15/09/2021

Hard Seltzers Are Evolving, Not Dying

IWSR analyses the evolution and future of the hard seltzer category in the US

Despite recent rumours of its imminent demise, the hard seltzer market in the US is evolving and maturing, with an increasing focus on value over volume growth – and plenty of opportunities for brand owners who pursue the right strategy.

Companies worrying about the inevitable slowing of volume growth from the stratospheric levels seen in the US in 2020 risk missing out on beneficial trends such as premiumisation, the reopening on-premise, spin-offs from established brands and the emergence of spirit-based seltzer-like products.

Hard seltzers, as well as RTDs in general, are still outpacing the growth of most alcohol categories in the US – but, as the category expands and more players enter it, triple-digit and high double-digit growth rates will naturally moderate.

According to the IWSR, almost 300 new hard seltzer brands were launched in the year to July 2021 in the US, up over 60% on the year before. “There are hundreds of new hard seltzer brands, as well as RTDs, in the US, so the category is maturing – there is more choice for consumers and people are experimenting,” says Brandy Rand, COO Americas at IWSR Drinks Market Analysis. “It’s impossible to maintain triple-digit growth when the overall size of the category is hundreds of millions of cases.” IWSR includes malt-, wine- and spirits-based products in its definition of the hard seltzer, as well as the broader RTD, category.

To illustrate the point, IWSR expects the hard seltzer category to grow by over +70% in the US market during 2021. At first glance, this might appear to represent a rapid deceleration versus 2020’s growth rate of +130% – but percentage rises can disguise the scale of absolute volume increases.

In 2020, an increase of +130% translated to absolute volume growth of close to 110m nine-litre cases; but the +73% forecast for 2021 would see consumption rise by even more than that in absolute volume terms.

“The key is that, for beverage alcohol in general, 2021 is a value year, whereas 2020 was a volume year,” says Rand. “Last year, people were at home, they stocked up on large formats and multi-packs, and they did not travel, commute or spend time in the on-premise. In 2021, life is going back to a more ‘normal’ pattern.”

As a result, bulk buying in retail may decline, and this is likely to disproportionately impact hard seltzers, which count on volume purchases, especially in the US. “Aside from a few SKUs, you cannot find single units of many brands for sale in stores or online,” points out Rand. “The convenience channel is where single units are seeing an uptick as people go back to making quick trips, travel more and spend less time in big-box stores.”

Furthermore, retail data reports often fail to catch swathes of volumes, including independent retail purchases, direct-to-consumer sales – and, crucially, the reopening on-premise, which is more difficult to track. This includes not only bars and restaurants, but also ‘on-site’ producer sales.

Hard seltzers have already made it into the top 10 drinks chosen in the on-premise, according to an IWSR survey of US consumers conducted in June 2021. “This is critical for the category, considering that hard seltzers were non-existent on menus prior to the pandemic,” says Rand.

The fast-moving nature of hard seltzer flavour trends can also lead to short-term volatility in sales data as brand owners rush new products to market with limited R&D, experience significant initial trial rates, but fail to secure repeat purchases.

“This is causing month-over-month fluctuations, which can distort the bigger picture,” says Rand. “Looking at the category from a monthly perspective shows fluctuations, whereas looking at the category from a full-year viewpoint provides a more consistent and accurate view of total demand.”

This constant churn of products is accentuated by heightened competition within the category, with a likely ‘shake-out’ as brand owners learn from the past, swiftly and ruthlessly removing underperforming products rather than allowing them to fester.

“This is contrary to years ago, when RTD brands would remain in market even though they experienced year-over-year declines,” says Rand. “The hard seltzer category will remain strong due to underperforming brands being taken out of the segment more quickly – a brand owner won’t let a SKU sit there and lose volume, dragging the category down.”

NPD in hard seltzers is now increasingly focusing on premiumisation and prioritising value over volume. The average 24-pack case price of hard seltzers in 2020 was US$49.83, but this had risen to US$50.36 in the year to July 2021, IWSR analysis shows.

At the same time, price competition among the larger volume brands – such as White Claw, Truly and Bud Light – is expected to intensify.

“Leading hard seltzer brands will be constantly trying to balance innovation with avoiding commoditisation. They will leverage subtle changes and slight premium cues (such as flavour, branding, celebrity endorsements) to maintain their relevance to consumers,” says Rand. “Regional/local brands with distinctive attributes are penetrating the category without slowing the growth of the top three.”

Meanwhile, spirits-based seltzer-like products are increasing their share of the category, primarily through ‘spirits & soda’ offerings, which act as a trade-up alternative to the plethora of lower-priced and/or malt-based options. RTD products with seltzer attributes are being offered by new entrants, such as High Noon, Cutwater and Canteen, and by established brands, such as Absolut, Bacardi, Jose Cuervo and Ketel One.

Indeed, convergences are occurring in the hard seltzer space as producers aim to expand on established brand awareness, with the likes of Hard Mountain Dew, Topo Chico, Sonic Seltzer and vodka brands all leveraging their brand equity by extending their portfolios into hard seltzer.

The launch of Sonic Seltzer by the drive-through fast food chain is an early example of private label activity that could, in time, permeate to other restaurant and retail businesses – and illustrates the speed at which the hard seltzer category has moved over the past couple of years.

“Price competition and the privatisation of labels characterise a segment that is very distinct from a typical beverage alcohol category,” says Rand. “Hard seltzers are shaped more as a true FMCG (fast-moving consumer goods) category, with high portfolio rotations and a need for ongoing NPD.

“As the hard seltzer category enters a new phase of evolution and maturity, the industry will increasingly innovate with premium offerings in order to stay relevant with consumers.”