Four Beer Industry Storylines To Watch In 2022

Entering 2022, the beer industry remained in a state of recovery.

In March 2020, the COVID-19 pandemic had wiped out an entire sales channel and shifted purchasing to off-premise retailers, which fueled a growing number of at-home occasions. Eighteen months removed from those events, the industry was still mounting its comeback.

As a relative normalcy returns this year, here are four storylines that will help shape the industry’s hopes for recovery in 2022.

The Blurring of Non-Alc and Bev-Alc (and Cannabis)

Pick your partners and saddle up. Soda giants Coca-Cola and Pepsi, energy drink maker Monster, and global cannabis firm Tilray have entered beverage alcohol in various fashions, some deeper than others.

Monster made a dramatic commitment to bev-alc in January with the $330 million acquisition of the CANarchy Craft Brewery Collective, giving it not only a top 10 craft platform with top brands Cigar City and Oskar Blues but also a built-in infrastructure to produce its own alcoholic beverage brands — just not under the Monster name. And Monster may not be done, with rumors of a potential tie up with Mexican beer and spirits giant Constellation Brands seeming to be unending.

Meanwhile, Pepsi’s entry into the alcohol space via a partnership with Boston Beer Company on Hard MTN Dew just began rolling out to Florida, Iowa and Tennessee, with additional states to follow in early spring. Pepsi is making its own commitment with a distribution business called Blue Cloud Distribution to sell, deliver and merchandise the product.

Pepsi CEO Ramon Laguarta has said the company is open to licensing more of its brands to bev-alc producers, and Blue Cloud could be leveraged to distribute alcoholic beverages from other producers.

For its part, Coca-Cola has eased into bev-alc through partnerships with Molson Coors (Topo Chico Hard Seltzer, Simply Spiked) and Constellation Brands (Fresca Mixed). Topo Chico Hard Seltzer is now a top five seltzer brand.

Beyond beverage makers, Canadian cannabis firm Tilray continues to expand distribution of the SweetWater beer brand across the U.S. — and has added to its bev-alc portfolio with bolt-on acquisitions of the Green Flash and Alpine beer brands and Breckenridge Distillery. Those moves come as the wait for federal legalization of cannabis slowly lurches forward.

Mark these partnerships as only the start of a trend that’s not about to abate anytime soon.

Flavor-Forward Offerings Drive Beer Category Growth

The search for growth in 2021 led to more flavor-forward offerings, according to Bump Williams Consulting.

“Flavors clearly stand out as a common thread when it comes to answering the question of ‘Where is growth coming from?’” Williams wrote in a report. “Whether it jumps off the page like ‘Beyond’ Beer and RTD Spirits do below, or it lurks throughout the list of ‘Top Growth Brands’ for any of the core category segments … the incremental contributions from flavor can’t be discounted, particularly as of late.”

The flavor-driven segments that posted the largest growth in dollar sales in 2021 included hard seltzer (+11.4%), hard tea (+23.1%), hard kombucha (+31.2%), hard lemonade (+2.5%) and hard coffee (+12.1%), according to data from market research firm NielsenIQ that includes off-premise sales at chain and independent retailers for the full 2021 calendar year. All outpaced “core beer,” which posted a -4.8% decline in dollar sales for the same time period.

Several flavor-forward brands drove growth in both traditional beer and beyond beer last year, including Mark Anthony Brands’ Cayman Jack Margarita flavored malt beverage (+39.6%), Constellation Brands’ Modelo Chelada Mango Y Chile (+85%), Anheuser-Busch InBev’s Busch Light Apple (+278.8%), Heineken USA’s Dos Equis Lager with Lime and Salt (+3,905.9%) and Boston Beer Company’s Twisted Tea Original (+23.4%).

The beyond beer segments of the category have gotten increasingly crowded, Williams noted. Last year, nearly 300 beer category suppliers registered sales of beyond beer offerings and the number of beyond beer brands (1,300) and SKUs (2,000) both increased.

“Still, even with the massive influx of new suppliers/brands/SKUs, the ‘Beyond’ Beer landscape remained primarily a two-horse race between Mark Anthony and Boston Beer, which collectively accounted for 73% of all ‘Beyond’ Beer dollar sales in 2021 (41%, 32% respectively),” Williams wrote.

Within craft, IPA and imperial/double/triple IPAs were the two fastest-growing style subsegments, increasing off-premise dollar sales 10.4% and 9.7%, respectively, according to NielsenIQ data. Both hazy and imperial increased their dollar share of craft by a little more than 1% last year. Helping drive that growth is Voodoo Ranger Imperial IPA, which was the second best-selling craft brand in 2021 and the top-selling IPA in the beer category.

In the spirits category, ready-to-drink offerings “also multiplied exponentially” with more than 230 suppliers and “well over” 1,000 SKUs, Williams wrote. E. & J. Gallo’s High Noon Sun Sips accounted for nearly one-third of the segment, followed by Cutwater Spirits maker A-B, Beam Suntory, Monaco maker Atomic Brands and Diageo.

The RTD segment’s remaining roughly 220 suppliers account for the final third of the segment’s sales, including Dogfish Head, Fisher’s Island and Finnish Long Drink.

Growing Number of Companies Chase Non-Alc Beer Sales

Beer category growth wasn’t limited to products that will give you a buzz. The non-alcoholic beer segment increased dollar sales +24%, to $236.4 million, last year in off-premise channels tracked by market research firm IRI.

A growing number of companies are looking to keep that momentum going in 2022, led by Athletic Brewing and several other craft breweries, as well as Heineken USA.

