companies could place Coca-Cola and PepsiCo in a better position to enter cannabis if the FDA legalizes the sale of the compound in food and beverages, potentially making it easier for manufacturers to sell these products across state lines.
Similar to beer, wine and spirits, alcohol companies have the distribution network and likely more familiarity of the legal requirements around cannabis. MolsonCoors is partnering with Hexo to try out new products, including one with THC in Canada and CBD-based beverages in select U.S. markets, while Boston Beer has created a subsidiary that will oversee research and innovation into nonalcoholic cannabis beverages.
"There is definitely an element of future proofing here," Greene said. "Cannabis is likely the next big thing ... and beverage is definitely pushing pretty hard to be a product format of choice for cannabis at scale."
PepsiCo recently introduced Rockstar Unplugged, a functional beverage line that contains hemp seeds as a way to encourage relaxation and improve mood. Unlike cannabis, hemp legally sold in the U.S. must contain 0.3% or less of THC, the compound that creates the feeling on being high.
As tastes and values change, especially among younger consumers, beverage makers aren't losing sight of their core offerings that continue to generate tens of billions of dollars in sales. But at the same time, they have little choice but to position themselves for future growth by testing out new categories even if the future is anything but clear.
"This is definitely a learning exercise. What we think is likely happening here is that they're looking at this space, and if it works out, that might be a good springboard into something else," Boylan said. "What that something else might be, we don't know."
Article top image credit: Courtesy of PepsiCo
Molson Coors' CEO has a bold plan to 'fundamentally change' the beer maker. But will it work?
As consumers turn to other beverages, Gavin Hattersley has moved into energy drinks, diet soda and tequila to revive his company's portfolio — all while combating outside challenges.
By: Christopher Doering• Published June 15, 2021
Molson Coors CEO Gavin Hattersley spent the last quarter century engrossed in beer, and the last two years learning more about nearly everything else.
Since taking over the top job at Molson Coors in September 2019, Hattersley has become an expert in energy drinks, beverages with THC, hard seltzers and plant-based diet sodas as the beer giant moves to "fundamentally change" its portfolio amid a rapid shift in consumer tastes and preferences.
"It was clear that people were looking for other alternatives and other choices and we were being at a clear disadvantage because we didn't play in some of those spaces," Hattersley said in an interview. "Our portfolio was pretty challenged."
A little more than a month after becoming CEO, the Zambia-born Hattersley streamlined the company to make it more nimble and to free up cash it could use to grow the business. He cut 500 jobs, overhauled the corporate structure into two business units and dropped "brewing" from the company's name in favor of "beverages" "to better reflect its strategic intent to expand beyond beer and into other growth adjacencies."
Molson Coors' business was "at an inflection point" and needed to change direction, Hattersley said in 2019. "We can continue down the path we've been on for several years now, or we can make the significant and difficult changes necessary to get back on the right track," he said.
Today, Hattersley is upbeat about the company's prospects and ability to resonate with consumers bombarded by an endless sea of beverage choices.
He points to a slew of partnerships Molson Coors has struck with up-and-coming brands like Zoa, a nonalcoholic energy drink made with better-for-you, natural ingredients, and Coca-Cola with Topo Chico Hard Seltzer. The Chicago-based company also is seeing promise in innovations made to existing brands to keep pace with current trends like its 95-calorie Blue Moon Light Sky and Coors Pure, its first USDA-certified organic beer.
"Obviously, there is more work to do," Hattersley said. "But I think it's going incredibly well when you consider the challenges that have been thrown at us."
Beer sales turn flat
Hattersley's efforts to turn around Molson Coors have been complicated by a steady drumbeat of obstacles.
The brewer, whose roots date back to 1786, has seen its business weighed down by the pandemic that has decimated beer consumption at stadiums, bars, restaurants and other places where people gather.
Then as parts of the world were showing signs of moving beyond COVID-19, a freak winter storm pummeled Texas in mid-February, forcing utility companies to shut off power to major businesses, including Molson Coors' Fort Worth Brewery. The facility, which makes many of its signature beers, was shuttered for 11 days.
A month later, Molson Coors disclosed it was hit by a cybersecurity incident that briefly disrupted brewery operations, production and shipments around the world. The company warned the attack would reduce the company's earnings before certain expenses were factored in by tens of millions of dollars.
Those headwinds come as Molson Coors, the fifth-largest brewer in the world, and other large beer makers grapple with a persistent erosion in sales of the alcoholic beverage that makes up the lion's share of their revenue.
According to IWSR Drinks Market Analysis research, beer consumption in the U.S. plunged 7.5% from 2015 to 2020. During that same time, market share for beer in the U.S. alcohol space slipped 3.5 percentage points to 44%, data from Statista showed. Going back to 2000, the drop is even more pronounced, with the category plunging 11.5 percentage points.
"It was clear that people were looking for other alternatives and other choices and we were being at a clear disadvantage because we didn't play in some of those spaces. Our portfolio was pretty challenged."
CEO, Molson Coors
Americans — most notably younger consumers such as millennials and Gen Zers — are drinking less alcohol or skipping it altogether. And when they do imbibe, they're more likely to turn to spirits, wine, craft beers, Mexican imports, low- or no-alcohol brews and ready-to-drink products such as hard seltzer.
Analysts are skeptical the beer category will turn around anytime soon, and predict flat sales as industry pressures show little sign of abating.
For his part, Hattersley was far more upbeat. The beer industry as a whole "has stabilized" in part because of robust demand for hard seltzers, he said. Molson Coors' own brews also are picking up momentum, with its biggest sellers Coors Light and Miller Lite seeing an uptick in volumes and grabbing market share from similar offerings made by its archrival AB InBev-owned Anheuser-Busch, according to the company.
Still, the decline in beer sales has weighed on the giants that make it — providing an impetus for companies like Molson Coors to expand their portfolios into other liquids.
Molson Coors' market share in beer has fallen nearly 8 points since 2010 to 21.1% last year, according to Beer Marketer’s Insights. The Beverage Marketing Corporation said the company's two most popular brews, Coors Light and Miller Lite, which are responsible for about 60% of its annual beer volume, have posted a compound annual growth rate of -4.3% and -2.3%, respectively, between 2015 and 2020.
Molson Coors' pivot into beverages beyond beer has included a diverse range of offerings in both alcoholic and nonalcoholic categories, showing the company isn't pinning its hopes on just a few products amid rapidly shifting trends and robust competition. It will need to find some successes among its broad array of bets though, with Molson Coors targeting $1 billion in revenue by 2023 from its emerging growth division, which launched just two years ago.
"We were literally starting from a standstill in nonalc, wine and spirits and cannabis," said Pete Marino, president of emerging growth at Molson Coors. "Anytime you are taking on a new job there is a bit of anxiousness: 'Hey, is this going to go the way we hope?' "
Marino admitted to being "a little bit scared, a little bit nervous" when he took over the new role in November 2019 after overseeing the company's craft division Tenth and Blake. The trepidation came as some executives at Molson Coors were hesitant to move beyond beer, a product the company had amassed more than two centuries of knowledge in and was deeply ingrained in its storied history.
Employees also had to get up to speed about the legal requirements in place to sell other beverages, such as a product that contained cannabis. At the same time, Molson Coors was now marketing some of its liquids to new demographics. Energy drinks, for example, are primarily consumed by males 16 to 25 years old, exposing Molson Coors to an audience under the legal drinking age.
"We've been a beer company forever, and so your brain is oriented. You're looking through a beer lens all the time," Marino said. "We never thought about 16-year-old males before."
