On a recent episode of CNBC’s “Mad Money” president and CEO of Constellation Brands, Bill Newlands, sat down with host Jim Cramer to discuss the alcohol beverage company’s Q2 2022 earnings as well as the future of hard seltzer.

Constellation had an underwhelming quarter, exceeding revenue projections but coming in short of its $2.77 Wall Street consensus estimate. Instead the company, which is home to Corona Hard Seltzer, reported adjusted earnings of just $2.38 per share. Constellation struggled against an obsolescence charge topping $66 million as a result of an excess of its hard seltzer inventory. “Our entire miss was because of the obsolescence charge,” Newlands insisted.

Does Constellation’s poor quarterly performance mark the end of the company’s investment in hard seltzer? On the contrary, Newlands believes “seltzer is going to be an important part of the category going forward…” He went on to admit, “Certainly, the seltzer category has had a bit of a lid put on it in the last, say, eight weeks or so, and everybody overestimated what the growth profile was going to look like for this year.”

As Newlands mentioned, Constellation is not alone in its hard seltzer miscalculations. Truly Hard Seltzer’s parent company, Boston Beer, had an abysmal Q2 as a result of underperformance in the hard seltzer category, missing its top and bottom lines and coming in nearly $50 million short of its revenue goals. In an effort to minimize damages, SAM reduced its F21 financial guidance, only to withdraw it completely a few months later. Boston Beer blamed its miss on an abundance of seltzer brands on the market causing consumer confusion. The company now faces a class action lawsuit brought on by shareholders who lost significant sums in the fiasco.

The hard seltzer market is currently in a unique position. The category experienced unprecedented growth during the pandemic. New brands were hitting retail shelves almost daily and off-premise sales skyrocketed as consumers shopped for convenient RTD beverages to enjoy at home. As venues reopened hard seltzers shifted away from being overwhelmingly off-premise beverages and entered the on-premise scene in a more prominent way than ever before. This change in consumer drinking habits coupled with endless choices at retail has caused even the largest alcohol beverage companies to reevaluate the ever evolving category.

“The hard seltzer landscape has shifted considerably in recent months. Therefore, we’ve lowered our growth expectations for Corona Hard Seltzer resulting in a sizable obsolescence charge taken for Q2, which includes our view of the total impact for the fiscal year,” Newlands explained on Constellation’s earnings call earlier this week. “So let’s be clear, we continue to see the hard seltzer and broader AVA space as a meaningful sector in the beer market, and we continue to believe it’s important to participate in and gain our fair share in this segment to complement the growth of our core imported beer portfolio and to maintain our position as a leader in the high end of the U.S. beer market.”

What does this mean for the future of Constellation’s hard seltzers? Newlands and his team believe “there will be consolidation within the hard seltzer/ABA space primarily due to the chaos of SKU and brand proliferation with too many new entrants that don’t have the velocity or consumer demand to warrant shelf space.”

In addition Newlands described hard seltzer moving “beyond low-calorie, low-carb offerings, and open[ing] up to more distinctive consumer value propositions that include things like more flavor, different alcohol bases, and functional benefits.”

Newlands pointed to Corona’s Refresca and Limonada brands as examples of the changing flavor profile of seltzers and RTD beverages, noting, “We’ve also discovered that consumers are looking for more robust taste and flavor in their seltzers. As a result, we will be altering the flavor and taste profile of our seltzer portfolio to better align with the changing consumer preferences…”

Even during a period of many uncertainties Newlands’ assessments regarding the future of the category echo those of many of the top financial analysts and experts. Hard seltzer has not met its end. Rather the category is growing and evolving to meet changing consumer needs.

Shirani Jayasuriya
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