Moment of Clarity

When did things get so clear?

Barely two years ago, consumers started going crazy for hard sodas, led by Small Town Brewery’s Not Your Father’s Root Beer. But the segment is already showing signs of fatigue and the industry seems to be moving on to the next thing.

That next thing isn’t something completely different, however, and it can be read as more of an evolution of the fledgling category that gave us alcoholic versions of root beer, ginger ale and orange soda.

Actually, it is, in a sense, something of a regression, as its got significantly less sweetness and color – none of the latter, in fact.

Hard seltzer is still a tiny sliver within the relatively small flavored malt beverage (FMB) category, but it’s a subsegment in which the industry has been investing in fairly significantly in the past year.

A good measure of how seriously the market takes an emerging segment is how much skin the large, multi-billion-dollar beverage companies have in the game. And there’s been quite a bit of activity on that front. Anheuser-Busch InBev last fall acquired Boathouse Beverage LLC, creator of the popular SpikedSeltzer brand, barely a year after the former launched the Best Damn line of hard sodas. Then, in March, MillerCoors (now officially a wholly owned subsidiary of Molson Coors) expanded its Henry’s Hard Soda line to include Henry’s Hard Sparkling, which it describes as a “new line of light and refreshing sparkling waters.” Each of the two initial Henry’s Hard Sparkling products is lightly flavored – one with lemon and lime and the other with passion fruit.

“The popularity for sparkling water brands has been on the rise for some time now,” says Elizabeth Cook, brand manager for Henry’s Hard Sparkling. “We saw an opportunity to tap the sparkling water trend with Henry’s Hard Sparkling. We also know that people are looking to explore options to meet their changing lifestyle.”

Diageo Beer Co. USA is approaching the segment via a slightly different route. It bypassed the root beer stage entirely and went right to hard seltzers and it’s leveraging a longstanding trademark in the FMB space, Smirnoff Ice. The product has been a leading player in the space since its introduction nearly two decades ago – market research group IRI ranks it as the category’s No. 5 brand – and now the familiar brand name appears on the label of one of Diageo’s newest product lines: Smirnoff Spiked Sparkling Seltzer. Its first offerings also are lightly infused with fruit flavors: watermelon, orange-mango and cranberry-lime.

Diageo sees the hard seltzer boom as an outgrowth of trends involving its non-alcohol counterpart.

“Consumers have seen seltzer as a top choice when it comes to mixers for years,” notes Krista Kiisk, brand director, flavored malt beverages, for Diageo Beer Co. USA. “In fact, the non-alcoholic seltzer and sparkling water category has grown more than 50 percent over the last five years alone.”

The stellar growth of La Croix, for instance, illustrates that trend.

“We have seen a shift in the malt beverage category that reflects this preference,” Kiisk adds, “and the evolution of consumers’ taste preferences from higher-calorie, more sugar-forward malt beverages, to ready-to-serve, less sweet, lower-calorie options.”

“Light” is a recurring theme among many hard seltzer brands’ marketing campaigns. They manage to be a lower-calorie alternative to hard sodas without being “diet,” and they fulfill a particular need state since a low-cal hard soda segment hasn’t emerged.

“More than half of consumers feel there are not enough low-calorie options available and tend to go outside the beer category and choose wine or spirits instead,” Kiisk says.

At 90 calories and 1 gram of carbs per 12 oz. slim can, Smirnoff Spiked Sparkling is the lightest option among the major brands. Henry’s Hard isn’t far off, at 93 calories and 2.9 grams of carbs for the lemon lime flavor and 92 calories and 2.6 grams of carbs for passion fruit. Boston Beer Co.’s Truly Spiked & Sparkling brand has 100 calories and 2 grams of carbs in each of its varieties.

“Drinkers are looking for ways to make their calories work harder for them and spiked sparkling waters like Truly Spiked and Sparkling deliver on this,” says Casey O’Neill, part of Truly Spiked & Sparkling’s innovation team.

White Claw, from Mark Anthony Brands – the company behind one of the best known FMB brands, Mike’s Hard Lemonade – clocks in at 110 calories for each of its three flavors, Natural Lime, Ruby Grapefruit and Black Cherry.

SpikedSeltzer, meanwhile, is the most caloric of the bunch, at 140 calories and 5 grams of carbs (there’s a bit of crystalline fructose in the mix).

Clearer, lighter and less sweet sparkling FMBs seem to have come on the market at the right time, as full-flavored hard sodas might be hitting a ceiling. A good bellwether is the segment leader, Not Your Father’s. When Small Town Brewery signed a distribution partnership with Pabst about two years ago, sales volume increased several hundred percent through the end of 2015. But for the 52-week period that ended mid-March, Not Your Father’s case sales and revenue in most major off-premise channels dropped more than 37 percent versus the prior 52-week period, according to IRI. Best Damn and Henry’s Hard grew nearly 200 percent and 400 percent respectively, but neither had been on the market for much of the prior 52-week period (Best Damn was available for about a quarter of that period and Henry’s Hard for about one-sixth of it). The figures for Best Damn six to eight months from now might be a better gauge of where that segment is heading. It may be more difficult to get a read on Henry’s Hard in the short-term, as IRI measures the entire trademark family, which will include the newly launched seltzers.

It remains to be seen whether hard seltzers will help offset some of the softness that could be on the horizon for the root beers and their ilk. Anecdotally, the prospects seem a bit mixed – particularly on the distribution tier.

“The category is slower than anyone expected, I think, in starting,” reveals Gary Thompson, executive vice president and general manager of Orion, Mich.-based Powers Distributing. “I know that there is much talk about the rapid growth of La Croix waters and the expectation that its growth would start to translate into growth on the alcoholic side.”

How much the segment picks up depends on how aggressively the mega-players market their product lines.

“The big guys drive the category,” offers Thompson. “ABI may promote the category enough that it starts [selling] in earnest…So, if I had to guess – in five years, if it gets the support from the larger brewers, it might be about 3 to 5 percent of the beer business. “

At the same time, Thompson is concerned that it could become “a flavor game” – one with “not a lot of branding and loyalty, a lot of SKUs and fractionalized volume.”

And that’s been, more or less, the prevailing narrative in hard sodas, not to mention the FMB category as a whole.