Why hard seltzer is still America's 'it' drink
It’s nearly August. And as we slide into the back half of summer 2021 (with COVID on the rise, half the country sweltering, the other half rain-soaked, the Olympics still grinding along, the market mostly up and the Robinhood IPO mostly down) I have a salient question: What are you drinking?
It’s a question both small and big, because beverages, and, yes, I’m talking about those of the alcoholic variety, are a pretty major part of the economy, particularly the summer economy and more than that, to some of us, define who we are (not unlike what you drive in LA).
Even more than that, changes in what we’re drinking (beer, wine, liquor and now hard seltzer — much on the latter here), reflect the reopening of the economy (for now) and changes in our society writ large. Furthermore, delving into hard seltzer also allows us to meet a brand-new multibillionaire nick-named Tony Baloney, who’s minting money, never mind to note that effective Aug. 1, White Claw will no longer be considered beer, according to the Harmonized Tariff Schedule of the United States. (Fear not, I will spell this out.)
First, about alcoholic beverages. We’re all aware of the general trends: wine up, beer down, (especially the old stalwart brands), and clear liquor up, except for the great American bourbon renaissance. Along with everything else in the world of food and drink, there’s been an explosion in craft, boutique, and bespoke everything; $2700 per bottles of gin, crazy beers like Rocky Mountain Oyster Stout, and the likes of chokeberry hard cider (yikes) along with endless flavors. (How'd you like some pb&j, doughnut, waffle, or cut grass flavored vodka?) Then there’s the mixes and blends of all manner of booze, beers, wines etc, all in the funkiest, coolest, weirdest, most psychedelic cans and bottles imaginable. Brand loyalty is out. Trying is in. (And please scream "marketing" here as loud as you can.)
Bud isn't even in the top 5 anymore
Young people today (ah, my favorite phrase) love nothing better than to grab a massive assortment of all of the above, ice ‘em down in some sort of tub and then mix, match, and drink all Saturday afternoon. (Oh yes, dear reader, I’ve seen this with my own two eyes.) Or they go off to brewpubs and quaff flights of raspberry Lambics, Flanders, Gose, and other sours. (And yes, I have tried them, oh reader, and they are not to my liking.)
Long gone are the days when all Budweiser had to do was roll out the Christmas Clydesdales TV ads to keep the business going. Today the amount of product development, testing, marketing, measuring of sales, and (shrinking) margins, as well as cajoling retailers and distributors — (and ultimately consumers) to accept the new SKUs (stock keeping units) and keep up with the relentless churn is truly a Herculean and in some cases Sisyphean task. On the other hand, what’s to justify a shopkeeper stocking Miller High Life (The Champagne of Beers) or even Heineken anymore?
“At one point, the Top 5 beer brands commanded over 50% of the market and now sit around 30%,” says Brian Sudano, managing partner for New York-based Beverage Marketing Corporation (BMC) in the 2021 "Beer Report: Beer market in state of flux as consumer preferences change" (Beverage Industry.) “In addition, Michelob Ultra and Modelo Especial are now Top 5 brands and former leading brand, Budweiser, is no longer in the Top 5.”
Can you imagine, Bud isn’t even in the top five anymore.
And now into this most fluid world, enter hard seltzer, a new category of beverages created in large part by a somewhat mysterious Vancouver billionaire named Anthony Von Mandl through his company Mark Anthony. (There is no connection to either Caesar’s general or the Latin Grammy winner. Von Mandl just thought the name sounded “vaguely familiar,” according to a 2014 Business in Vancouver article.) Mandl’s company makes crowd favorite White Claw, which is supposedly named after “the rogue ‘White Claw Waves’ that travel in sets of three across the ocean,” but I can’t confirm such waves exist. (Seltzer of course goes way back and another brand, Bon & Viv, lays claim to have invented the mixing in of alcohol.)
Von Mandl scrapped and clawed (!) his way up the food, er drink, chain by investing in high-end wineries in British Columbia (once visited by Prince William and Kate Middleton.) But Von Mandl's real genius moves were concocting lower-brow beverages, first Mike’s Hard Lemonade in the mid 1990s which made him rich, then White Claw in 2016 which made him mega-rich.
On his epiphany to create Mike’s, Von Mandl said in a 2006 interview, according to Bloomberg, "25% of guys didn't particularly want to drink beer, but couldn't be seen holding anything else in their hand."
The summer of White Claw
White Claw, “made from a blend of seltzer water, our gluten free alcohol base, and a hint of fruit flavor,” according to the company’s website, took the U.S. by storm in 2019, (the Summer of White Claw), replete with viral videos “"Ain't no laws when you're drinking Claws," (5.9 million views) and product shortages. At one point White Claw had over 60% market share of hard seltzer in the U.S., and though exact numbers are tough to come by, it’s slipped a bit reportedly, whereas No. 2 in the category, Truly (more on them below) has gained. Together, it’s said Truly and White Claw command up to 80% of the market now.
In that Bloomberg article noted above, a curious side point. It cites an email from Von Mandl’s company saying that Mark Anthony had become "America's fourth-largest beer company.” But wait, hard seltzer isn’t beer, right? As it turns out Mark Anthony may well have said that because as a beer or malt-based drink, White Claw was able to avoid U.S. tariffs because of preferential treatment for that beverage. (The Canadian version reportedly is vodka based.)