Despite its swift entrance into once-unexplored categories, Molson Coors hasn't forgotten beer either. In January 2020, it purchased Atwater Brewery, a craft beer manufacturer. And eight months later, it formed a joint venture with Yuengling to brew and sell its beers in 25 states where America’s oldest brewery didn't have a presence.
Moving in the right direction
Analysts are decidedly mixed on the company's long-term outlook, but acknowledge Hattersley is making the necessary moves to at least position Molson Coors to compete.
Molson Coors' portfolio overhaul has pointed the company "in the right direction" even if it will take time for many of its recent changes to scale up to where they will provide a meaningful boost in sales, according to John Boylan, a senior equity analyst with Edward Jones.
"A lot of these products aren't going to move the needle, at least initially," he said. "But it's something they definitely needed to do to reorient the portfolio toward growth. It does seem like they are learning their lesson and trying to be on the forefront of things."
Garrett Nelson, a senior equity research analyst at CFRA Research, is much less optimistic.
In an April research note, Nelson reiterated his strong sell recommendation of Molson Coors stock, noting that the company is "lacking a positive catalyst" and he predicts "it will struggle against unfavorable secular trends in beer consumption." He also underscored the company's late arrival in hard seltzer against Truly and White Claw, and expects Molson Coors' volume in the category to "remain anemic."
Many of Molson Coors' emerging growth brands are going head to head with deeply entrenched offerings that will be hard to dethrone. In the case of energy drinks, industry juggernauts Monster, Red Bull and PepsiCo's Rockstar are responsible for much of the $14 billion in category sales.
Hard seltzers face a similar challenge with Mark Anthony Brands' White Claw and Truly, owned by Boston Beer, collectively commanding 75% of the category. Molson Coors so far has achieved a 6% market share combined with Vizzy and Topo Chico Hard Seltzer, Hattersley said during its April earnings call, despite having only one SKU for Vizzy in 2020 and Topo Chico launching in just 16 markets.
"A lot of their innovative products are making some degree of inroads but it’s a matter of there are a lot of other players out there that are potentially doing it better and finding more success in the same exact avenues," said Nathan Greene, an analyst at the Beverage Marketing Corporation. "It’s a mixed bag at best, is how I would describe their current position.”
While scaling its emerging growth brands into a $1 billion business in just a few years is a big goal for the company, Molson Coors may benefit from a few factors that would increase its chance of success.
It is positioning some of its drinks with desirable characteristics to separate them from competitors.
Zoa, for example, is positioned as an above-premium energy drink with natural ingredients, vitamins, electrolytes and amino acids. Vizzy is made with acerola cherry, a superfruit that features 30 times more vitamin C per cup than an orange. And Molson Coors is developing a drink for the gaming community that contains antigens that help relieve eye strain.
"A lot of these products aren't going to move the needle, at least initially. But it's something they definitely needed to do to reorient the portfolio toward growth. It does seem like they are learning their lesson and trying to be on the forefront of things."
Senior equity analyst, Edward Jones
Even as beer sales slide, Molson Coors remains a dominant player in the space, which gives it influence over what products make it to store shelves. This unique positioning increases the likelihood that retailers will listen when a new product — either in beer or another beverage category — is introduced because they're confident Molson Coors will use its vast distribution network and marketing heft to support it.
Nascent startups also are attracted by these same attributes when looking for a partner to increase their reach — adding further credibility to Molson Coors' strategy.
"We've set ourselves up to be a little different with our emerging growth division," Hattersley said. "There is a reason these world-class companies are choosing us. They like our capabilities."
The decision to partner with companies that have already done much of the development work allows Molson Coors to get a product to market faster without spending the time or money upfront to create its own beverages while trends change and competitors flood the market.
"This gives [Molson Coors] a little bit of help because it's not like they are starting the process from a standing start," Boylan said. "They do have the opportunity to work with these partners to hit the ground running."
Fear of missing out
The accelerated push into other products beyond beer has cast some doubts among analysts whether Molson Coors risks siphoning time and attention away from its core to pursue this strategy, hurting the company in the process. Hattersley was quick to rebuff the skeptics.
"We got criticized in the past for not having a more balanced portfolio toward the above premium, and we're doing that now and somewhat getting criticism for being too complex," he said, pointing to drinks like La Colombe, Blue Moon LightSky and Vizzy. "We're delivering against our plan and delivering against it extremely well given the circumstances."
Greene with Beverage Marketing Corporation said Molson Coors had little choice but to move quickly to uncover new areas of growth. He said the company was slow to change its focus away from craft beer a few years ago when the segment's pace of growth was easing while other categories like hard seltzer were expanding at a faster rate.
"This directly explains all the activity right now and the willingness to invest in it because they don't want to miss the boat on whatever may be next," Greene said. "There is definitely [the realization] that it's going to be catchup for the short term, but they are in so many different areas that if one pops, they'll be ready to go."
Analysts said even though it's too early to predict which brands are likely to resonate with consumers, there is mounting optimism that Molson Coors' multiple-shots-on-goal strategy is likely to generate its fair share of wins.
Among the most promising is nonalcoholic drink Veryvell. The U.S. launch in January — the brand was previously offered in Canada, though the beverage there had the psychoactive ingredient THC — was Molson Coors' first entry into the American CBD market.
Zoa also has shown promise early on and should benefit from having actor and entertainer Dwayne Johnson as a partner, as well as from the sheer popularity of energy drinks. And while Molson Coors was slow to enter hard seltzers, Topo Chico Hard Seltzer has gotten off to a strong start. Greene speculated its success could lead to more partnerships between Molson Coors and Coca-Cola.
Hattersley said he's upbeat about Molson Coors' prospects, and noted favorable trends in many of its beers and "some very clear winners emerging" from its push into premium and alternative beverages. Molson Coors also stands to be among the bigger beneficiaries as the country comes out of COVID-19 and consumers venture out to places that were once popular destinations before the pandemic.
"[Our] plan isn't about choosing one or the other, beer or beyond beer. It's about doing them both and doing them well," he said. "When I stand back and look back at the 18 months since I took over, I'm incredibly proud as to where our organization is."
Article top image credit: Christopher Doering/Food Dive
Reach adult beverage shoppers through every seasonal shift
Seasonal shopping impacts every category, but the adult beverage space is often affected more than others. Fad diets, celebrations and micro occasions change the way consumers purchase and consume adult beverages. This makes it hard for marketers to predict shopper behavior and create relevant, engaging messaging.
Luckily, we've unlocked a few keys to success that will leave you clinking a glass with your target shopper no matter what the season!
Match your messaging to the season
Your marketing to adult beverage shoppers should change with the seasons — capitalizing on seasonal trends, events and behaviors. Take New Year's Eve for example. Here's some recent data that can be used to guide messaging during, and after, the celebration:
As the new year approaches, 50 percent of consumers either do not stick to their resolutions or only do so partially.
19 percent of people indicate that a lack of accountability keeps them from sticking to their resolutions.
As marketers, it's important to understand why consumers are struggling to keep their resolutions, and how you can help them stay accountable. This is a great opportunity to engage with, and encourage, your shoppers. Help track their goals, provide recommendations, share struggles and make their success easier. All of these opportunities for support and accountability can be utilized across consumer touchpoints, so you're keeping them engaged with your brand at every step in the path to purchase.
The right research and insights should also steer your brand message as the weather warms up!
Adult beverage purchases during May-July trends toward mindful garnishes, lower calorie options and no-sugar-added.
