Editor’s Note: 3 Up, 3 Down with 3 Tier Beverages is a quarterly insights series available to Brewbound Insiders, via the Chicago-headquartered, beverage-alcohol-focused consulting and data firm.
In this latest installment of 3 Up, 3 Down, 3 Tier product team consultant Stephanie Roatis shares a trio of insights on industry growth and three underperforming areas through the summer selling season and into the first week of October.
Roatis analyzes craft and hard cider growth in c-stores, including which brands are recording double-digit gains in the channel, and examines the performances of new versus old flavored malt beverage (FMB) brands. She also looks at the impact of ready-to-drink canned cocktails (RTDs) on overall spirits trends, the continued consolidation of hard seltzer and shifts in beer style trends.
Below is Roatis’ analysis, using NIQ data through October 7.
THREE UP:
Craft on the Come-Up in Convenience
After facing a challenging period of post-COVID comparisons, craft is outperforming expectations in one channel: convenience. While craft only makes up about 4% of total c-store volume sales, it’s up +$97 million in the latest 52 weeks. Dollar sales are up +6% in the latest 13 weeks, with volume up +1.3%.
While volume trails dollar growth, the difference is not necessarily coming solely from retail price increases on existing products, but also from craft giants successfully growing high-gravity, fruit-forward line extensions of their existing flagships, which come at a higher retail price.
Where better to grow Goose Island’s Tropical Beer Hug (a double IPA with a whopping 9.9% ABV) than as a tallboy in convenience? Singles have increasingly become the most popular choice, with single-serve cans up +1.2 million cases in the latest year. The absolute cost difference between different brands’ single cans is nominal, potentially persuading consumer trade up from usual preferences. Given the convergence of ABV, flavor and price, convenience is the obvious channel for consumer trial.
Much of the latest 52-week volume growth in c-stores came from New Belgium, Goose Island, Kona, and Bell’s, which all grew their volume between +24% and +31%. Since they’re already massive players in craft, their new brand and pack launches in c-stores brought up category volume.
Regional craft brands Georgetown (WA), Rhinegeist (OH), Redhook (WA) and Southern Tier (NY) also grew volume double digits in latest 52 weeks. Notably, New Glarus, which is exclusively sold in Wisconsin, is still the No. 9 craft brand in total U.S. convenience and grew its volume sales in c-stores versus the year prior. Additionally, the import, FMB and cider segments are all seeing their most positive dollar growth in c-stores over any other off-premise channel.
Making Way for New FMBs: The Sky’s the Limit
The FMB game has long been dominated by several legacy brands that helped launch the segment. Five of the top 10 fastest-growing dollar sales brands have been circulating for well over 10 years, with Smirnoff (launched in 1999) still a leader at 24 years old.
However, this landscape is opening up to new players. Four of the top 10 fastest-growing FMB brands in total off-premise are new and disrupting the existing leaderboard: Monster’s The Beast Unleashed, AriZona Hard Tea, Cantaritos and Lipton Hard Iced Tea took a collective 4.3% dollar share of the pie. These brands may be “new” to the bev-alc space, but all are line extensions of non-alcoholic beverages.
While only 42 new brands entered the total FMB space last year, 11 of these brands broke the Top 50 volume rankings. These 11 brands together brought an additional +1.7 million cases into the category (+$66 million, no big deal), in just this latest quarter.
Thirteen more brands – most of which were original brands rather than non-alc crossovers – were able to break more than $50K in quarterly sales. The FMB category only has 160 brands that clear more than $50K annually, versus 1,673 craft brands, 236 import brands, and 173 cider brands. Many of the brands entering the space are line extensions from the ready-to-drink tea world, but this still ultimately helps diffuse share from legacy brands and leaves room for newcomers to grow.
Regional Players Continue to Jostle Big Cider
Cider, similar to craft, is seeing a bright spot in c-stores, with dollars up +7% and volume up +2% in the latest 13 weeks. While cider volume is down -3.9% at the total off-premise level, much of this is due to a drop in the leading national brand, Boston Beer’s Angry Orchard, whereas there’s plenty of positive growth for regional and local brands.
Six of the top 10 brands are growing, and four of the top 20 brands are growing volume double digits: Washington-based Schilling Cider (+14.9%), Virginia-based Bold Rock (+19.6%), New York-based Beak & Skiff (+15.3%), and Oregon-based Square Mile (+62.5%).
