Mega brewers are poised to benefit from hard seltzer of the next decade  With the U.S. beer market facing a secular decline (-8% volume sales per capita over the last decade), and domestic brand powerhouses (ABI, TAP) losing share to imports (STZ), independent craft, wine, and spirits – seltzer offers an opportunity to turn the tide.

Consumer trends indicate that seltzer is here to stay.  More comparable to the practical emergence of light beer in the 70s and 80s than the passing novelty wine cooler phase of the same era, hard seltzers and adjacent flavored malt beverages (FMBs) match today’s consumer-driven megatrends.

While hard seltzer’s recent sky-high sales growth (226% in 2019) is not sustainable in the long run, the category should be lifted by trend-driven tailwinds.  International Wine and Spirits Record (IWSR) sees volume tripling from 2019-2023, from 82.5 million to 281 million equivalent cases.  For the approximate 21 million Gen-Z Americans turning 21 over the next 5 years, hard seltzer has the potential to displace beer/wine/spirits as their go-to alcoholic beverage.

Favorable customer-sourcing should capture incremental share.  With a majority of US hard seltzer buyers (60%) considering hard seltzer its own category (according to Nielsen), the sub-segment has managed to create a new, unique identity that has the ability to shift volume back to brewers from wine/spirits, rather than cannibalizing premium and above-premium traditional beer lines.  White Claw claims that 52% of customr sourcing comes from outsie the beer category (28% spirits, 24% wine).

Big Beer marketing and brand recognition can upturn leaders.  The US hard seltzer industry has grown from a meager 10 brands at the beginning of 2018, with 65 product lines now competing for the customer’s wallet.  While White Claw and Truly (SAM) still dominate the market at approximately 73% of market share, they will face strong competition going forward as brewers’ new lines + accompanying marketing budgets put them under pressure.  Three of the top ten hard seltzers (by 4th of July weekend sales) were released this year by ABI, STZ, and TAP, according to Nielsen data.  Bud Light Seltzer has achieved approximately 10% of market share in just half a year.

We believe that ABI, STZ, and TAP’s seltzer lines should be able to capture significant share from SAM and White Claw, as new hard selzer consumers flock to legacy brands with familiar names (Bud Light) and existing wallet share opts fro a new generation of well-marketed, differentiated names.

Risks – Energy drink-esque incumben duopoly or a seltzer fizz out.  The mega brewers could struggle to take incumbent share, even in a growth environment.  Look to the US energy drink market, where Red Bull GmbH and Monster Beverages own a combined 75% share of a $10B market that has just a few subsidiary brands.  Brewers (especially SAM) also face the risk of a seltzer bubble bursting, all investing impressive marketing budgets into their seltzer lines this year, along with large development costs.

Olivia Rodriguez
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