Following a year of explosive growth, non-alcoholic craft brewer Athletic Brewing is launching Athletic Lite, a non-alcoholic light beer that checks in at 25 calories, 0 grams of sugar, and 5 grams of carbohydrates. The beer has been in development “in earnest for the better part of two years,” co-founder and head brewer John Walker told Brewbound. Athletic Lite is brewed with all organic grains – malt, wheat and a proprietary rice product – and Hallertau and Saaz noble hops.

Athletic Lite is the most requested new style from the brewery’s wholesale and retail partners, according to co-founder and CEO Bill Shufelt. And for good reason: The three biggest light beer brands (Bud Light, Coors Light and Miller Lite) earned $9.412 billion in off-premise sales in 2021, according to market research firm IRI. Combined, they accounted for 21.27% of beer category dollar sales at multi-outlet food and convenience stores through December 26.

However, dollar sales of all three declined last year, as did dollar sales of the broader domestic premium segment (-5.9%, to $12.1 billion), according to IRI.

Athletic, which crossed the 100,000-barrel threshold in 2021, sees an opportunity to create more occasions and attract the beer industry’s largest consumer base with its light beer.

Athletic Lite is available through the company’s direct-to-consumer website. The beer launches too late for spring resets at major chains, so Athletic is looking at independent retailers for now. But the beer will be available at Whole Foods Market and Total Wine. Eventually, Athletic Lite will roll out to bars and restaurants.

“We expect this to potentially be a big on-premise beer,” Shufelt said.

Meanwhile, Alberta, Canada-based Partake Brewing raised $16.5 million in a Series B funding round led by California-based investors PowerPlant Partners and Amberstone, as well as existing investors CircleUp Growth Partners (San Francisco), Barrel Ventures (Chicago) and McLean & Associates (Ottawa, Ontario).

The latest funding will be used to continue Partake’s growth in the U.S. and Canada, “specifically by building brand awareness and consumer love,” according to a press release. The company will “expand [its brands’] retail presence” this year, and intends to “reach new geographic markets while expanding distribution across key channels.” Additionally, Partake will expand its regional teams, including adding “key leadership roles.”

The round comes two years after the company raised $4 million in Series A funding.

Partake entered the U.S. market in December 2020 with distribution in Arizona, Maine, Massachusetts, North Carolina, Oregon, Rhode Island and Washington. In March 2021, the company expanded into 11 additional states. Its brands are now available in more than 5,000 retail locations across the U.S., including Total Wine, Whole Foods, Wegmans, BevMo!, Ralphs, Vons, and Pavilions, as well as through direct-to-consumer shipping nationwide.

As existing non-alc craft beer brands level up – and existing craft brands add their own NA offerings, new competitors are joining the fray. Known for its four-SKU line of RTD hopped teas, Boulder, Colorado-based Hoplark is entering the non-alcoholic “beer” market with Hoplark 0.0, a zero-calorie, zero-ABV craft brew line that arrives in stores this month.

Launched in 2018 with hopped teas and hop-infused sparkling waters, Hoplark is now courting non-alc beer consumers. Co-founder and CEO Dean Eberhardt said Hoplark 0.0 aims to deliver “in-your-face craft beer experiences,” starting with the double dry-hopped Citra Hops.

With no fermentation involved, it should be noted that Hoplark 0.0. isn’t technically a beer. But with just three ingredients — Citra hops, sparkling water and citric acid — the product is distinguished as much by what is left out than what is included.

“As amazing as what everyone has done in NA beer, they aren’t diet products. They have calories and gluten,” he said. “We view this opportunity as this totally unique flavor technology and what we’ve been able to do in our brewery to pull flavor and aroma out of hops without any of the bitter or off flavors. That can be applied to this problem in a really powerful way.”

The product is rolling out to BevMo, Natural Grocers, Sprouts, Fry’s Food Stores and King Soopers locations, with an initial focus on the West Coast, Southeast and Northeast, all “large craft beer geographies,” Eberhardt said.

Treasury Issues Report on Alcohol Industry Competition

The U.S. Department of the Treasury released a 60-plus page report in February on competition in the beer, wine and spirits industries, which took aim at several anti-competitive practices, offered recommendations for leveling the playing field within the alcohol industry and called for increased scrutiny of mergers and acquisitions. Whether that report will directly affect the business is still unclear.

However, many expect a more critical eye on deal activity and certain practices, such as category management, tying and sponsorships.

McDermott, Will & Emery partners Alva Mather, head of the firm’s alcohol regulatory and distribution group, and Gregory Heltzer, who specializes in defending mergers and acquisitions, penned a reaction to the report and hosted a webinar in which they zeroed in on three areas that the TTB, Federal Trade Commission (FTC) and Department of Justice (DOJ) are most likely to focus on: anticompetitive conduct, mergers and transparency.

Within anticompetitive conduct, Mather and Heltzer predicted more scrutiny of category management, which drew “many complaints of large producers and distributors acting as category captains and eroding the independence of retailers (through inducements or simply by controlling the planogram software).”

“This conduct may be hampering competition, reducing consumer choice and resulting in higher prices,” they wrote.

Tying, the practice through which suppliers or distributors require distributors or retailers to purchase certain undesirable items in order to purchase desirable ones, was the second anticompetitive practice likely to receive more scrutiny from the TTB, according to Mather and Heltzer. Although the TTB has historically investigated such arrangements, it has not done so in recent years. However, tying comes into sharper focus in light of the convergence of bev-alc and non-alc brands.

Mather and Heltzer also called out exclusionary conduct, such as “a dominant distributor us[ing] exclusive contracts with suppliers to impede effective competition by smaller distributors.” Recently, the TTB accepted offers in compromise from wholesalers in Iowa and Illinois for exclusionary practices at venues and events for which those wholesalers had sponsorship agreements.

With increased trade practice enforcements already ongoing, the federal government appears now to have license to go even harder after anti-competitive practices and take a more critical look at M&A activity, which there will be no shortage of in the months and years to come.