At a time when overall alcohol consumption in the U.S. is down, the flavored malt beverage (FMB) segment seems to be weathering the storm as consumer consumption trends favor flavor and the purchasing power of millennials looking for affordable luxuries continues to drives sales.
According to IRI, the FMB segment has grown more than +13 percent per year since 2017. In particular, the segment seems to be taking market share from beer.
“Malt beverages have been impacted much less than traditional yellow lager as consumer tastes are shifting towards alcoholic beverages with more flavor,” says Sanjiv Gajiwala, vice president of marketing at Mark Anthony Brands, producers of Mike’s Hard Lemonade and White Claw. “In fact, what we consider to be ‘Flavored Beer’ is growing 6% while ‘Non-Flavored Beer’ is down 1%.”
The FMB segment is proving especially important to companies like Boston Beer Co. and Anheuser-Busch (AB) as it over-indexes in the drinker demographics with whom beer traditionally struggles, including women, LDA and multicultural consumers.
“FMB currently accounts for nearly 5% of the overall beer industry volume and has seen its growth surge in recent years, up double-digits in volume in 2018,” states a report issued by Goldman Sachs last month. The firm forecasts growth to accelerate this year with volume gains of 18.5% as a result of distribution wins and new product launches that are backed by big bucks.
The double-digit growth is also projected to continue in 2020 with the firm estimating volume up 11.5%.
The trends driving the FMB segment are familiar. Consumers are looking for premium products that offer fewer calories and more flavor – ‘healthier’ alternatives to spirits and tastier alternatives to beer.
SELTZER IS BUBBLING UP
Amongst the hottest trends in the segment is seltzer.
“Boston Beer and Mark Antony Brands currently enjoy leading positions in the FMB segment per Nielsen data,” notes the Goldman Sachs report. “For Mark Anthony, White Claw continues to dominate the spiked seltzer category and is growing triple digits per Nielsen despite increased competition from both larger and smaller companies… We see the continued surge in spiked seltzer to be the key driver of FMB growth.”
Beer Business Daily reported in April that the hard seltzer category share of total beer dollar sales is now 2.1–a full point larger than cider, according to IRI data for the 4 weeks ending April 14, in total US multi-outlet and convenience, and White Claw has nine of the top-selling 14 hard seltzer SKUs based on dollar sales.
“The exploding hard seltzer segment is a result of the growing shift toward ‘better-for-you’ products,” notes Gajiwala. “White Claw, the leading brand with a 54% share of hard seltzer sales, offers consumers a refreshing, low-calorie, great-tasting alternative to their usual light beer, white wine or vodka soda.”
While sales for FMBs have traditionally come from the off-premise, White Claw has experienced notable growth in the on-premise. The company reports that 12% of its volume in 2019 has come from the on-premise and distribution has tripled in the channel since this past fall.
The Boston Beer Co., which produces Truly Hard Seltzer and Twisted Tea brands, has also experienced strong growth in the segment while beer sales struggle.
The company’s president and CEO Dave Burwick says: “Truly continues to grow beyond our expectations. We are expanding distribution across all channels and improving our position as a leader in hard seltzer as more competitors enter the category. Twisted Tea continues to generate double-digit volume growth consistent with 2018 full-year growth trends.”
AB is also playing in this space with BON & VIV Spiked Seltzer boasting zero grams of sugar and 90 calories.
PUTTING THE ‘F’ IN FLAVOR
Last month, Four Loko Hemp was launched, tapping into one of the latest flavor trends. The company behind the brand, Phusion Projects, credits the product as one of the first hemp-flavored malt beverages on the market.
In the same way craft brewers have paired hops and hemp together, so has Four Loko. At 12% ABV, the drink contains no actual hemp, CBD or THC, but mimics the flavor profile people think of when they hear hemp, the company explains.
Four Loko, known for having a cult-like following amongst millennials, works to stay culturally on trend and as hemp products and flavors continue to gain traction, this new release “felt like a no-brainer.”
“Our consumers tend to be just as innovative as we are and often have more influence on trends than any idea a professional marketing agency could manufacture. So, when it comes to new flavors and new ideas, we spend a lot of time listening to consumers rather than telling them who to be and what to like,” says Phusion Projects Co-Founder Jaisen Freeman.
The approach seems to be working.
“This year, we sold our billionth can of Four Loko,” he says, “and we expect to hit the second billion faster than the first.”
Industry heavyweight AB is no longer producing Best Damn products (originally launched in 2015 with Best Damn Root Beer) as performance was poor. But it has released two pilot brands to tap into the flavor and health and wellness trend, explains vice president of A-B’s Beyond Beer division, Chelsea Phillips.
LQD Creative Liquids, created in partnership with Ten Barrel Brewery, which is owned by AB, offers naturally fermented coconut water in original and pineapple, and green tea in peach and passion fruit, each with an ABV of 5.2%.
The products are in its second year of pilot, running March through June in California and the Pacific Northwest.
The second is b Beverage Co., an innovation created wholly by AB, which offers b, “a fermented honey product for a light and refreshing drink with a touch of sweetness,” she notes, in Cherry and Blueberry flavors.
The product is made with three ingredients: honey, water and fruit. The alcohol is naturally unlocked from the honey resulting in a 3.5% ABV with 100 calories. It is currently being piloted March through June in Worcester and Boston, Mass. and Portland, Maine.
“These two pilots are being strategically tested to see how they are received by consumers,” Phillips says.
COMPETITION IN A CAN
FMBs seem to be standing tall so what competition does the segment face?
As the canned cocktail craze continues to grow, many companies are also innovating in that arena while others don’t see them as a threat.
“We see little impact,” says Freeman. “Canned cocktails tend to be extremely pricey compared to FMBs and the higher price tag doesn’t always equate to better flavors. That doesn’t mean canned cocktails won’t have their place in the market, just not as a likely competitor to our portfolio.”
Mark Anthony Brands is currently offering a new innovation called Pure, an alternative to vodka and soda.
AB has RITAS margarita-in-a-can and this year launched RITAS Spritz, which is a take on wine-inspired cocktails.
Overall, it’s about premiumization and convenience when it comes to the continued success of FMBs.
“Premiumization continues to trend upward as consumers are seeking upscale versions of their go-to brands,” says Phillips.
Gajiwala adds, “Consumers continue to demand convenience, flavor variety and quality in every single CPG category. Canned cocktails are a natural result of that. Malt Beverages, including premium cocktail brands like our Cayman Jack Margarita, which is growing 50% YTD, are benefiting from that trend.”
As FMBs can sit happily alongside beer, cider, spirits and wine, there seems to be enough space on the shelf.