Once relegated to the same staid products on the grocery or liquor store shelf, the alcohol and beverage space is undergoing a radical change during the last decade. Consumers now have countless more options when they shop.
Few drinks have been as popular in recent years as hard seltzer. The category has been flooded by scores of offerings that have provided alcohol giants like Molson Coors and AB InBev with a lucrative product to offset the decline in their core beer business. But amid an onslaught of options, consumers and retailers alike have grown confused and the once triple-digit growth rates have slowed considerably in the past year.
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 side 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?
The promise of Finland's national drink in the U.S.
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
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
Alcohol makers look to Finland's national drink in search of the next hard seltzer
Long drink, born at the 1952 Olympics in Helsinki, has only been in the U.S. for a few years but it is attracting the attention of companies eager to offer American consumers more variety.
By: Christopher Doering• Published Feb. 9, 2022
As the head of product development at Boston Beer, Annette Fritsch has been instrumental in the creation of brands such as Truly, a juggernaut in the hard seltzer category. Now, she's hoping her next big success will come from an idea spotted nearly 4,000 miles away in Finland with a 60-year-old citrus drink largely unknown to U.S. consumers.
"We're always looking to do the next Truly — I mean, who wouldn't want to get the next Truly?" said Fritsch, who joined the maker of Sam Adams beer and Angry Orchard hard cider in 2010. "We have to keep ourselves innovative, excited, thinking of new ways to come into beverages, so that we're really hitting the drinker need."
Fritsch said Boston Beer's optimism for the new offering it has branded as Bevy Long Drink comes from the accessibility and unique beverage experience it provides: the easy drinking of a cocktail with the sweet taste and refreshing finish of hard seltzer.
As drinking habits shift away from going out for a beer to finding a drink that fits a particular occasion, Fritsch said Boston Beer "had to start evolving" and look for new offerings and drinking occasions it could tap into. Bevy, she said, "rose to the top."
"Bevy is really unique," she said. "It's not a beer. It's not a seltzer. It's really not even a cocktail because it kind of marries the gap. It's really different from ... anything else out there. I don't have any concerns about us gaining shelf space."
What's old is new again
The long drink's name comes from the fact that it typically has the same amount of liquor as a traditional cocktail but includes more mixer in a tall glass. The beverage traces its roots to the 1952 Summer Olympics in Helsinki when Finland's government commissioned the creation of a refreshing pre-mixed cocktail for bartenders to serve visitors.
The beverage, which traditionally consists of gin and grapefruit soda, was so popular that production continued well after the Helsinki Olympics ended, but it was tightly regulated by the government for more than four decades. It wasn't until 1995 that officials relinquished their monopoly on long drinks, and breweries quickly capitalized by making their own.
Today, it is widely available on store shelves, bars and even at saunas in the European country, with grocery and liquor stores devoting whole sections to it. In 2020, an estimated 50.3 million liters (13.3 million gallons) of long drink were sold by breweries in Finland, according to Statista data, down slightly from the prior year but up nearly 25% from a decade earlier.
"Bevy is really unique. It's not a beer. It's not a seltzer. It's really not even a cocktail because it kind of marries the gap. It's really different from ... anything else out there."
Senior director of product development, Boston Beer
Boston Beer's Bevy takes a slightly different approach to make its long drink, eschewing the more traditional gin in favor of a malt base typically found in beer or a hard seltzer. Wild juniper berries add a subtle hint of the flavor typically provided by the gin. So far, it appears Bevy has been an early success, with Boston Beer expanding distribution of the long drink nationwide from the 20 markets it first launched in early November.
Alcohol beverage companies such as Boston Beer remain on the lookout for the next big drink as consumer preferences change — an evolution that has hit beer makers particularly hard as they cede share to other categories like spirits.
Even hard seltzer, which has been a key source of growth for large beer companies, has witnessed slowing sales. Boston Beer saw billions wiped off its market cap last year after it admitted to overestimating demand in the category. The space also is becoming populated with offerings that include spirits, putting further pressure on brands like Truly, White Claw and Bud Light Seltzer.
Adam Rogers, the North American research director at IWSR Drinks Market Analysis, said promoting and using the name "long drink" is largely a marketing tool used by alcohol companies to attract consumers to an existing beverage rather than representing a new category or product. He noted the term encompasses other popular alcoholic beverages such as a highball, rum and cola, or Moscow Mule.
"As all things perceived to be new tend to achieve consumer trial while increasing awareness, we do see brands leveraging the 'long drink' marketing term with increasing popularity," Rogers said in an email.
