The aluminum can supply shortage plaguing breweries and other beverage producers could last another four years, according to a report by financial services firm Credit Suisse.
“The secular shift in the can industry is only in the early innings as it takes many years to optimize new plants, upgrade product mix, re-tool traditional lines, and reprice legacy contracts,” wrote Credit Suisse, which last week announced plans to cover the U.S. packaging industry. “For the most part, the North American can industry is sold out for the next 24-36 months, and we don’t see the supply chain catching up to real demand until 2025-26.”
In its first analysis of the U.S. packaging industry, the investment bank said its medium-term outlook of the industry is “bullish.” The can industry is being strained from several directions, as the COVID-19 pandemic’s restrictions on the on-premise channel has shifted a chunk of Americans’ beer consumption from draft to cans and new product introductions, including those in the $3.49 billion hard seltzer industry, lean heavily toward cans. Additionally, can production has slowed over several years.
Ball Corporation, the world’s largest manufacturer of aluminum cans, said its capacity misses meeting demand by 10 billion cans. Even with recent investments in new plants and production lines, demand may not be met for several years or months.
“After experiencing stagnating growth for almost a decade, the North American aluminum can market has seen growth sharply accelerate at the same time significant substrate supply has been removed from the market owing to the closure of can sheet lines and capacity shift to automotive,” Credit Suisse wrote.
One of Ball’s new plants is in Glendale, Arizona, where Red Bull and Mark Anthony Brands, maker of White Claw hard seltzer, have both built new production facilities. Ball will produce about two billion cans at the new plant, 1.5 billion of which are slated for Red Bull, Credit Suisse said. White Claw has secured six billion cans for 2021, which Credit Suisse estimates is 50 million cases short of the brand’s stated 300 million case capacity.
Crown, the second largest producer of aluminum cans, has also expanded its capacity in recent years, and Credit Suisse expects the company’s North American business to increase. The 2017 completion of its plant in Nichols, New York, was the first new can facility built in the U.S. in 20 years, according to the report.
In North America, Ball has a 42% market share (46% when Rocky Mountain Metal Container, its joint venture with Molson Coors, is included), and Crown accounts for 26% of the market, according to Credit Suisse. The third largest can supplier is the Ardagh Group, which accounted for 15% of the market in 2019, according to the report.
Anheuser-Busch InBev has its own can operation, which supplies about 50% of its needs.
Hard Seltzer’s Impact
Virtually all major players in the hard seltzer segment package in 12 oz. slim cans, which Credit Suisse reports are sold out through 2023. The sleek cans would be even more popular if more were available, the firm added.
“Slim cans remain in shortage in the U.S. and major beverage companies would shift more legacy 12 oz. products into slim cans in the event such capacity existed,” the report said.
Hard seltzer has the potential to account for more than a quarter of total U.S. beer volume sales by 2025, according to Credit Suisse. The firm estimates that hard seltzer will account for 9.4% of U.S. beer volume by the end of 2020, about 225 million cases, 65% of which will come from segment leaders White Claw (100 million cases) and Boston Beer’s Truly Hard Seltzer (48 million cases).
For its first few years, the hard seltzer segment was (and continues to be) dominated by those two lead brands. But in 2020, several global brewers launched or announced new products: Anheuser-Busch InBev’s Bud Light Seltzer, Bud Light Platinum Seltzer, Social Club and Michelob Ultra Organic Seltzer; Constellation Brands’ Corona Hard Seltzer and Funky Buddha Premium Hard Seltzer; Molson Coors’ Vizzy Hard Seltzer, Coors Seltzer and Topo Chico Hard Seltzer.
In its report, Credit Suisse urged breweries to launch hard seltzer lines in the next two years.
“We believe cannibalization on the beer side could be minimal and we again stress that all major beer producers are aggressively launching hard seltzer products in 2020-21,” the firm worte.
Credit Suisse found that although 60% of consumers entering the hard seltzer segment are beer drinkers, hard seltzers have only stolen 5-6% of traditional beer’s share.
New Products Favor Cans
Nearly 75% of all new beverages have launched in aluminum cans, compared to 30-40% five years ago. This includes both non-alcoholic beverages and alcoholic beverages alike.
Millennials are far more open to trying new beverage brands than older generations; 60% of adults born between 1982-1999 said they liked to try new drinks, compared to 40% of Gen X (1965-1981) and 27% of Baby Boomers (1946-1964).
Another point in favor of cans in consumers’ eyes is their sustainability, Credit Suisse said.
“The global beverage industry, especially in the U.S., has quickly pivoted to aluminum as the material of choice for new products,” the report said. “Surveys by the Aluminum Association note that seven in 10 adults would purchase a product that was better for the environment and 80% of consumers say that the infinite recyclability of cans matters to them.”