By Garrett Williams
EDITOR’S NOTE: This article was originally published in the Spring 2020 Magazine.
Trevor Wallace is a YouTube comedian popular for satirizing excess and Generation Z culture by creating stereotypes for the users of popular fad products, including AirPods, Juuls, or Hydro Flasks. In a video published in June of 2019, during the height of the infamous “White Claw Summer,” he exclaims that “There ain’t no laws when you’re drinking Claws.” Although local police departments disagree, in some ways the statement rings true: the entrance of hard seltzer has broken conventional standards and wisdom within the alcoholic beverage industry. Through the proliferation of countless brands and its firm grasp on millennial and Generation Z culture, hard seltzer has taken the world by storm. On one hand, hard seltzer’s disruptive power could be the byproduct of just another fad. But on the other, hard seltzer could eventually take over the beer industry, therefore redefining America’s drinking culture. Regardless, craft beer expert and bestselling author Josh Noel poses a central question: “How did a category that barely existed three years ago get this big?”
The economic impact of hard seltzer confirms its popularity. According to analysis from the investment banking firm UBS, the hard seltzer industry will grow to a $2.5 billion market by 2021, with a nearly 66 percent projected annual growth rate and a jump from 16 million to 72 million cases produced annually. Sales of the most popular brands like White Claw have nearly doubled in the last year. The staggering growth rate has posed several issues for companies needing to scale their production quickly. White Claw experienced a nationwide shortage of their product last summer, as sales of hard seltzer and other fruit-flavored drinks spike during warmer months. The popularity of hard seltzer has created a distinct culture around it. It now regularly dominates everything from college parties, to internet jokes, to summer cookouts. As a massive cultural force, hard seltzer is a crucial product and industry to understand.
The success of hard seltzer is attributable to an array of factors coming together at the perfect moment, resulting in its exponential growth in the last two years. First, hard seltzers are not reinventing the wheel. There have always been fruity, hoppy alternatives to beer, nicknamed “malternatives.” Smirnoff Ice and Mike’s Hard Lemonade are two prominent examples. Most come and go, as the highly sugary drinks do not have wide appeal.
Hard seltzer is also a response to a growing health-conscious population with an aversion to added sugars and [highly] processed foods. The popularity of hard seltzer is growing alongside vegetarian diets, while habits like smoking and soda consumption are in decline. Alcohol drinkers have always been looking for ways to cut unnecessary calories out of their drinks. Light beer originated in 1967, and now a majority of top-selling beers are light beers, which contain less alcohol and significantly fewer calories than regular beer. Hard seltzer is no different, but it offers a substitute to beer altogether. White Claw’s official website advertises the drink as gluten-free and free of any artificial colors or preservatives. More importantly, hard seltzer carries next to none of the sugar that original beer alternatives did and has a slightly fewer calories than light beer.
The health benefits of hard seltzer versus traditional malternatives stem from its brewing process. The brewing process of traditional beer alternatives like Mike’s Hard Lemonade is typically the same as beer, with both deriving their alcoholic content from cereal grains like barley. To make these beer alternatives taste less like beer, manufacturers add high amounts of sugar and flavorings, sometimes even more than soda, to mask the taste. As a result, one bottle or can of a malternative beverage has several hundred calories. However, the alcohol in hard seltzer is produced from a sugar base instead of a grain base. During the fermentation process, the sugar is converted to alcohol. Since hard seltzers do not need any additional sugar to mask the taste, hard seltzers typically only range from 90 to 120 calories with little to no sugar, usually one to two grams that comes from its flavoring. The alcoholic content of hard seltzer is also similar to light beer, ranging from four to six percent alcohol by volume (ABV).
Mark Anthony Brands’ White Claw currently commands over 60 percent of the hard seltzer market. Its dominance is due to one simple fact: they were first. The advantages that originate from being the first company to launch a new product is called the first-mover advantage. First movers often benefit from strong customer loyalty and brand recognition. Mark Anthony Brands also has previous experience manufacturing and marketing beer alternatives, being the makers of Mike’s Hard Lemonade. However, because White Claw is the preeminent brand in the seltzer sphere, it also has the most to lose. In the near term, it will have to defend its market share against aggressive rivals as well as new entrants, as the industry will likely fragment with more brands and more varieties of hard seltzer.
The second largest player in the industry is Truly, owned by the Boston Beer Company. Truly has a 30 percent market share and was also one of the first hard seltzers to hit the market. The Boston Beer Company also had experience in the beer alternative space with the well-established Twisted Tea spiked iced tea and Angry Orchard hard cider brands, in addition to more experimental beverages like a hard tea and a hard kombucha.
A smaller but much more powerful player in hard seltzer is Anheuser-Busch InBev, owner of three hard seltzer brands. It manufactures Bon & Viv, Natty Light Seltzer, and Bud Light Seltzer. AB InBev’s strategy is to capture market share by attacking multiple price points: Bon & Viv is priced at a premium, Bud Light Seltzer is priced in the middle (the same level as White Claw and Truly), and Natty Light Seltzer is priced as a budget option. AB InBev has three distinct strengths that may lead it to eventually dominate the industry. First, it is the largest brewery in the world and has significant production capabilities. It is better able to scale its production to match growing demand, something that White Claw failed to do and that Truly will potentially struggle to do this year. Second, as the largest brewery in the world, they have a lot of money to spend on marketing. In fact, Bon & Viv is the “official hard seltzer of the NFL” and is the exclusive supplier of hard seltzer for several NFL stadiums. Third, Natty Light Seltzer is currently the only major budget seltzer on the market, and attracts a majority of the college-aged market with little to no competition at its price point.
The rest of the industry is fragmented, with approximately 20 established brands. Some are independent brands and even regional in nature. The regional brands are often hard seltzers produced by craft breweries, another trend that is disrupting the beer industry. Other small players are large breweries extending their well-established alcohol brands, such as Corona and Smirnoff.
The future of the hard seltzer industry will likely be defined by proliferation and fragmentation. New and recent entrants with immense capabilities to scale production and marketing like AB InBev will likely chip away at the market share of White Claw and Truly. New and established brands will likely differentiate their offerings through alcohol content, flavors, packaging, sizes, distribution, and brewing process. White Claw appears to be proactively responding by developing a new product. Mark Anthony Brands applied for a trademark on “White Claw Hard Seltzer Surge” in May 2019, a product that has not yet been announced. It may face difficulties with getting the trademark, however, as Coca-Cola filed a formal complaint citing its trademark on a brand of 1990s soda called Surge.
In the next few years, we will most likely see hard seltzer disrupt the alcoholic beverage industry the same way light beer did several decades ago. This comes in addition to the disruption the industry is experiencing from craft beer. The main difference between disruption caused by hard seltzer and by light beer is that hard seltzer exists as an alternative to beer altogether, and will therefore draw from a wider audience. Ultimately, the industry has experienced these disruptions before, but never by a product that is a complete alternative to beer. To proactively counter the rise of hard seltzer, firms will need to establish more flexibility in their product mixes, as today’s business environment is increasingly volatile. There may be laws while drinking Claws, but hard seltzer will continue to break them.