One of the earliest U.S. companies to enter the space was The Long Drink Company, launched in 2018 by four friends: three from Finland and one from the U.S.
After noticing a market opportunity in the U.S., Mikael Taipale and the other founders — none of whom had expertise in beverages — created multiple iterations of their own long drink for friends to try in a blind taste test and compare with other versions on shelves in Finland. Just three and a half years after pitching The Finnish Long Drink to bars and liquor stores in New York City, the company is preparing for a nationwide rollout in 2022 at U.S. retailers including Walmart and Kroger.
"Initially people laughed at us. They're like, 'What do you mean it's a category? This is just your product," Taipale said. "The biggest pushback was that nobody's going to drink cocktails in a can or nobody's going to want this. But obviously we know now that everybody in the industry, I think all they're talking about is cocktails in a can and seltzer."
The rapid growth attracted the interest of celebrities, including actor Miles Teller and professional golfer Rickie Fowler, both of whom have joined the company as co-owners of the canned cocktail beverage. Last summer, The Long Drink closed a $25 million funding round led by existing investors and investment management firm Neuberger Berman.
Taipale downplayed the emergence of Boston Beer to the long drink market, noting the alcohol maker's interest only reinforces his company's belief that the U.S. was ripe for the category. Bevy, he said, also will draw attention to the nascent U.S. market and contribute to growth in the category. Still, Taipale said Boston Beer's use of a cheaper malt alcohol base instead of premium spirits doesn't make it a "real" long drink and only serves to mislead the consumer.
"I think it's great that there's other people seeing the potential of the category and seeing potential of the drink," he said. "We need to just make sure the consumer knows that it's not the real long drink, and it's sort of a cheap version trying to piggyback on the story."
In response, Boston Beer noted that Bevy Long Drink was inspired by Finland’s classic long drink cocktail and is "all about accessibility."
Article top image credit: Permission granted by Boston Beer
Monster Energy enters alcohol with $330M purchase of Canarchy Craft Brewery
By: Christopher Doering• Published Jan. 13, 2022• Updated Jan. 13, 2022
Monster Beverage rose to prominence to become a dominant player in the energy drink space, but now the $50 billion beverage giant is hoping to replicate its success in alcohol.
Monster is acquiring Canarchy Craft Brewery Collective, a craft beer and hard seltzer company, for $330 million in cash, the company said in a statement. The transaction is expected to close before April. Canarchy will function independently, retaining its own organizational structure and team, led by its current CEO Tony Short.
"This transaction provides us with a springboard from which to enter the alcoholic beverage sector,” said Hilton Schlosberg, Monster’s vice chairman and co-CEO. “The acquisition will provide us with a fully in-place infrastructure, including people, distribution and licenses, along with alcoholic beverage development expertise and manufacturing capabilities in this industry.”
The transaction will immediately bring beer and hard seltzer from brands including Cigar City, Oskar Blues, Deep Ellum, Perrin Brewing, Squatters and Wasatch to the Monster beverage portfolio. The transaction does not include Canarchy’s stand-alone restaurants.
The deal comes at a time when Monster itself has been rumored as an acquisition target.
In November, Bloomberg reported Monster Beverage was exploring a deal with Modelo and Corona brewer Constellation Brands. The decision to spend more than $300 million to buy Canarchy doesn't necessarily preclude such a deal from happening. But the fact that Monster is buying a company on its own, and choosing to do it in alcohol, may mean any combination with Constellation is dead, at least for the foreseeable future. Monster has found its own way to enter alcohol and stay independent at the same time.
For years, Wall Street has speculated Coca-Cola could buy Monster. The beverage giant purchased a 16.7% stake in Monster in 2015 and agreed to distribute its energy drinks in the U.S. and Canada. Monster noted the Canarchy deal comes with all the infrastructure and necessary licenses, so it appears unlikely that Coke would handle alcohol for Monster.
Canarchy is an interesting move for Monster because it is entering alcohol through craft beer and hard seltzer, a pair of maturing yet popular categories where consumers have countless options to chose from. While at one point there was speculation that Monster would develop its own hard seltzer, the company obviously sees a better path forward in alcohol through purchasing existing brands where it can benefit from their expertise rather than venturing into the area on its own, even with the potential to use the name recognition of its signature energy drink.
