[Read about how Anheuser-Busch InBev is trying to take the lead in the nascent U.K. hard seltzer market.]
After another record-setting year for hard seltzer—one that isn’t even over yet—the stakes for the hottest category in beverage alcohol are only getting higher. Now, a “Craft Seltzer” vs. “Big Seltzer” clash is shaping up for 2020, with millions (and eventually billions) of dollars in the balance.
“It was a challenge at times not short of frustration, but we arrived at a process that works and we think produces a really distinctive, flavorful alternative to the mass-produced process,” says Phil Markowski, Two Roads Brewing Company’s master brewer. Markowski has overseen the creation of the H2ROADS hard-seltzer line, which uses 100% real fruit in lieu of extracts and flavorings, unlike White Claw or Truly hard seltzers.
“We can hold our heads up that we’re in a segment we didn’t think we’d be in—a segment we questioned whether or not it would be appropriate for us and the image we protect—but we’ve arrived in a good place,” he adds. “This segment is here to stay.”
Volume for hard seltzer has grown at a blistering pace in recent years. When combining sales figures for grocery, convenience, and other chain stores, along with liquor store sales in Colorado, Florida, Massachusetts, and New Jersey, the category has exploded from almost 82,000 barrels’ worth sold in 2016 to 2.6 million BBLs in the first 10 months of 2019. That figure is roughly the size of the entire production of D.G. Yuengling & Son, the largest Brewers Association-defined craft brewery in the country.
Dollar sales have followed suit. In the same timeframe, the amount of money spent on hard seltzer in those chain and liquor stores went from $31.5 million in 2016 to $1.18 billion in the first 10 months of 2019. Another perspective: in 2016, hard seltzer’s sales were roughly on par with the Harpoon Brewery family of brands; in 2019, hard seltzer’s numbers equate to what Sierra Nevada Brewing Company, New Belgium Brewing Company, Samuel Adams, Founders Brewing Company, and Blue Moon have sold—combined.
“Our brands are growing positively year-over-year, but it’s no longer 25%—we’re now in single digits a bit ahead of craft as a whole,” says Markowski, in reference to craft beer’s current annual growth rate of around 4%. “Our brands are healthy, but we’re in a business and we have to look toward the future. It’s clear that breweries who adapt to the times are successful in the long run.”
“That has to be our philosophy,” he adds.
By at least one estimate, hard seltzer is set to become a $2.5-billion category in just the next two years. While it’s dominated by White Claw and Truly, which have been reported to represent 75-85% of sales (the two families of brands account for as high as 91% of all seltzer sales in GBH’s IRI data set, which tracks purchases across chain and liquor stores), a handful of other brands have helped push volume and dollar sales further upward.
To put it in context, that $2.5-billion mark would make hard seltzer as a category equivalent to the biggest single beer brands in the country—an elite space reserved for the likes of Bud Light, Miller Lite, Coors Light, and imports like Modelo Especial. In 2019, at least 10 hard seltzer portfolios will break the $1-million threshold in sales tracked by IRI (a market research firm), including SVEDKA Spiked Premium Seltzer, 2 Towns Ciderhouse's SeekOut Real Hard Seltzer, and big names like Smirnoff Spiked Sparkling Seltzer.
The bulk of these brands clock in at around 100 calories and 1-2 grams of carbs and sugars, alongside a general strength of 5% ABV. Those stats fit in nicely with Americans’ interest in minimizing the number of carbs in their diets, a fad that tracks back to the Atkins Diet craze of the late 1990s (and the eventual birth of Michelob Ultra), and continues through today’s Keto Diet, which restricts carbohydrates to less than 10% of daily calories consumed. As part of recent research into beverage alcohol trends, market research company Social Standards found that hard seltzer is favored by consumers with carbs (and diets) on their minds.
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Additionally, the rise of hard seltzer comes at a time when packaged sparkling water (including brands like La Croix) has become a $2.2-billion category in the U.S.
