Hard seltzers have taken over. What will it take to win in the $4.5 billion category?

There are now more than 150 brands competing for customers and shelf space in the hard seltzer category. Who will win the hard seltzer wars?

Onda, launched last summer, makes tequila-based seltzers. (Photo: Onda)
CATEGORY DIVE

Hard seltzer brands are gearing up for another big summer season. But will this year be a White Claw summer — or will another brand take the hard seltzer crown?

White Claw and the Boston Beer Co’s Truly have the market cornered, accounting for over 70% of the market’s sales, and as more people have started sipping on these boozy sodas, more brands have naturally entered the ring. There are now more than 150 brands competing in the hard seltzer space, according to NielsenIQ data shared with Thingtesting, and year-to-date sales are already up 34% compared to the same period in 2020. In 2020, the category hit $4.5 billion in global sales.

In the U.K., Served, DRTY and &Soda are three independents fighting it out for market share, while the U.S. has seen Two Robbers, Elenita, Onda and more launch with their own spins on hard seltzer. Alongside them, the big beverage giants are making their own moves. At the start of this year, AB InBev announced it would be investing $1 billion in the category over the next two years, following seltzer extensions of its Michelob and Bud Light brands. The company also acquired hard seltzer brand Bon & Viv (known at the time as Spiked Seltzer) in 2016. Coca Cola, Asahi and Constellation Brands all have their own hard seltzer lines, too.

It’s now a crowded field, throwing up all sorts of challenges for the small brands that had identified their momentary gap in the market. “White Claw coming [to the UK] was a good thing for us, helping to put ad spend behind the category and raise awareness,” says Matija Pisk, the cofounder of DRTY. “The idea was that we’d always ride that wave – but the way it’s panned out, there’s far more competition than we expected.”

The meteoric rise of the hard seltzer category

Hard seltzers seemingly came out of nowhere. Bon & Viv’s founders say they were the first to start selling the product, having launched in 2013. Three years later, White Claw hit the scene, sending drinkers into a frenzy.

Many pundits have tried to explain the reasons behind this meteoric rise, from White Claw’s gender-neutral advertising strategy, to the category’s broader focus on clean drinking.

It could well be that it’s a case of right place, right time, right millennial mindset. “Seltzer is beautifully positioned at the intersection of convenience and better for you drinking,” Noah Gray, the cofounder of tequila seltzer brand Onda, says. “While no one would say drinking alcohol is necessarily good for you, I think these beverages can make a claim to being a better-for-you, more balanced option for social drinking.”

A typical can of hard seltzer will boast that it comes in at around 100 calories, with an ABV of 5% or less – Onda, which launched in July 2020, is no exception. Labels like “no sugar” and “no carb” and are common features of these cans, to max their appeal among millennial drinkers. Even when indulging in something as objectively not good for you as alcohol, this generation still says health and functionality are among the deciding factors behind what they drink.

Building in a booming category

Operating in a category that has grown so fast that it has inspired even the biggest beverage behemoths to move quickly means independent hard seltzer brands have had to rethink not just their distribution strategy, but their reason for being. In other words: it’s no good selling a very similar alternative to White Claw when there are heaps of other brands on the market doing the same thing.

Pisk says small brands will have to “accept” that the large players are going to be the ones to get the shelf space at grocery chains and big box retailers. Other opportunities have opened up, though. It’s unlikely, for example, that a company like Constellation Brands will see the value in navigating the fragmented landscape of convenience stores and other independent retailers.

Lunar, a hard seltzer brand that flavors its drinks with fruits sourced from Asia, launched in October 2020 and is already stocked in more than 100 stores and 70 restaurants across the U.S. The brand’s cofounder Kevin Wong says that because Lunar is sufficiently differentiated from the more generic hard seltzers that launched in the category’s first wave, distribution partners have been willing to make space on their shelves or menus for the product.

“No one knew what a hard seltzer was a few years ago. Now everyone’s aware, and the remaining challenge is not ‘what is this?’ but ‘why is this better?’,” Wong says, referring to conversations he is having with retailers and restaurants. “Restaurants have been a phenomenal green space for us where mass-market seltzers aren’t really able to penetrate.”

The types of high-end restaurants that Lunar stocks haven’t shown much appetite for hard seltzers before – worrying that it won’t taste good enough to complement their food – but Lunar’s focus on ingredients and sourcing has opened the door for those conversations, Wong says.

The hard seltzer shakeout

There are now two sides emerging in the hard seltzer category – the “mass market” that Wong refers to are taking aim at college kids at beach parties, or people who simply want something they can drink all night at a party without having to worry about beer bloat. These customers aren’t so concerned when it comes to brand differentiation. Then there are the more premium seltzer brands – the ones focusing on flavor, production and brand story, who are going after a more discerning drinker. Like the craft beer movement before it, these brands are hoping that customers who have tried the entry-level hard seltzer brands will then level up to their product.

Gray predicts there will be a category shakeout over the next few years, split along these lines. “We’ve absolutely been in a period of expansion for the last three years – and there will be a consolidation,” he says. “That’s already happening. National [retailers] are cutting down on the number of seltzer SKUs that they’ll carry, and I think you’ll see a core set of core [brands] that will really thrive.”

There has already been one recent casualty: last week, Molson Coors discontinued its Coors Seltzer, deciding instead to focus on the hard seltzer brands in its portfolio that aren’t as closely associated with its beer brands.

Gray also explains that diversifying in terms of the spirit base that is used – Onda’s is tequila, while the typical hard seltzer uses a malt-liquor base which is brewed like beer – presents opportunities. First, it allows brands to tap into the ideas of luxury and heritage that might be associated with that particular drink. Second, it also creates a white space when it comes to distribution. In the same way Lunar can differentiate itself on an ingredient level, Onda can approach retailers to become perhaps the only tequila seltzer they stock (although this category is also becoming increasingly crowded). It’s a space that’s difficult for both big beer producers and big spirit makers to occupy.

“If you’re a big beer brand, you can do a seltzer and flow that through your distribution channels – but the distribution channels for spirits are different,” Gray explains. “And if you’re a tequila brand, the strategy for selling cans looks quite different [to non-refrigerated bottles], so it’s difficult for them to flex into the space as well.”

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