18/11/2021

Should spirits companies adopt FMCG strategies to win in hard seltzer space?

Spirits companies targeting hard seltzer success may need to fundamentally change their go-to-market and product development strategies.

Spirits companies targeting hard seltzer success may need to fundamentally change their thinking on product life cycles, mirroring the approach used by large-scale fast moving consumer goods (FMCG) businesses.

This radical shift in approach is being driven by multiple factors, including the transitory nature of the hard seltzer product life cycle, with a need for constant innovation and reinvention.

As with beer, production and quality issues mean that all hard seltzers – whether malt-, wine- or spirits-based – have a limited shelf life, especially in comparison to bottled wine and spirits. In turn, this makes sales and consumption forecasting even more critical than normal – as was illustrated by Boston Beer’s recent decision to destroy millions of cases of its Truly hard seltzer brand when supply exceeded demand.

This problem is exacerbated by the fact that single-serve products are by far the most popular packaging formats for hard seltzers, with IWSR research showing a clear consumer preference for single serve cans and multipacks over larger formats.

But the swift rotation of product is not only dictated by expiration dates, points out Mariana Fletcher, Head of Insights Americas at IWSR. “Hard seltzers are designed for immediate or close to immediate consumption, and that brings velocity to shelf turnover, but also saturates consumers quickly, shortening the product life cycle in a way that’s similar to that of an FMCG,” she says.

“Hard seltzer brands that are not hard seltzer-first in the US have already come to understand the speed of this product cycle. But it does require an operational shift to enable scalable, quick production and distribution, agile marketing initiatives and a pipeline of NPD.”

This results in a ceaseless churn of product as companies launch, promote, sell, and then withdraw variants from the market, to be replaced by newcomers as the cycle begins again, explains Fletcher. “FMCGs have much shorter product lifecycles than those of non-limited-edition spirits and wine products – some even as short as three months.”

Big international FMCG and beer players such as AB InBev and Heineken are often better equipped to drive sales in this environment, with another example being the entry of Coca-Cola into the hard seltzer segment with Topo Chico. “These companies often have larger investment and distribution networks that help to speed up their route to market,” points out senior IWSR analyst, John Thies.

“Having a strong retail strategy is vital for FMCG companies, particularly within bricks and mortar channels such as supermarkets, grocery and convenience stores.”

Brand recognition is another factor that is vital to hard seltzer success. According to IWSR data, consumers from key RTD markets named their top three purchasing cues for a premium RTD product as: new flavours; a well-known brand; and innovative packaging.

Launches from big beer companies and multinational drinks companies, such as Coca Cola, are clear attempts to tap into this consumer mindset, but they are not alone: US drive-in restaurant business Sonic’s own-label hard seltzer launch, in partnership with COOP Ale Works, has enjoyed early success in its home state of Oklahoma. Sonic, which has some 3,500 outlets across the US, is set to roll its hard seltzer out to up to 20 more states in the near future.

“The evidence that hard seltzer is evolving into an FMCG category is underscored by the levels of investment from non-traditional alcohol brands. A private label launch by Sonic is a further example of disruption in the beverage alcohol landscape and a break from industry norms of production.”

However, spirits companies are well-placed to exploit consumers’ affinity for well-known brand names by leveraging the equity and awareness of their marquee brands in moving into the RTD space, including hard seltzers, says Thies.

He also predicts that the evolution of hard seltzers will lead to a shift in consumer purchasing cues. “As the hard seltzer category matures in the next few years, the focus will shift more to brands’ positionings, ingredients, flavours, provenance, social and environmental missions,” Thies says.

“These are all elements that a lot of big international FMCG companies have been focusing on more in recent years, in order to help differentiate themselves within their increasingly fragmented markets.”

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