But early this year the U.S. Customs and Border Protection (CBP) noted that White Claw "does not have the taste, aroma, character or appearance of beer" and "is not named beer, and importantly, is not sold or marketed as beer,” and successfully reclassified the drink which will make it subject to tariffs, according to the previously mentioned Harmonized Tariff Schedule of the United States, effective Aug. 1.
Why did hard seltzer take off, besides a marketing push from Von Mandl? “If you think about the whole seltzer dynamic, and what’s causing it, it’s the convergence of health and wellness and convenience,” says Nik Modi, an analyst at RBC Capital. The New York Times' Julie Creswell notes, “White Claw’s slim cans (smart, right?) prominently state that the drinks contain only 100 calories, are gluten free and have only two grams each of carbohydrates and sugar.”
The drink is also apparently drunk by both men and women, not easy for any product to accomplish, particularly beverages, which tend to skew either male or female.
And then the pandemic hit, accelerating the growth of hard seltzer. “Maybe you don’t make yourself a Manhattan at home, but it's your favorite drink at the bar,” says Chris Lombardo, senior analyst at the industry research firm IBISWorld. “At home, maybe you want a low calorie, easy beverage, and you go with a hard seltzer.” Meaning instead of drinking wine at a restaurant, beer at ballgame or cocktails in a bar, young people in particular bought hard seltzer at convenience stores and brought them home to drink in the backyard or while watching Netflix. Hard seltzer sales totaled $4 billion in 2020, up from $500 million in 2018, Creswell reported in The New York Times, citing NielsenIQ data.
The end of hard seltzer?
But now that’s all unwinding, right? Maybe.
To understand the current state of play, let’s take a look at the No. 2 brand in the category, Truly, which also has a somewhat unlikely parentage, that being Boston Beer (SAM), maker of Sam Adams, as well as Twisted Tea and Angry Orchard Hard Cider. Boston Beer also now happens to be America’s largest independent publicly traded beer company, with Anheuser-Busch, Coors and Miller all foreign-owned.
Boston Beer dropped a bombshell on July 23 with an anemic quarterly report — “earnings of $4.75 per share on $603 million in revenue, while analysts surveyed by Refinitiv were looking for $6.69 in earnings per share and $658 million in revenue,” as CNBC noted. The miss was due to weaker than anticipated sales growth of Truly. The company also re-forecast demand for the product, which it now says will grow “25% and 40%, a decrease from the previously reported estimate of between 40% and 50%,” according to an earnings release. And SAM stock was down an eye-popping 26% on the day.
Boston Beer CEO David Burwick told CNBC that he was surprised by the lackluster sales of Truly, acknowledging that management did not "look very smart" after its prior forecast.
SAM founder Jim Koch suggested in a statement cited by Bloomberg that there was “consumer confusion” over the number of hard seltzers available to consumers — confusion his own company may be adding to with its now 30 flavors. And of course all the biggies, Anheuser-Busch, Molson Coors, Corona etc have jumped in with hard seltzers, too.
Predictably, the very same day of Boston Beer’s mea culpa, we saw headlines like “The hard seltzer craze has come to an end” (this one from CNN.)
But has it really?
'The category can grow double digits'
More than a few say folks in the biz say heck no. “What drove the segment to begin with is health and wellness and convenience — that’s still relevant. And that hasn’t gone away,” says Modi of RBC Capital. “The reality is the seltzer category is still growing very nicely off of some pretty tough compares. The beer industry is underperforming quite dramatically. There’s significant market share seltzer is taking from beer. We think the category can grow double digits for the next couple years.”
I agree that it’s hard to see hard seltzer not having staying power and more. Besides the fact that any COVID shutdowns probably boost hard seltzer sales, Modi’s health and wellness point seem most persuasive to me. And there are a few other points to consider, as well.
For one thing, the hard seltzer trend has room to grow overseas. White Claw, for instance, has just announced plans for international expansion.
Danelle Kosmal, vice president of the alcoholic beverage practice for NielsenIQ, also makes the point that more people may drink hard seltzer away from home. “What’s unique about hard seltzer is typically in alcohol you see a trend start in bars and restaurants and then it transfers to off premise,” she says. “Seltzer is one of the few times we see the opposite trend, started off premise and now it’s transitioning to on premise.”
And Lombardo of IBISWorld sees hard seltzer companies as takeover targets, which might lead to more investment. “To be honest, with the purchasing power that the biggest alcohol production companies have, I’d be surprised if at least one of them wasn’t acquired at some point. Just because of what history has shown us,” Lombardo says.
But hard seltzer makers won’t be immune from the fray and the churn I wrote about above. Coming on strong now are pre-made cocktails. That, and even more mixing, along the lines of “hard lemonade seltzer, hard tea seltzer, agave-based seltzers and tequila-inspired [drinks],” says Kosmal of NielsenIQ. “We’ll continue to see those. The blurring of the lines continues to increase to the point where most consumers don’t know or care what the alcohol base is — they’re going after what tastes the best.”
Imagine that.
This article was featured in a Saturday edition of the Morning Brief on July 31, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer
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