Boston Beer overestimated demand for hard seltzer as once-hot category shows signs of slowing

Dive Brief:

• Boston Beer President and CEO Dave Burwick said the company “overestimated the growth of the hard seltzer category in the second quarter and the demand for” its hard seltzer offering Truly in a statement released with its second-quarter 2021 earnings. The alcohol company said it increased production to meet summer demand, which failed to materialize to the extent it predicted.
• Burwick told analysts during Boston Beer’s second-quarter earnings call that there are too many brands in the hard seltzer category that are the same and not enough shelf space, leading to the prediction that some will ultimately be discontinued. “The problem is everything becomes the same. ….  And I think a lot of those brands will be gone,” he said.
• Hard seltzer has been a popular avenue for growth at major brewers as consumption of their iconic brews continues to slump. Nearly every major brewer, including AB InBev, Heineken and Molson Coors, have at least one hard seltzer on the shelf.

Dive Insight:

As the summer was approaching, Boston Beer made the big bet that the torrid growth that has lifted hard seltzer in recent years would continue to materialize. Instead, it found demand was far less robust than it predicted, an ominous sign that could indicate long-term softness in a category that has been a financial boon and was positioned as a big part of the alcohol industry’s future.

Boston Beer’s misstep pummeled the company’s stock, with shares of the maker of Sam Adams beer and Twisted Tea down $231 to $716 in mid-morning trading on Friday.

Boston Beer founder and chairman Jim Koch blamed the hard seltzer decline on slowing growth in household penetration as the market matures and there is less new trial, a transition of volume to the on-premise channel, more hard seltzer choices and a challenging comparison period to last year when consumers were pantry-loading.

The industry is dominated by Truly and Mark Anthony Brands’ White Claw, collectively commanding 75% of the category, with countless others like Bud Light Seltzer, Topo Chico Hard Seltzer, Vizzy and Corona Hard Seltzer fighting for market share.

The challenge for hard seltzer is that as its popularity rose, beer companies couldn’t wait to get their own offerings out on the market in an effort to capture a portion of that growth. As Boston Beer’s executives noted, this led to a proliferation of hard seltzers that were largely the same, resulting in confusion among consumers inundated with choice.

The bet by the industry was that the rapid growth in demand for hard seltzers would continue so there would be enough demand to absorb all these brands. But at some point, too much choice has the opposite effect, and could actually serve to undermine growth. Couple that with a slowdown in consumption, and the hard seltzer category was set for a rude awakening.

Still, there were early signs the market was bracing for a correction.

According to data from NielsenIQ, hard seltzer sales were up more than 51% for the 52 weeks ending July 10, 2021, but in the final 12 weeks of that period sales were only up 7.8%. 

Molson Coors recently announced it was ending production of Coors Seltzer to allow the company to focus on more popular hard seltzers in its portfolio such as Topo Chico Hard Seltzer and nutrient-infused Vizzy.

Coca-Cola CEO James Quincey said the beverage giant, which is partnering with Molson Coors on Topo Chico Hard Seltzer, is assessing the category before determining whether to expand its presence. “We want to learn and understand more before we decide anything one direction or the other,” he said during the company’s second-quarter earnings call this week.

Quincey noted that unlike soda, tea, juice, water or coffee, where Coca-Cola dominates along with PepsiCo, alcohol is a different industry altogether with unique characteristics and regulatory requirements. But the fact that Coca-Cola is noncommittal could be an indication of just how crowded the category is or that the Atlanta CPG giant wants to see how demand plays out in the coming months and years before deciding how to respond.

If hard seltzer is suddenly slowing because of the reasons Koch mentioned, it could explain why companies like Molson Coors decided to stop making Coors Seltzer.

It could also serve as a wakeup call to the alcohol industry that a bumpy road is ahead, and those who remain will need to diversify their offerings to stand out. Molson Coors did just that with Vizzy, which is made with acerola cherry, a superfruit that has 30 times more vitamin C per cup than an orange. And Boston Beer announced last week it was partnering with premium spirits maker Beam Suntory to launch products that bring Truly Hard Seltzer into bottled spirits.