Brand conversations include topics like summer experiences, friends and weekend activities
85.7 percent of consumers would purchase a product from an alternative brand if it looked healthier than the usual brand they purchase.
Armed with these insights, marketers should be highlighting the “better for you” features of their products during the spring and summer seasons — with a focus on natural ingredients.
Where you place your message is as important as the message itself
While it's crucial to use the right data and insights to craft the perfect message for the season, it's also critical to pick the right placement for that message — because this is your chance to convert passing browsing into active buying. However, do you know which channels your shoppers view as the most important? Do they align with the channels you think are most important? If not, you might be missing an opportunity to reach customers where convenience and connection intersect.
The most important shopping channels as ranked by consumers
The most important shopping channels as ranked by marketers
Thanks to advancements in physical and digital integration — like BOPIS, curbside pick-up, in-store aisle navigation and stock updates — marketers can reach shoppers at each of these preferred touchpoints.
Regardless of the season, shoppers want convenience
Ease of shopping can take many forms, depending on where that shopping takes place. In social commerce, options like add-to-cart, shoppable livestreams, buying recommendations based on behaviors and influencer integrations can all add to convenience. In traditional retail, look to concepts like offer-integration, data-enabled usage content, and trip-based navigation assistance to convert browsers to buyers.
For adult beverage buyers — no matter where they're shopping — it's all about layering known shopper data with interactive media to conveniently offer them relevant deals, drink ideas, and new products.
Activate with confidence as the seasons, and consumer behaviors, change.
With the right data and insights — and the right partner — you can easily reach, engage and activate adult beverage shoppers all year long.
Article top image credit: Photo illustration by Taylor McKnight/Food Dive; photograph by Rawpixel via Getty Images
Has the hard seltzer bubble popped? Analysts and beer makers say not so fast
Despite the abrupt warning by Truly maker Boston Beer in July that it overestimated demand, many predict further growth in the category and a few major players to eventually dominate.
The news seemed to confirm for some that the long predicted death of the hard seltzer category — a source of growth for beer manufacturers amid a sales decline of their core brews — had finally come. Boston Beer slashed its full-year guidance as a result, and its stock lost nearly 25% of its value in a single day, wiping billions off its market cap.
But this appears to have been a knee-jerk reaction by the markets. Analysts said Boston Beer's hiccup was likely the result of an overaggressive forecast, not a dying category. Hard seltzer remains a long-term source of growth for the alcohol industry, they argued, even if the sector is ripe for a shakeup as hundreds of brands with similar attributes fight for limited shelf space.
"I don't really believe that this is in any sort of way a death knell for the hard seltzer industry. Once people take a breath and reevaluate what the category has done and judge what it's doing now in that context, people will realize it's still a very strong category."
Beverage analyst, Morningstar
While some brands are inevitably going to follow Coors Hard Seltzer, which Molson Coors announced this summer it was discontinuing in the U.S. to focus on more promising offerings, the category is poised for a prolonged period of robust growth lasting for several more years.
"I don't really believe that this is in any sort of way a death knell for the hard seltzer industry," said Nick Johnson, a beverage analyst who covers the alcohol space at Morningstar. "Once people take a breath and reevaluate what the category has done and judge what it's doing now in that context, people will realize it's still a very strong category."
Following the herd
The industry is dominated by Truly and Mark Anthony Brands' White Claw, which collectively command 75% of the category, with others like Bud Light Seltzer, Topo Chico Hard Seltzer, Vizzy and Corona Hard Seltzer also fighting for market share. In the case of Bud Light and Corona, their manufacturers have turned to their popular brand names to peddle their new offerings.
The hard seltzer category has been a boon to these and other beer makers. Last year, beer volume dipped 2.8% despite total alcohol consumption jumping to its highest rate in nearly two decades, according to IWSR. At the same time, consumption of hard seltzer rose 130% in 2020, the data analytics provider estimated.
The rush to capture a portion of that growth has resulted in a flood of similar products on shelves that creates confusion among consumers and overwhelms retailers unable to stock them all. During Boston Beer's July earnings call, President and CEO Dave Burwick cited data from IRI showing there are an estimated 220 brands and 1,000 SKUs, a figure that is about 50% higher than last year.
"The proliferation of brands in this category has occurred, there's a herd-like mentality in this business broadly. And I think people try to bring new brands into the marketplace and there's a sameness to these brands. There's a lack of originality," he said. "And I think what's happened: A little bit, little bit of a luster to the specialistic segment for some consumers has been lost."
Morningstar's Johnson said despite unique characteristics like flavor, packaging or ingredient mix, there are only so many ways to make spiked water.
"The dimensions that these new brands are differentiating on just really aren't things in my opinion that really matter to the large majority of consumers." Johnson said. "And that's where you get a lot of the kind of sameness."
The sharp drop in the growth of hard seltzer is being attributed to a maturing market, a return of volume to the on-premise channel where the beverage is less popular, more hard seltzer choices and a challenging comparison period to last year when consumers were pantry-loading. According to data from NielsenIQ, hard seltzer sales were up more than 51% for the 52 weeks ending July 10, 2021, but in the final 12 weeks of that period sales were only up 7.8%.
“Honestly, it hit us hard and fast," Burwick said on CNBC.“We will gain share. The question is where the category goes. And you know, if anybody out there can give a better sense of that we’re all ears, but we can’t control it."
Another factor weighing on hard seltzer is that the category, which traditionally has catered to younger consumers of legal drinking age, is attracting more older millennials between the ages of 35 and 44 years, according to Beth Bloom, an associate director of US food and drink at Mintel. Even though this demographic increases the number of people drinking hard seltzers, older consumers tend to drink less, she said.
Chipping away at the market leaders
Wall Street analysts and beer company executives from Molson Coors and Constellation Brands, the maker of Corona, have predicted since Boston Beer's earnings surprise that the hard seltzer category will ultimately be dominated by a few large brands, much like Coors Light, Bud Light and Miller Lite make up the lion's share of sales in light beer, or Pepsi and Coke in soda.
Sales growth for hard seltzer is likely to increase between 20% and 40% annually during the next three to five years, according to those who follow the industry. Johnson said a more moderate growth rate would deter many smaller players from investing the time and money to enter the category with future success far from certain and firmly established players already entrenched.
"It shows just how unnimble at times the beer market is and also setting expectations of forever growth, or green fields forever. No matter how many categories come in, there's always a cycle to it."
Analyst, Beverage Marketing Corporation
Molson Coors CEO Gavin Hattersley told analysts in July that even if the category grows at a smaller clip of between 10% and 40% from its recent triple-digit increase, nothing else in the beer category is exhibiting that rate of growth.
It's a big reason why Molson Coors has invested aggressively in its hard seltzer offerings like Vizzy and Topo Chico, and its bets show signs of paying off. The company doubled its share of the U.S. hard seltzer segment during its second quarter and is aiming to control 10% of the U.S. market by the end of 2021.
"We're going to invest bigger behind our fast-growing global hard seltzer portfolio," Hattersley said. "Our guidance also anticipates continued strength in our above-premium portfolio, particularly hard seltzer."
Despite being late to the hard seltzer category, legacy beer makers like Molson Coors, AB InBev and Constellation Brands are grabbing market share away from the early winners.
White Claw's market share in the U.S. dipped to 49.5% in 2020 from 56.5% a year earlier, according Euromonitor International. Data shows Truly’s market share has also been decreasing in the U.S. for hard seltzers and other hard alternatives during the past few years from 2018, when it accounted for about a third of sales.