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Two of the biggest Brewers Association-defined craft breweries have also expanded into the seltzer space. Harpoon Brewery's Arctic Summer spiked seltzer moved 11,300 BBL-equivalents in stores through October—the same quantity that Boston-area neighbor Notch Brewing produced in all of 2018. Oskar Blues Brewery’s Wild Basin Boozy Sparkling Water sold about 13,600 BBL-equivalents in the same timeframe, equal to what Jackie O's Brewery made last year.
One particularly telling aspect of why more breweries are getting involved with seltzer—aside from offering a new product for an in-demand category—is price point. All these brands are selling at “premium”-level pricing while volumes continually rise.
In Massachusetts, distributors list the price for a case consisting of 24 12oz cans uniformly at $29 for major brands (White Claw, Truly, Smirnoff), which is roughly equivalent to cases of beer brands like Harpoon’s Take 5 Session IPA or Great Divide Brewing Company’s Colette Farmhouse Ale. A 15.5-gallon keg of Truly sits at $161, just above H2ROADS at $160, the same as Guinness Draught or 21st Amendment Brewery’s Brew Free! or Die Blood Orange IPA. Smirnoff sells five-gallon kegs for $69, equal to SweetWater Brewing Company’s 420 Extra Pale Ale.
Where is this tradeoff coming from? Depends who you ask.
This summer, market research company 3x3 Insights reported that customers appeared to be more likely to substitute alcoholic seltzer for light beer like Bud Light. That input was echoed by Sanjiv Gajiwala, vice president of marketing for Mike’s Hard Lemonade, whose parent company, Mark Anthony Brands, produces White Claw. He told Brewbound in September that hard seltzer pulled 55% of its drinkers from the beer category, including 15% from craft, noting that “85% of that is premiumizing, so they’re moving from sub-premium, domestic lights and regular above premium lagers and imports and moving into more premium price points and products.”
Bart Watson, chief economist at the Brewers Association, wrote in a recent analysis that 36% of craft drinkers said they drink hard seltzer at least once a month, and Nielsen (via the Brewers Association) reported this summer that 62% of weekly craft drinkers responded they were drinking hard seltzer "several times a year or more.”
It may be impossible to figure out where hard seltzer is stealing customers from with complete certainty, but the reality is that they’re coming from somewhere—and that shift is impacting beer makers big and small.
“If you look at hard seltzer right now, there are a lot of parallels to beer 15 or 20 years ago. You’ve got a few large producers that control the market and the small ones who think maybe we can do it better,” John Barley, founder of Chicago’s Solemn Oath Brewery, told October. “We believe our customers deserve a local option to support, similar to what we do in beer. We think our product is different and we’re changing the narrative.”
Part of Solemn Oath’s push for its own seltzer line, called City Water, is its claim to be Chicago’s first canned and “locally made” hard seltzer. The sentiment of “first” is becoming increasingly common language among smaller breweries who are entering this space, and seeking an edge by promoting their “craft” credentials. That plays into a strategic rush to set expectations in local markets after White Claw and Truly have already garnered almost all the attention.
“Much like the early years of the craft beer movement here in the District, we saw a hole on the shelves for a locally-brewed seltzer, and are excited to be the first to put our stamp on this fast-growing market here in the National Capital Region and beyond,” Brandon Skall, CEO and co-founder of Washington D.C’s DC Brau, told DCbeer.com about his company’s Full Transparency Hard Seltzer. “It is not very often that we get to be a part of a brand new beverage category as it emerges in our industry.”
Markowski and his brewing team at Two Roads weren't even supposed to consider hard seltzer—until last December.
"The most damning thing that seltzer was for real was at our company holiday party," he recalls. Members of the sales team who would always arrive with unique one-off or rare beers brought something else in tow to celebrate the end of the year.
"As the night went on, I realized that some of our most ardent craft beer fans snuck in their own variety packs of hard seltzer and switched over," Markowski says. "I was bewildered, but my god, if they're impacted by it, this wasn't going to be a passing fad."
Within a couple weeks, research and development began on what would become H2ROADS, with most of the effort going towards determining how best to create a 4.5% ABV seltzer with around 100 calories, 2-4 grams of carbs, and 2-3 grams of sugar, all with 100% real fruit. In July, raspberry, grapefruit, and cranberry-lime flavors hit the market in six-packs and a variety pack of the three.