No cideries break more than 7% nationwide distribution, except for Angry Orchard (59%). If Angry Orchard continues to drop sales, shelf space may open up to hungry regional players. Ten of the top 12 dollar sales brands grew distribution, and the second through fifth largest cider brands boast rates of sale 2-4x stronger than the leading brand.
Cideries are rushing to innovate and launch seasonal and high-gravity items to keep loyal consumers interested, while appealing to new trials. Imperial ciders grew dollar sales double digits, and 15-packs grew the most volume, driven largely by assorted packs. Belly-warming, high-ABV imperial ciders are positioned to perform well as swaps for seasonal craft options in the winter months.
THREE DOWN:
Hard Seltzer Consolidation Continues Across Channels
Hard seltzer’s declines continue as the proliferation of spirit-based, ready-to-drink canned cocktails (RTDs) and FMBs invites consumers to cross-purchase or switch altogether. Hard seltzer quarterly dollars are down -9.4% in c-stores, -19% in food, -20% in liquor, and -22% in drug stores. Food and convenience alone make up almost 78% of total hard seltzer sales, making declines in those channels the most consequential.
While the top-five hard seltzer brands are experiencing substantial volume losses, several newer launches are succeeding thanks to media partnerships, better-for-you marketing and a commitment to growing distribution.
Happy Dad, the No. 6 hard seltzer brand, launched in 2021 and grew volume +107% in the latest quarter. Spindrift, No. 13 and also a Class of ’21 brand, grew volume +64%. Happy Dad grew its stores selling +47% in the latest year, to reach 20% distribution. It also launched new extensions, such as a collaboration with Death Row Records, and a “Happy Mom” spinoff.
Despite a few individual triumphs, the entire hard seltzer segment is struggling to maintain off-premise share of total beer. Twelve-packs, the largest pack size, declined -25% – a whopping 6 million cases – in the latest quarter. Twelve-, 6- and 4-packs all lost distribution. As more brands shrink, transition to spirits-based offerings or exit the category altogether, remaining brands must justify their value proposition and focus on maintaining distribution.
RTDs Cloud the Larger Spirits Trends
Total spirits, including RTDs, grew volume (+5%) faster than dollars (+2.9%) in the latest 52 weeks. Looking at spirits, excluding RTDs, dollars have maintained at -0.3%, while volume is down -2.3%, largely due to price hikes by individual suppliers.
Spirits investors are “no longer impressed with margin defending price increases,” according to a July Wall Street Journal report. With the room to hike prices nearing a wall, investors expect these will soon stop being a driver for overall revenue growth. RTDs have been stifling spirits premiumization, particularly in the luxury space, as they provide convenience and variety to everyday consumers, particularly younger crowds.
The largest declines in volume came from vodka (-688,000 9-liter equivalents), light rum less than $25 (-287,000), and scotch whiskey (-230,000).
On- and off-premise, spirits priced over $25 bring in their highest share of total spirits in the October-November-December period, according to SipSource. These will be crucial months for premium spirits as consumers tend to trade-up during holidays, even if they claim to spend less overall this upcoming holiday season compared to recent years.
Examining the Style Shift in Craft
The largest volume drops in the latest year by styles were: IPAs (No. 1 in volume sales), seasonals (No. 2), witbier (No. 5), assorted (No. 7), American wheat (No. 10), and hazy IPAs (No. 4). These trends hold similarly at the quarterly level.
What’s driving this?
For IPAs, six of the top eight brand extensions are down in volume, many because companies have shifted focus to other growth areas. Lagunitas IPA is down while the brewery has shifted its focus into other brand ventures like the 9% ABV Maximus IPA, non-alcoholic Hoppy Refresher and assorted packs that are maintaining substantial volume growth. New Belgium’s Voodoo Ranger IPA has lost volume as the brewery has pivoted into popular line extensions that focus on high gravity, mostly hazy imperial/double/triple IPAs, that are ultimately growing the company’s total portfolio.
While seasonal volume is down -10%, several brands have found success in the space, including Founders’ All Day Vacay and Athletic’s non-alcoholic seasonal.
For witbiers, the top 13 brands are all losing volume, with the top three brands contributing roughly two-thirds of the style’s volume loss. Several mid-sized craft brands are excelling in the witbier space: Fort George’s Power Cycle Ale (Oregon), Market Garden’s Frosty Lime Wit (Ohio), and Coronado’s Orange Ave Wit (California), which each recorded double-digit volume growth, and grew overall brewery volume.