"It's going to be further chipping away at the leaders," Bloom with Mintel said. "We are in a place right now where consumers do like to try new things and they like that kind of variety, but they prefer to try new things that are based in something familiar."
Beer makers are investing heavily in seltzer output, confident that the recent growth will continue. Molson Coors announced last December it was increasing production capacity for seltzers and popular innovations by more than 400% to keep up with consumer demand.
Hard seltzer has drawn comparisons to the slowdown that crept into the craft beer space before the pandemic after a decade of robust expansion. Craft output experienced a decade of hot growth as big beer companies and countless upstarts flooded the space, with sales increasing at a compound annual growth rate of 20.2% between 2010 and 2015, before easing to 1.8% between between 2015 and 2020, according to data provided by the Beverage Marketing Corporation.
In much the same way craft has continued to innovate and introduce new flavors despite the slowdown, hard seltzer manufacturers will need to do the same in order to remain relevant and meet consumers' insatiable appetite for variety, said Nathan Greene, an analyst at Beverage Marketing Corporation.
The hard seltzer category also is becoming populated with offerings that include spirits, putting further pressure on Truly, White Claw and products sold by the major beer makers to keep pace. The challenge for hard seltzer brands will be to find ways to differentiate from other products on the shelf, much like Molson Coors has done with Vizzy, which is made with a superfruit that contains 30 times more vitamin C per cup than an orange, or Flying Embers, which has antioxidants and live probiotics.
"In comparison to craft, it shows just how unnimble at times the beer market is and also setting expectations of forever growth, or green fields forever," said Greene. "No matter how many categories come in, there's always a cycle to it."
Article top image credit: Christopher Doering/Food Dive
Once thriving craft beer industry dealt crippling blow by coronavirus
With brewpubs and taprooms shuttered and consumers less willing to experiment, thousands of brewers could go out of business or experience major changes to their operations.
By: Christopher Doering• Published May 19, 2020
For the Blue Mountain Brewery in central Virginia, the spring season usually finds the sprawling 11-acre complex in the shadows of Appalachia's Blue Ridge Mountains packed with visitors sampling a flight of beer under umbrellas, playing Frisbee or cornhole on the grass lawn and sitting down at one of its 650-seats munching on its popular local bratwurst pizza with a glass of its signature Dark Hollow bourbon barrel stout.
Last spring, the 13-year-old brewery, which typically generates weekly sales of $150,000 around that time from nearly 10,000 visitors, posted sales closer to $25,000.
The property's landscape, usually beat up from wear and tear of people running around, looked more like a Southern Living cover, with a perfectly manicured lawn and its knockout roses undisturbed, Taylor Smack, who co-founded Blue Mountain Brewery, told Food Dive. The brewery reopened May 15, 2020 to outdoor seating with spaced out tables and staff adorning face coverings. Guests were asked to remain seated once they arrive and indoor seating was prohibited.
With customer traffic and revenue plunging at the time, Blue Mountain curtailed spending and canceled plans to expand its kitchen.The brewery also was going to build a BBQ-themed restaurant at its much larger Blue Mountain Barrel House production-focused facility 25 miles away, which is currently served only by a food truck. Smack halted construction in mid-March of 2020 two weeks before it was slated to begin.
After the closure of its main restaurant responsible for the majority of the company's revenue, Blue Mountain turned to other options for revenue, including curbside pickup and delivery of its food and brews, as well as an online bulk grocery store with bacon, chicken breast, toilet paper and beer.
"Dead honest, a great week doing this is less than 15% of the revenue we would get in our normal operations," Smack said. "It just doesn't keep the lights on, man. We've been through a lot, a whole, whole lot previously, but this caps it so far."
As the coronavirus leaves its mark on virtually all facets of the U.S. economy, few businesses are feeling its impact more than craft beer. The once flourishing industry built its image and growth on new trendy, cleverly named products consumers can leisurely try at more than 8,000 breweries scattered throughout the country or purchase at stores, restaurants, bars and other establishments.
With these operations shuttered or buying patterns in traditional retail channels disrupted because of the virus, craft breweries have watched revenue dry up, forcing many owners to jettison thousands of employees and leaving once-thriving operations uncertain how long they can remain in business the longer the pandemic drags on.
"We've never faced anything like this. This is unprecedented. Absolutely unprecedented," Charlie Storey, president at Harpoon Brewery, a craft operation making beer in Boston since 1986. "We're doing everything we can to ride out the storm." Revenue was down about 30% at Harpoon compared to before the pandemic, he said last May.
For brewers, especially smaller ones, there are not a lot of changes they can make to increase the market for their beer or connect with consumers in their community during the current crisis, analysts said.
Brewers so far have turned to many of the same practices to generate revenue, including e-commerce, food and growlers to-go, setting up mini-grocery stores to sell food items along with beer and leaning on merchandise and gift card sales — practices that collectively generate only a small fraction of what they made before.
“They have some options but these are all stopgaps," Bart Watson, chief economist with the Brewers Association, the trade group that represents the craft beer industry, told Food Dive. "At the end of the day, many of these breweries were built around brewing beer and then selling it directly at the brewery. There’s only so much you can do to pivot.”
This hasn't stop craft brewers from trying.
Blue Mountain Brewery started a series of pop-up events where it allows consumers to order its brews online and pick it up at a selected date, time and place in Virginia. Brewery employees show up, pop open the back of its the beer truck, put up a tent and start unloading products that are only a few days old. Blue Mountain also has a food truck near its second brewery that delivers beer to people within a 15-mile radius.
"We've never faced anything like this. This is unprecedented. Absolutely unprecedented. We're doing everything we can to ride out the storm."
President, Harpoon Brewery
Storey said Harpoon, which had closed two taprooms except for curbside pickup and delivery, was doing everything it could to try to replicate the discovery and experimentation of craft. A five-mile road race it sponsors in May to raise money for ALS over the last 20 years was held virtually in 2020; runners could chart their own course and gather online later for a toast. It also started an initiative where consumers can purchase beer to-go that they can drink during a live tour of the brewery on Instagram.
"It hasn’t even come close to offsetting the loss of business, the loss of revenue we’ve had from the on-premise closure," Storey said.
Defining characteristics of craft
Nathan Greene, an analyst at the Beverage Marketing Corporation, said the craft beer industry was poised for another strong year in 2020 with new openings projected to increase 3% to 4% and sales across the segment expected to surge to another record, topping $29.3 billion posted last year. Craft makes up more than 25% of the $116 billion U.S. beer market, according to the Brewers Association.
But the spread of coronavirus has upended the once-thriving industry. Greene estimated up to 30% of craft brewers, or about a third of the 8,275 in existence in 2019, could go out of business or experience a major change to their operations, such as a closing of a taproom or turning exclusively to retail for their only source of revenue.
"There's likely going to be a number of breweries, that is a sizable percentage of the total amount, that isn't going to make it through," Greene said.
Most craft brewers, the majority of which are small and produce 1,000 barrels or less a day, generally don't have a lot of cash on hand and often have higher debt levels because of the brewing equipment they had to purchase, Watson said.
"There's a real chance that if they can't get back to some semblance of normal sales this summer that they just don't have enough cash to withstand this," he said.
Analysts said losing craft brewers risks stripping from the space the very characteristics that have come to define the sector and contribute to its robust growth during the last decade: its willingness to experiment and introduce new and never-heard-of-before brews.
