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It really shouldn’t be that much of a surprise. Consumers are well known for liking variety, and choice has become synonymous with every new or reworked product in the marketplace. The demand for more choices and more flavors of just about everything has marketers scrambling to meet the wants, needs, and motivations of consumers. Fickle has long been used to describe consumers, but in this dynamic era of market disruptions even that term fails to fully describe what’s going on with customers’ palettes today. As Americans turned away from traditional sodas in favor of healthier sports beverages and flavored waters, established soda companies and numerous start-ups are scrambling to shift production to deliver the new tastes consumers want. The seltzer water or sparkling water craze has risen to more than $2.2 billion last year with no sign of leveling-off.
“I got into the business because I was actually hooked on soda. I was a diet soda junkie. I was told to wean-off of it, and I did, but I couldn’t do it with flat water. I needed some sort of entertainment,” says James Moody of Rambler Sparkling Water in Austin Texas. “Sparkling water was the way that I did it. I started to notice that a lot of America was kind of going through this weaning off of Coke at the refrigerator level at home.” Seltzers first became popular decades ago as younger consumers began to embrace healthier lifestyles and diets. The trend has taken off in recent years as Millennials and Gen Zer’s matured and began to exercise their own spending choices.
Consumers’ desire for alternative beverage choices is expanding from non-alcoholic, flavored and sparkling waters into a market segment that serves an older demographic and has often thought itself to be relatively untouchable by new alternative beverage choices: the $119 billion beer and malt-based beverage market. Anheuser-Busch remains the beer market leader, but there may just be trouble on the horizon for the King of Beers. The hard seltzer beverage market is currently a $500 million segment and may reach $2.5 billion by 2021. Mark Anthony Brands, bottlers of the best-selling hard seltzer White Claw, declared a nationwide shortage of the product last September and reported that sales were up roughly 250% in 2019, passing $638 million for the year. Danelle Kosmal, vice president of Nielsen’s says, “Many hard seltzers are low-carb, low-sugar and they’re doing a really fantastic job at communicating that to consumers. Hard seltzers can also provide a gluten-free alternative to traditional beers brewed with barley and wheat that contain gluten.”
Hard cider and seltzer still only account for 2.8 percent of the beer and spiked cider market, but the momentum is drawing the attention of brewers of all sizes. Some significant beer brands are taking steps to ensure they remain relevant in a loyal but shrinking demographic. “We have a demographic situation that the beer industry has never had to deal with before,” said Lester Jones, chief economist of the National Beer Wholesalers Association. “Unlike 25 years ago, when they didn’t have to worry about this, today companies are walking a tight wire between keeping people engaged with innovation and with legacy brands.”
It is often sad that “history tends to repeat itself”, and the popularity of blended and alternative beverages is not new to the market. In the 1980’s beer-brewers found their market share under attack by E. & J. Gallo, one of the country’s largest wineries, when the wine-maker introduced “Bartle’s & James”, a new brand of product called wine coolers. Less expensive white wines were blended with fruit juices, carbonation, bottled and packaged in familiar six-packs. In 1991, an increase in a federally imposed excise tax on wine raised the cost of the popular blended product and cooled consumers’ flavor for the wine-based drink. That spawned a new malt-based beverage segment with names like Zima Ice and Mikes Hard Lemonade. Tasting like wine coolers but taxed like beer, the new flavorful spirit category unfortunately found a place with a younger demographic, which led to its demise.
This latest threat to beer’s reign as market king is different because of the mass appeal spirited and sparkling beverages have to a broader segment of consumers. “I think that it isn’t like a situation of Zima where it was one brand that was kind of defining that segment,” says Kosmal. “There are a lot of brands that are defining hard seltzers, and as more and more brands continue to enter the market, I think it’s going to help to diversify that conversation a little bit more.” The fact that market leaders with major brands like Anheuser-Busch, MillerCoors and others are making major investments is an indication that they don’t believe this hard seltzer trend is a fad or even one that is likely to diminish in popularity anytime soon.