"That anecdote was more influential than you might think to get us discussing it," says Markowski. Two Roads will sell about 3,000 BBLs of H2ROADS in its six months of sales for 2019, and that number will at least double, "and hopefully triple" in 2020, he adds.
It won’t be alone.
Along with the leading brands that are already scattered across grocery and convenience store shelves, the biggest beer makers are entering even more brands into the mix. They’re doubling down to a point that you’d need to take a deep breath before rattling off all the new additions.
Bud Light will have its own seltzer in early 2020, even though AB InBev already has Bon & Viv Spiked Seltzer and Natural Light Seltzer on the market, in addition to local options through craft acquisitions of Kona Brewing Company, Platform Beer Company, and Omission Brewing Company. MillerCoors (soon to be Molson Coors Beverage Co.) is also adding another seltzer option beyond Henry's Hard Sparkling Water: Vizzy.
Before it gets too stale, Boston Beer plans to revamp its Truly lineup with new recipes and expanded draft offerings, and add a Lemonade Hard Seltzer line in 2020. The company’s goal is to grow its hard seltzer sales 100% next year, which will be needed as Sam Adams beers continue their rapid sales declines in grocery, convenience, and other chain stores tracked by IRI. Through the end of October, Truly had sold 74% more volume in those stores than Sam Adams.
Not to be left out, Constellation Brands will soon launch Corona Hard Seltzer in four flavors: tropical lime, mango, cherry, and blackberry lime. Even at 4.5% ABV, they’ll sit a touch below competitors at 90 calories and zero grams of carbs or sugar—stats that no other major hard seltzer brand can as yet lay claim to.
And that’s before the high-octane versions of the drink come into play, with Pabst Blue Ribbon's Stronger Seltzer (8%) and Four Loko Seltzer (12%) packing a punch and leaning in to a broader trend of higher-ABV products. Or, if drinkers want something more “craft,” a new seltzer entry comes from Brewers Associated-defined breweries on a near-weekly basis. That’s why Markowski feels strongly about what H2ROADS can bring. He says that using real fruit and employing a team of craft brewers make him feel like "we have a more legitimate product" than those seltzers coming from multinational corporations. He’s even counting on it to set his brand apart in the U.K., where hard seltzer is yet to take off.
“This isn’t something I imagined I’d be doing a year-and-a-half or two years ago, but it’s been interesting and challenging,” he says. “This has been more fun than I thought it’d be.”
Over and over again, brewers and industry pros are admitting that what's happened with hard seltzer in 2019 isn't some flash in the pan like alcoholic soda, whose market has disappeared in recent years. Markowski, whose background is in traditional Belgian beer and who is arguably one of the most celebrated American brewers, has bought in. Solemn Oath's John Barley has as well, telling October that "I see this as another creative avenue." Even Bart Watson of the Brewers Association wrote that, so long as a seltzer brand aligns with a brewery's identity, a business will probably "have more success in the long-run than those that completely shift gears just to chase growth."
Regardless, hard seltzers have continued to rise. This year, hard seltzers became official drinks of the NFL (AB InBev’s Bon & Viv), NHL (Boston Beer's Truly), and Big 12 Conference (Natural Light Seltzer). The category will inch toward $1.5 billion in sales, likely tripling the figure from just a year ago.
What's scariest is that all this growth is a product of still-modest cultural significance. According to Boston Beer CMO Lesya Lysyj, consumer awareness for hard seltzer is at just 60%, well below scores in the 90s for brands like Budweiser and Bud Light. There’s plenty of room to grow, and entrants from Massachusetts’ Night Shift Brewing (Hoot Hard Seltzer) to Oklahoma’s Coop Ale Works (Will & Wiley Oklahoma Hard Seltzer) and beyond are hoping to fill whatever gaps they can find. “It’s been a stunning turn of events,” says Two Roads’ Phil Markowski.
The market for hard seltzer is anything but soft, and is set to become more competitive as more money is on the line. In 2020, expect a gold rush.
Words by Bryan Roth