"Obviously, we have to do everything we can to keep people safe. But to think about the risks that we can lose the people who are able to be super creative, that are pushing the boundaries of beer, that are blending things in new ways and aging things in new ways," Jenny Zegler, associate director of food and drink at Mintel, told Food Dive. "It really kind of breaks my heart to think that that could be something we're losing."
The current environment is not conducive for consumers attracted to brewpubs and taprooms for their relaxing, family friendly atmosphere where people can casually sample beers to see what they like and would purchase later on at stores, bars or restaurants.
With many of these establishments closed to their traditional way of doing business, analysts said craft brewers who depended on on-premise sales for the lion's share of their revenue are the ones that are most at risk — especially the longer states require these businesses to remain closed to customers.
"Obviously, we have to do everything we can to keep people safe. But to think about the risks that we can lose the people who are able to be super creative, that are pushing the boundaries of beer, that are blending things in new ways and aging things in new ways. It really kind of breaks my heart to think that that could be something we're losing."
Associate director for food and drink, Mintel
Craft brewers get about 45% of their sales on premise and 55% offsite compared to 80% and 20% across the beer industry as a whole, according to Watson. Other brewers susceptible to the current downturn include those that lack a top-tier following in their own region or are highly leveraged and spent a lot of capital to grow their business in recent years.
“One of the cruel ironies of all this is the conventional wisdom in craft breweries in the last couple of years has been that selling beer and package distribution is really hard, really competitive and so focusing on your taproom or brewpub was the smart thing," he said. "Obviously, those investments are the ones that are getting hit the hardest.”
At Russian River in California, Natalie Cilurzo, co-owner and president, said the brewer was careful not to be too dependent on its own brewpubs, with sales split roughly between their onsite establishments and wholesale shipments. Last year, beer production for a time was down about 30%, with sales coming online, a steady takeout business and at retail outlets in California, Oregon, Colorado and Pennsylvania. Russian River in 2020 furloughed 70% of its 204-person workforce and reduced hours for another 12%.
"Bottled sales are up, which is kind of been our saving grace," Cilurzo said. "We're definitely relying on wholesale distribution and online beer sales to keep our business afloat."
Russian River is no stranger to disruptions on its business from disasters outside of its control. In 2017, and again in 2019, the brewery was on the outskirts of wildfires that were spreading across California. The blaze two years ago came about a mile from its new dream 195-seat brewpub in Windsor, located 100 miles west of Sacramento, resulting in a week-long evacuation and power outage.
“When you have a little more experience of going into crisis mode, and having to kind of pivot very quickly and make decisions on the fly, it really helps to have that experience. And I think that having had some of that experience already under our belt gave us an advantage,” Cilurzo said. Still, she added, "Comparing [the coronavirus] to that is really different because the fires you had more confidence that things were going to be over and that you're going to be okay, and that your business is going to survive.”
Challenges in retail
Craft brewers have attracted consumers to the category and polished their image by deepening their ties within the community through the sponsorship of sporting events, samplings, beer festivals and other gatherings where people can meet, have fun and drink beer. With these events canceled or moved online, it's harder for craft brewers to connect and build their brands.
The closure of off-premise establishments such as restaurants and bars has knocked off another meaningful revenue stream and way to create awareness for their brand. Even as retail becomes a bigger part of sales, supermarkets, convenience shops and liquor stores are besieged with their own challenges that has trickled down to craft during the outbreak. Shoppers, Greene said, had shown less of a willingness to linger or scan shelves for a new beer to try.
And as more Americans lose their jobs or work fewer hours, they will have less money to spend. These challenges could prompt consumers to switch to mainstream brews like Miller Lite or Coors Light, mid-tiered premium brands such as Corona and familiar crafts including Sam Adams or Sierra Nevada.
"It’s almost a complete 180 to what made a craft brand have an opportunity for success previously. Before it was like whoever was paving the most new and unexpected path and attracting those people seeking variety," Greene said. "And now as people seem to be shifting toward more brands they know or brands that they're very loyal to, you're more likely to see long-term brands or brands with really, really distinct and developed followings seem to be doing the best.”
Greene said even before the coronavirus, retailers were dropping some craft brands that weren't as profitable while cutting back on shelf space devoted to the space. But the segment was able to continue prospering as taprooms, which came with higher margins, represented 15% of total craft beer volume compared to 7% in 2015.
Craft's challenges on the shelf appear to have picked up momentum during the virus outbreak, with smaller brewers responsible for much of the decline. During the six-week period ended April 11, 2020, Nielsen said there were about 1,900 fewer beer, flavored malt beverages and cider items for sale across the category. The top 20 craft companies ranked by total dollar sales in Nielsen off-premise channels, sold only 28 fewer items compared to last year while the remaining players had a decline of 1,621 offerings, a drop of nearly 12%.
“The decline in number of items selling places even more pressure on small to medium-sized craft brewers that are already facing enormous challenges with the shuttering of taprooms, bars and restaurants," Danelle Kosmal, vice president of beverage alcohol at Nielsen, said in a statement.
Ripe for disruption
The craft space has become highly competitive following several years of torrid growth that has seen the number of brewers in the space increase to 8,275 in 2019, a nearly 417% jump from 1,600 operations in existence during 2009. The market saturation has been exasperated by consumers curtailing their alcohol consumption, switching to low- or no-alcohol beers or low-calorie brews, with others abandoning the space altogether by turning to more trendy drinks like hard seltzer.
"The bubble was there. A lot people were already saying that maybe, especially in the U.S., that craft beer has gotten a little bit too big," Zegler at Mintel said. "I think it's undoubtedly going to change. ... The pressures were there before the world turned upside down with this pandemic."
A survey of craft breweries in April of 2020 by the Brewers Association showed the industry itself was not optimistic about its own future the longer the pandemic drags on. It found an estimated 12% of the 525 respondents said they could survive between one and four weeks, while another 46% predicted they could last between a month and three months.
"We're a lot more nimble that way so the only pressure being put on us is by ourselves, and the world clearly. We're set up. We’re going to make it through this. In a year, if we have this conversion, I don’t know what our business might look like. It might look really different."
Co-owner and president, Russian River Brewing
Overall, sales were down at least 23%, with the biggest drop coming in onsite revenue where most breweries experienced declines topping 70%. Faced with little to no revenue, those brewers surveyed said they have furloughed and/or laid off nearly all of their staff. The craft industry employed 161,000 workers full-time and part-time workers before the coronavirus.
Still, people are craving the chance to rekindle a connection with their community or do what they can to save local businesses that may be in dire straights. Those who follow the alcohol space said beer drinkers could be willing to support a local brewer they have an affinity for, but if an area is saturated with multiple craft players, lower-tier operators risk losing out to a business with a more loyal following.
After the coronavirus has abated, craft breweries are expected to continue utilizing some of the new practices they've incorporated into their businesses. Russian River plans to put more emphasis on takeout at both of its breweries, and it could consider occasional shipments of its beer ordered online. Harpoon will continue looking for novel ways to recreate the craft experience virtually away from its brewery; the beerstied to the online happy hourtour and tastingcould become a permanentpart of itsfuture.
“Given our focus on the sociability of beer it’s going to require that we take new approaches to bring that to life,” Storey said. "What will change for us is how we bring our brands to life without the opportunity to put a lot of people together.”
But at the end of the day, what craft brewers ultimately decide to do may hinge on how they're most comfortable selling beer. Watson at the Brewers Association said some brewers will emerge from the coronavirus looking to diversify the ways in which they sell beer while others will view online sales or other approaches they adopted during the pandemic as temporary and "go back to doing what they did before because that's what works for them and that’s how they built their business.”
