As the beverage industry continues to embrace sustainable packaging initiatives, the North American market for aluminum cans is expected to grow between 4-6% through 2025, according to Ball Corp., the leading U.S. manufacturer of metal packaging for beverages.
A Credit Suisse Equity Research analysis of Ball’s virtual Investor Day event, held on Tuesday, reported that beverage companies in high growth categories are leading the industry packaging shift toward recyclable cans. According to Ball, alcoholic beverages in particular lead the pack, contributing 50-60% of growth, followed by water at 25%. Growth in the energy drink category, as well as moves towards cans in the tea and kombucha spaces, also mark a broad omnichannel transition away from plastic and glass.
The rise of hard seltzer has contributed to the increase in can usage over the past year, as the category takes market share from wine and spirits. In particular, Ball announced that Mark Anthony Brands had “locked-in contracts” for six billion cans to be produced next year.
Aluminum cans are also the top format choice for new beverage brands, with 67% of product launches coming in metal in 2019 compared to just 36% in 2015. Brands that have traditionally utilized glass, such as Topo Chico, Mike’s Hard Lemonade and Michelob Ultra, are also turning to aluminum for new hard seltzer lines set to debut in the coming months.
“[The] fad for product launches in 12 oz. slim cans [is] now looking permanent, and nearly the rule in seltzer,” Credit Suisse analysts wrote in the report. ‘Amidst tight supply, slim cans [are] possibly the most difficult to get a hold of. Sourcing cans could become the gating factor for product success, particularly for medium to small brands.”
But with this growth may also come “intensified competition” for can supply, Credit Suisse warned. Ball found that the U.S. is “short” roughly 10 billion cans this year — about 9% of total 2019 sales — as the supply chain continues to feel the brunt of the COVID-19 pandemic. Since March, can usage has increased due to higher levels of at-home consumption and larger pack sizes. Credit Suisse added that in a “worst case scenario,” shortages could continue into next summer, requiring brands to rely on imports in the interim.
Strategics such as The Coca-Cola Company, PepsiCo and Keurig Dr Pepper are at large enough scale that they are expected to withstand domestic can shortages, but even as these companies announce initiatives to move towards sustainable packaging their transition away from plastic “remains slow,” Ball said.
In beer, Anheuser-Busch InBev and Constellation Brands are in similarly strong positions to weather can shortages due to more diversified packaging formats. Only 31% of Constellation’s product lines are in cans, compared to 66% in glass. However, Molson Coors and Boston Beer Company may see some challenges ahead: 70% of Molson Coors’ beer products are in cans and the brand’s extension into new non-alc product lines rely heavily on metal packs. Boston Beer could also run into shortages for its Truly line of hard seltzers and the relatively smaller company could be at a disadvantage, Credit Suisse stated.
Regardless of challenges, Ball has reaped many of the benefits of the increase in demand. In 2019, U.S. manufacturers produced 110 billion cans and Ball accounts for 84% of all sales for metal beverage packaging. The company has already pre-sold eight billion units of new capacity in 2021 and 25 billion units of capacity through 2023, with an additional 20 billion units by 2025. The company is also partnering with select brands, including Red Bull and Mark Anthony Brands, to open new canning facilities in the Southwest.
Outside of the U.S., the use of cans continues to accelerate. In South America, the market is expected to grow between 5-8% in the coming years as categories such as many legacy brands transition from glass to metal. Government sustainability mandates are also driving the shift, Credit Suisse noted.