It's possible Monster could somehow tap into the expertise of Oskar Blues' work in hard seltzer, for example, and bring that insight to its own energy drinks. The deal also could mark the first step by Monster to become an even bigger player in alcohol, putting it head-to-head with industry giants AB InBev and Molson Coors.
Monster has been exploring other avenues for growth in recent years. It released the first 100% vegan energy drink called Java Monster Farmer's Oats in 2019 that is made with oat milk, coffee and Monster's energy blend that contains taurine, ginseng and guarana. It also reportedly has been considering a move into cannabis. But Canarchy is its biggest bet yet to show it's more than just an energy drinks company.
The no-alcohol segment grew in volume by 4.5% in 2019-2020 while low-alcohol dropped 5.5% across 10 key markets, including Australia, Brazil, Canada, France, Germany, Japan, South Africa, Spain, U.K. and the U.S. In these markets, no-alcohol had 66% share of volume.
The United States is one exception to this larger trend. The data firm found low-alcohol wine accounted for 86.6% of market share here. Low-alcohol RTD beverages have about 70% share, with beer and spirits also proving more popular with U.S. consumers than nonalcoholic varieties.
While low-alcohol drinks have been doing well in the U.S. in recent years, manufacturers across all segments have been launching no-alcohol beverages that could meet the needs of consumers in this country who want to enjoy the taste without a buzz.
In the U.S., no-alcohol drinks have previously been brushed off due to taste and a lack of demand. But they may be having their turn in the spotlight.
The reasons why consumers choose to drink nonalcoholic beverages vary, according to IWSR. Some want to enjoy the taste, but not feel inebriated. Others may be looking for a low-sugar or low-calorie option.
Beer companies, which have seen a sales slump in recent years, have been some of the first companies to venture into the segment. And with 66% millennials trying to curb their alcohol consumption, according to Nielsen, there is potential for continued growth.
In early 2021, Boston Beer released Samuel Adams Just the Haze, which is formulated to taste like a traditional IPA, without the alcoholic content. While company founder Jim Koch once said he would "never brew a nonalcoholic beer," the brewer spent two years researching and experimenting to develop the product.
In October 2020, Guinness introduced a nonalcoholic version of its popular stout in the United Kingdom and Ireland after launching other alcohol-free beverages, including a lager and a malt-based drink. The stout, called 0.0, has since been recalled due to a microbiological contamination, potentially delaying its worldwide launch.
Budweiser’s first nonalcoholic beer, Budweiser Zero, hit shelves two years ago. It is part of parent company AB InBev’s plan to have 20% of its global beer volumes come from no- and low-alcohol offerings by 2025.
While no-alcohol spirits may be seeing an increase in popularity in other countries, in the U.S., low-alcohol varieties still take a majority share of the market. Spirits traditionally contain above 30% ABV. The IWSR report cites low-alcohol spirit offerings from well-established brands like Diageo's Smirnoff, which has a Zero Sugar Infusion vodka line with less calories and a 30% ABV (the original Smirnoff vodka has a 40% ABV) and Pernod Ricard's Beefeater gin, which launched Beefeater Botanics in Canada with a 27.5% ABV. Its original gin has an ABV of 44%.
Low-alcohol wine is also gaining traction, despite consumers' initial reluctance to try these offerings over no- and low-alcohol beer, adult soft drinks and mocktails.
Despite the growth of no and low-alcohol drinks, companies face some obstacles to greater consumption when launching a new beverage. According to IWSR, there is still the perception that no- and low-alcohol drinks are lower quality than their higher ABV counterparts.
Companies deciding to break into this market have often tried other marketing angles in order to gain traction. No-alcohol brand New London Lighthas the benefit of being vegan and free of other allergens to appeal to an increasing demographic of plant-based consumers.
Low-alcohol wine brands such as Truett-Hurst's Cense, Skinny Girl and FitVine have positioned themselves as flavorful and healthier options.
IWSR's data also shows that one headwind for low-alcohol beverages in general may be consumers' confusion about ABV levels, and knowing how much they can drink and still be within the legal driving limit. At least with no-alcohol offerings, these concerns can be alleviated.
Article top image credit: Jeff J Mitchell via Getty Images
Latest trends driving the alcohol and beverages space
Once narrowed 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. Trends in alcohol delivery, non-alcoholic spirits, and a the skyrocketing hard seltzer category is transforming the way manufacturers approach the market.
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Our Trendlines go deep on the biggest trends. These special reports, produced by our team of award-winning journalists, help business leaders understand how their industries are changing.
Davide SavenijeEditor-in-Chief at Industry Dive.