Blue Mountain, Harpoon and Russian River are among the craft brewers who said that despite the obstacles they are facing now, they're confident they'll be able to successfully emerge from the pandemic with their businesses intact. Cilurzo said Russian River has benefited because she and her husband have largely eschewed investors or board members who could pressure them financially during the downturn.
“We're a lot more nimble that way so the only pressure being put on us is by ourselves, and the world clearly. We’re set up. We’re going to make it through this," Cilurzo said. "In a year, if we have this conversion, I don’t know what our business might look like. It might look really different.”
Article top image credit: Permission granted by Blue Mountain Brewery
Once mocked, nonalcoholic beer creates a buzz as traditional brew sales stagnate
New offerings from brands like Guinness and Budweiser are flooding the space as the segment, which pulls in nearly $200 million in sales, suddenly heats up.
By: Christopher Doering• Published Nov. 12, 2020
After vowing he would never enter the nonalcoholic beer space, Sam Adams founder Jim Koch's stance on the fast-growing category appears to have softened with Boston Beer's own offering, even if the craft pioneer's opinion of products already on the market remains resolute.
Koch said the basic problem with nonalcoholic beer was that they tasted terrible. "I don't want to make beer that tastes like crap," he decried on a video conference introducing the new beers. "If you want something that's nonalcoholic you've got a lot of great choices, whether they're called Diet Coke or orange juice or Monster."
Boston Beer, whose portfolio includes Truly hard seltzer, Twisted Tea hard iced tea and Dogfish Head craft beer, spent two years researching and brewing to create its nonalcoholic IPA-style Samuel Adams Just the Haze before settling on a prototype about six months ago that tasted like a traditional IPA, Koch said.
In early testing of the beer, he alluded to some of the stigma that has long been associated with nonalcoholic beverages: When people were given Just the Haze and other leading IPAs on the market to taste, they preferred his, but when they were told what they were drinking the rating dropped.
"For Boston Beer, a big part of our success has been developing beverages that may not have a market when we launched them," said Koch, who enjoys having Just the Haze for breakfast. "This is very much in that genre. Alright, let’s do something that is really cool that no one has done before and deliver an amazing, great tasting product and we’ll see if anybody goes out to drink it. You just never know. I just don’t know how big it's going to get."
Americans — most notably younger consumers such as millennials and Gen Zers — are increasingly drinking less beer than previous generations, prompting a drop in sales of signature brews at AB InBev and Molson Coors. Nielsen noted in 2019 that 66% of millennials said they’re making efforts to reduce their alcohol consumption. Overall, beer volume slipped 2.3% in 2019, its fourth straight year of declines, IWSR reported last year.
"I don't want to make beer that tastes like crap. If you want something that's nonalcoholic you've got a lot of great choices, whether they're called Diet Coke or orange juice or Monster."
Founder, Boston Beer
But there were bright spots in the category, too, with low- and no-alcohol posting gains of 6.6%. As large beer companies look for ways to jumpstart growth, nonalcoholic offerings have become a popular way to do that even if sales are a miniscule fraction of traditional beer and how big the niche category ultimately becomes remains far from certain.
Tapping into European success
The phrases sober curious, Dry January and Sober October have entered the lexicon as consumers curtail their calorie intake or cutback for health reasons, but are hesitant to give up the taste and experience that comes with consuming beer. A 2019 Nielsen study found one-fifth of U.S. consumers gave up alcohol in January of that year. Other consumers have turned to nonalcoholic beers throughout the year because they are reluctant to endure the harsh effects that come with imbibing if they plan to exercise or need to go to work the next day.
"The [nonalcoholic] category was more associated with an older drinking demographic, but I think we all know the sort of younger millennial and even younger [demographic] is just much more conscious of the ingredients and what they are putting into their body," said Sam Calagione, a co-founder of Dogfish Head whose 35-year-old beer company merged with Boston Beer in 2019. Dogfish Head rolled out a nonalcoholic beer earlier this year called Lemon Quest, a Gatorade-like beverage aimed at people with an active lifestyle.
Brewers remain optimistic that adoption of low- and nonalcoholic beers across Europe will eventually make their way to the United States, a big reason why many companies are introducing new products in anticipation.
Global Market Insights noted more than 25% of Europeans prefer the taste of nonalcoholic beer over the conventional version. In Spain, the world’s largest consumers of alcohol-free and low-alcohol beer, the category is responsible for an estimated 13% of annual beer sales, according to the country's brewers association. Statista reported in the United Kingdom, the number of people drinking low alcohol or alcohol-free beer in 2019 nearly doubled from 1 million in 2016, while in Germany in 2020 an estimated 11.2 million drank alcohol-free beer, a 10.5% increase from 2019.
"The reason for all this interest is a lot of these suppliers and also distributors and retailers and everybody is looking for opportunities, especially in new categories for growth because the outlook for traditional beer is not very good."
Analyst, Beverage Marketing Corporation.
The nonalcoholic beer market remains outsized compared to the $43 billion in retail sales racked up across the total beer category, according to IRI. For the 52 weeks ending November 1, 2020 the market research firm found nonalcoholic beer sales rose 38% to $181 million compared to the same period a year earlier. Heineken, which has seen its dominance in the nonalcoholic space soar with the successful introduction of Heineken 0.0 in 2017, accounted for $51.7 million, or 29% of sales, followed by O'Doul's with roughly 25% and Busch NA at 17%.
Long an afterthought on crowded store shelves and barroom taps, the category is showing signs of life with nonalcoholic beers forecast to generate just over 0.5% of beer sales in 2020, up from 0.3% two years earlier, data provided by the Beverage Marketing Corporation showed. The pace of growth is expected to gain momentum with market share for nonalcoholic beers tripling to between 1.5% and 2% by 2024.
"The reason for all this interest is a lot of these suppliers and also distributors and retailers and everybody is looking for opportunities, especially in new categories for growth because the outlook for traditional beer is not very good," said Nathan Greene, an analyst at the Beverage Marketing Corporation. "If anything, hard seltzer has further accelerated that outlook negatively because you are not adopting consumers for beer.”
Greene added while nonalcoholic beers will undoubtedly continue to have a place in beverage consumption, their ability to expand from a niche offering to a more mainstream product hinges on convincing enough people to consume beer for refreshment — much like they do soda, water or tea — rather than just as a vehicle to deliver alcohol. "That in the end, may be a limiting factor for scale," he said.
Time is of the essence
For beer companies, however, there is little downside in rolling out a nonalcoholic offering, analysts said. With beer sales struggling, manufacturers are looking for an opportunity to grow, and this could be one way to move the needle, albeit not at a large scale like hard seltzers have managed to do in the alcohol category. Producers of nonalcoholic beer also have the advantage of not only giving consumers choice but building loyalty to a brand creating products to support their lifestyle.
Beer companies such as Boston Beer are routinely touting how their product took years to develop to get that authentic taste. When Guinness introduced Guinness 0.0, a nonalcoholic version of its famous stout in October 2020, the company said the process took four years so it could retain the distinct character and taste. For Budweiser Zero, Anheuser-Busch's first zero-proof beer, it took a team of brewers around the globe more than two years to create.
Anheuser-Busch not only has Budweiser Zero, which gains instant market recognition with its close ties to the Budweiser brand, but a nonalcoholic portfolio of different flavor profiles that include O'Doul's, Busch NA and several craft beers such as Golden Road Mango Cart NA and a Karbach Free & Easy NA IPA. AB InBev, which owns Anheuser-Busch, plans to have 20% of its global beer volumes coming from no- and low-alcohol beers by 2025.
Adam Warrington, vice president of corporate social responsibility at Anheuser-Busch, said nonalcoholic beers are a "major focus" the company has prioritized putting more resources behind. While O'Doul's continues to sell well, the iconic nonalcoholic beer introduced in 1990 is viewed as a product someone's uncle drinks or people consume while golfing, for example, which limits the company's opportunity to expand the brand to additional demographics.
In the case of Budweiser Zero and the brand's marketing partnership with former Miami Heat NBA player Dwyane Wade, Anheuser-Busch is able to connect with a different and larger portion of the population. Other beers serve a similar purpose by addressing a certain flavor, demographic or drinking occasion.
"In the past, the company might have just gone all-in on one innovation, like a Budweiser Zero, or just try to focus on existing brands like Busch NA or O'Doul's," Warrington said. "But different kinds of consumers want different nonalcoholic options now. When you see a segment growing double-digits as the beer leader, of course we're going to ... pay attention."
The real opportunity for nonalcoholic beers, and the path that could increase their chance of success, may be found by targeting flavorful craft brews or a certain style of beer like an IPA, Greene said. These beers thrive in large part because of their taste or ability to push the boundary rather than just being a mainstream product consumers drink for its alcohol content.
The risk for major alcohol companies is that by taking the easiest path for success in trying to reach more consumers through a single item, they don't do enough to make their offering stand out from other nonalcoholic choices people have beyond the beer category, Greene said. At the same time, big beer companies control the three-tier system where they sell product to distributors, who then sell it to retailers. These companies with scale have the best chance to get a widely distributed product onto the market and influence consumer opinions.
"If they fail, then the entire noise and perception of the industry will be that this product's not going to work and then there won’t be an opportunity given to these other products as well,” he said. "There is a chance that the best products won't have the best opportunity to succeed."
Convincing the skeptics
At Athletic Brewing, founder Bill Shufelt struggled at first to convince people in the industry to take a chance on his brewer of stouts, IPAs and other nonalcoholic beers. Even though a large swath of the U.S. population doesn't drink or rarely imbibes, he said alcohol marketers have done an effective job convincing people that consumers are drinking more than they do, leading to a reluctance, until recently, by craft and other brewers to enter the market.
Shufelt began looking for a partner with brewing experience, but was rejected by all but one of the first 200 people he reached out to. At a conference in 2017 with 10,000 brewers in Washington, D.C., Shufelt failed to generate even a single meaningful conversation with people skeptical about the segment's prospects and was "laughed out of the conversations pretty quickly." Rather than abandon the idea, Shufelt said the rejection served to enforce his belief there was a market that just hadn't been tapped into.
"This gave me a lot more confidence in the idea because inside the brewing industry there was zero interest. People were convinced there was not a market for nonalcoholic beer," Shufelt said. "But outside the industry, anecdotally, every person I talked to, customer, family friend, or retailers even ... showed people were interested in drinking great-tasting nonalcoholic beer. It’s just no one was making or marketing anything like it.”
An estimated 30% of adults don't drink, according to the American Addiction Centers. Shufelt, who quit drinking alcoholic beverages seven years ago when he started training for his first ultramarathon, said nonalcoholic beer has long been put in a "penalty box," but those "walls and stigmas have really started to crumble" as people care more about their health.
To carve out its niche, Athletic targeted a fitness-focused audience and has attended more than 500 races where runners could sample its beer. It also developed its own proprietary brewing process; most beer companies use traditional methods to make nonalcoholic beer before removing the alcohol at the end, a move that doesn't create the same flavor profile and limits the style of beers that can be produced.
"Alcoholic beer has a great place in today's world. Our goal is definitely not to cannibalize alcoholic beer in those sessions. We're definitely trying to reimagine the category, like an athletic beer category.
Founder, Athletic Brewing
Despite the early challenges, Athletic Brewing watched sales grow more than 1,000% in 2019. Some limited edition brews, depending on their size, sell out in as little as 30 seconds online. It outgrew its brewery in Connecticut, which was expected to handle production for five years, in just 10 months. And in March 2020, the company raised $17.5 million, a portion of which was used to purchase an 80,000-square-foot San Diego brewery once occupied by Ballast Point Brewing. It raised another $50 million in 2021.
"Alcoholic beer has a great place in today's world. Our goal is definitely not to cannibalize alcoholic beer in those sessions," Shufelt said. "We're definitely trying to reimagine the category, like an athletic beer category. We're adding beer to a lot of different days of the week, but we're also attracting a lot of soda drinkers or functional beverage drinkers into the category."
Greene praised the work Athletic has done in expanding the nonalcoholic beer category. "Athletic has kind of been the proof of concept that you can make it work because they have really done it on their own and essentially defined the new concept," he said.
Passing the test of time
Scott Scanlon, an executive at IRI, said the impetus for the resurgence in nonalcoholic beers began with the success of low calorie, alcohol beverages such as Saint Archer Gold and Michelob Ultra geared toward the health-minded, fitness-focused consumer. It followed soon after with the explosion of carbonated hard seltzer that had 100 calories or less.
The broader rollout of 65-calorie Heineken 0.0 and Budweiser Zero with 50 calories were supported by expansive marketing campaigns that further accelerated adoption with more mainstream consumers.
"What [beer companies] are doing is answering consumer demand, quite honestly," Scanlon said. "It's less about the nonalcoholic nature and more about the healthier lifestyles that they are reacting to."
Even as more nonalcoholic offerings enter the space seemingly every month, beverage analysts said the category is poised for further growth. Warrington at Anheuser-Busch said the beer giant expects to introduce more products to the category. And the coronavirus pandemic has likely slowed the introduction of at least a few nonalcoholic beverages.
Scanlon predicted the crowded category will eventually whittle down, however, with as many as six nonalcoholic beers that "pass the test of time."
"When you talk to [consumers] about seltzers, people aren't only drinking those products because of the calorie level alone, they enjoy it," he said. "I think it will kind of come down to the nonalcoholic as well. They will look at this and say 'Yes, it's nonalcoholic. Yes, it has dramatically reduced calories, but I enjoy drinking it even though there are alternatives outside of this segment.'"
Article top image credit: Heineken
Yuengling survived Prohibition and both World Wars. But can it beat the pandemic?
Despite challenges, the leaders of America's oldest brewery are leaning into its reputation as a "traditional" beer company, while pushing ahead on initiatives like a partnership with Molson Coors.
By: Christopher Doering• Published Oct. 19, 2020
For a company that has weathered a fire, the Civil War, two World Wars, Prohibition, pandemics, recessions and changing consumer trends — all without ever closing any facilities or laying employees off — D.G. Yuengling & Son has seen firsthand the pitfalls that have pushed countless other beer competitors to extinction.
Today, America's oldest brewery is navigating its way through the latest wave of challenges in the coronavirus outbreak and a broader industry slump in beer sales. At the same time, Yuengling is engaging in the biggest expansion in its 192-year history in 2021 — a bold move to the western U.S. that will bring its beers to millions more Americans and grow its reach beyond the small Pennsylvania town of 14,000 people it has called home since it was founded. note when I wrote the story in 2020, it was 191 years old, it's now 192
"Given the history of what our ancestors had made it through, it gives you good perspective that this is just another chapter in our history. It’s just a bump in the road that we will persevere through," said Wendy Yuengling, the company's chief administrative officer and one of four sixth-generation daughters involved with the brewer. "We will tighten our belt, and we’ve done it many times before, but we will come out of it stronger."
In a sector where consolidation has built industry giants such as AB InBev, the world's largest beer company, and Molson Coors, among others, family-owned Yuengling has rebuffed the M&A overtures to remain a rarity in the sector: an independent business that has cultivated a devoted fan base and maintained its relevancy in an increasingly crowded alcohol sector by staying true to the style of beer it is known for, according to analysts.
"There’s very few examples of traditional breweries who have resisted the urge to expand (Miller, Anheuser-Busch, Pabst), so it is unique for a brewery to remain smaller and in the family," Aga Jarzabek, a research analyst at Euromonitor International, said in an email. "It seems that the company recognized its strengths a long time ago and has grown familiar with its East Coast market, delivering reliable brews without the constant need for growing profit margins."
Yuengling has uniquely positioned itself to benefit from the perception among consumers that it is both a large-scale brewer and a more nimble, trendy craft player. Jarzabek said Yuengling's traditional offerings tap into the storied perception of an authentic brew associated with Germany, Oktoberfest and beer halls. At the same time, the ability of Yuengling to develop the aura of a craft player enables it to reap the quality associated with smaller brewing operations and their devotion to the art of making beer.
A cult following
Yuengling, the sixth-largest brewer in the U.S., posted sales of roughly $1.6 billion in 2019, or 1.5% of the U.S. beer market, according to data provided by Euromonitor International. But even with its rich history and broader success, Yuengling has experienced its own share of challenges.
After a surge in demand between 1995 and 2010, when Yuengling's volume increased to 37.2 million cases — helped in part by an expansion into new states and the 1999 purchase of a former Stroh's Brewery in Florida that enabled it to fulfill consumer demand — output has gradually declined since then. In 2019, the company produced 35.4 million cases, according to data provided by the Beverage Marketing Corporation.
Nathan Greene, an analyst at the Beverage Marketing Corporation, said the brewer's challenges have been exacerbated by slowing growth in craft beer sales and struggles increasing volume across the 22 states where its product is already available. The brewer's beers have only been available in the East Coast where its two production facilities are located; the logistics of shipping was too complicated to justify the expansion on its own.
"There is definitely a cult following aspect to it, especially for East Coast transplants and people that might have come across it because there's definitely an every man's and every woman's craft beer aspect to Yuengling."
Analyst, Beverage Marketing Corporation
But Yuengling's joint venture announcement in September 2020 with beverage giant Molson Coors, which will brew and distribute Yuengling's beers to an additional 25 states in the west while enabling the family-owned business to maintain control of its existing operations, will present it a unique opportunity to fast-charge its once stagnant growth. Yuengling plans to eventually expand on its own into New Hampshire, Vermont and Maine.
"It could lead to the company being doubled in scale. That's not a completely unreasonable thing to say over a five- to 10-year period," Greene said of the partnership with Molson Coors. "There is definitely a cult following aspect to it, especially for East Coast transplants and people that might have come across it because there's definitely an every man's and every woman's craft beer aspect to Yuengling. There is pretty long pent-up demand."
In announcing the new joint venture, Gavin Hattersley, president and CEO at Molson Coors, offered up an anecdote that provided insight as to why the beer giant was interested in partnering with Yuengling. Consumers in the western U.S. "have smuggled Yuengling across state lines in the trunk of their car" to get access to the popular East Coast beer, he said in a statement.
Facebook is represented with several pages created by Yuengling fans pleading for the company to bring its products into their state. The day the joint venture was announced, Molson Coors' phones "were ringing off the hook from distributors, from retailers, from folks inside the industry, from consumers," said Adam Collins, chief communications officer for Molson Coors.
He said it's rare to find an asset such as Yuengling that has a solid reputation for brewing a quality product, the opportunity to enter a significant, previously untapped market and a way for Molson Coors to expand its premium offerings. "There are not many stories like that," Collins said. "We think it's a tremendous growth opportunity for both businesses."
In markets on the East Coast where the two companies both have a major presence, Collins added that Molson Coors will continue to "compete vigorously with them."
Sticking to what works
Unlike other craft brewers that have thrived on developing cleverly named products loaded with novel and trendy ingredients to attract consumers, Yuengling has taken a vastly different tactic by sticking largely to its core beers.
Its Yuengling Traditional Lager, created in 1987, has become its flagship beer — generating about 80% of its volume, Greene estimated. Other sales come from offerings including its Light Lager, Black & Tan and Golden Pilsner.
"The way we've approached it over the last couple of years is looking for opportunities to go big," Wendy Yuengling said.
Yuengling is very selective when it swings for the fences. A product must be able to generate volume and efficiency to make it economical for a business of its size, complement its existing portfolio and be in line with what consumers would expect to see from the nearly two-century-old company. Wendy Yuengling "wouldn't rule anything out" like a hard seltzer in the future, but said for now, Yuengling "takes pride in being a traditional beer company."
“I feel like there is a discipline to our approach. We might not be as quick and innovative as others, but there is a very strong discipline and methodology to how we do things,” she added. “When we try to bring something out, it’s always for the long term. When we make decisions it’s always based on what's good for future generations, not the next two to three years.”
Greene said Yuengling's commitment to shy away from trendy names and flavors, coupled with its long-time family ownership, instills a sense of timelessness and independence that plays well among consumers.
"There is definitely an established consumer that is dedicated [to Yuengling] rather than with your traditional craft consumer that kind of jumps from product to product, beer to beer, brewer to brewer," Greene said. "The Yuengling consumer has been a Yuengling consumer before they were a craft beer and will stay a Yuengling consumer even if craft beer continues to lose interest.”
Through much of the pandemic, Yuengling faced many of the same challenges as other brewers across the country. Lost sales of beer to restaurants, stadiums, bars and other venues siphoned off a reliable revenue stream that has left brewers largely dependent on retail operations.
Yuengling's exposure to on-premise is low at 30%, but the brewer hasn't been immune to the difficulties plaguing beer manufacturers, Wendy and her sister Jen Yuengling said. To offset the lost business, Yuengling shifted from producing kegs to more packaged products such as 12- and 24-count bottles and cans that were especially popular when consumers were pantry loading. It also rolled out 16-ounce cans of its low-carb Flight beer as people stocked up and consumed more at home.
“Loss of [on-premise] sales will be a major hit, but considering how consistent Yuengling sales have been through the years, they have a good chance of bouncing back," Jarzabek said.
Each of the daughters started working in the family business doing jobs such as offering tours and working in the gift shop before leaving for college and to pursue other opportunities. By 2004, all of them had returned to the business and they are now making major decisions with their dad that will lay the foundation for the future of their brewery.
"We've weathered a lot of storms and are just happy to be here today," Jen Yuengling said.
The daughters are constantly reminded of the legacy of the Yuengling business they will one day have the opportunity to purchase from their dad — much like prior generations did from those who ran the business before them. Yuengling still makes Dark Brewed Porter and Lord Chesterfield Ale, which are based on their great, great, great grandfather's original recipes. The old home where he once lived in Pottsville, Pennsylvania, is now used as the office for the brewery, and pictures of prior generations adorn the walls.
“We all fight very hard to protect the way, the specialness of being America’s oldest brewery and the way things have been done in the past,” Wendy Yuengling said. "I think that is why we work so hard each day to keep it in the family and keep it a tight, close-knit family business because we realize we have something very special."
Article top image credit: Courtesy of Yuengling
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