Data and economy experts from 3 Tier Beverages, NielsenIQ’s CGA and the National Beer Wholesalers Association (NBWA) gave attendees insights into the state of the bev-alc industry and cider’s potential growth opportunities during the 13th annual CiderCon, held last week in Chicago.
About 965 people registered for CiderCon 2023, which returned to Chicago for the first time in four years, according to the American Cider Association (ACA). Attendees represented 40 different U.S. states and nine different countries, including Austria, Canada, France, Guam, Ireland, Korea, New Zealand, Sweden and the United Kingdom.
NBWA: Recession Not a Major Concern for Beer, But Squeezing Retail Space Will Be
The past year was plagued with headlines warning of inflation and a potential recession, but “producers and purveyors of alcohol beverages” should “just sit down and relax,” NBWA chief economist Lester Jones told attendees.
“If you’re making alcoholic beverages and you’re getting all worked up listening to the morning news about economic recessions, turn off the TV,” Jones said. “Just sit back and remember the big picture of things. Everything is gonna actually be OK for alcohol producers.”
Historically, bev-alc spending has been “recession resilient,” and the average bev-alc spend per household has trended upward since 1996, despite several recessions, Jones said. The most recent dip in household spend bottomed out in early 2020, when consumers shifted spending to the off-premise – typically a cheaper channel than the on-premise – during the COVID-19 pandemic. But spending rebounded, and Jones guaranteed the U.S. will be “back up to the highest it’s ever been in terms of expenditures per household” when 2022 data is released by the U.S. Bureau of Labor Statistics in June.
What is changing in bev-alc is consumers becoming more omnibibulous and increasingly purchasing products across beer, wine and spirits.
A 2022 Gallup Poll asked consumers if they drink beer, wine or spirits more often. While beer continues to be the preferred beverage among consumers, the gap is closing among categories, with about 35% of respondents choosing beer and nearly 30% choosing wine, and nearly as many choosing spirits as their preferred beverage.
Producers should be aware of those changing habits, as there is a limit to how much alcohol people consume and how much can be “put into the marketplace,” Jones said. As the NBWA has previously reported, the gallons of ethanol in the U.S. per legal-drinking-age (LDA) consumer has remained relatively steady since 2000, despite growth or declines among the beer, wine and spirits categories.
“When you take all this ethanol, and you put it in a punch bowl, and you set it down in the middle of the country, every single legal-drinking-age person gets 2.5 gallons of pure alcohol for their consumption for that year,” Jones said. “There’s a limit to how much alcohol you can give the U.S. consumer. There’s a limit! You can’t just make it and think it’s going to disappear and they’re all going to drink more of it.”
Despite this limit, the number of companies continuing to enter the beer market “is astounding,” with brewery permit approvals from the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB) nearing 16,000 in 2022 versus 14,000 in 2020, Jones said.
The number of SKUs at distributors has also been on the rise, from fewer than 200 in 1999, to more than 1,000 at its peak in 2018. At the same time, inventory turn at distributors slowed down, reaching its lowest point in 2018, causing the middle tier to “bloat.”
“For the first time in 2020 beer distributors were like ‘I’ve had enough,’” Jones said. “When you have a lot of boxes sitting around, you need to turn that into cash to run your businesses. And that’s where inventory turn comes to the court. You’ve got to have something that has some velocity to it.”
Cider’s volume in the U.S. has been on the decline since 2019, the same time that the overall beer category was feeling the effects of those overstocked wholesaler inventories. Many declines in the segment have been credited to national brands, which previously dominated share of cider. However, the segment is expected to find “a natural equilibrium” in the next few years, especially as “the big macro guys get out of the industry and open it up to the regionals [and] smaller folks,” Jones said.
“You want them [national brands] there because they help promote the category for you,” Jones said. “You just don’t want them eating your lunch, which is kind of what they did in the early years when they got super excited, tried to knock on the doors.”
Cider Outperforming Most Beer Segments in On-Premise; Underperforming Total Beer in Off-Premise
Andrew Hummel, client solutions director for NielsenIQ’s on-premise data arm CGA, and 3 Tier Beverages consultant Mary Mills, analyzed cider performance in the on- and off-premise during CiderCon.
Cider outperformed most subsegments in the on-premise in 2022, increasing volume in the channel +17.2% in the 52 weeks ending November 5, and retaining a 1.2% share of total on-premise beer volume, according to Hummel, citing NielsenIQ data. Craft (volume +18.6% year-over-year and share +0.5%) and imports (volume +21.2%, share +0.8%) were the only beer segments to outperform cider by volume or share gains in the channel.
Draft continues to be the primary format for cider on-premise, with 61.5% share of cider volume. However, draft lost 0.6% share of total on-premise cider volume to packaged cider in 2022, with packaged now claiming 38.5% share.
“Think about a year ago, there were a lot of bars with 12 draft lines who were only pouring on eight of them and shifting to package,” Hummel said. “In some states where it’s cash on delivery, package is more predictable and easier to burn through … so you saw some operators make that decision strategically.”
In the off-premise channel, total cider volume declined -7.7%, with dollar sales declining -1.6% year-over-year (YoY), according to Mills, citing NielsenIQ data through December 31. Comparatively, off-premise beer volume declined -3.4% in the period, while total beer dollar sales increased +2.1%, due in-part to price increases.
Distribution points for hard cider also declined in 2022, down -7.2% versus 2021. However, the segment was able to increase dollar sales in some channels, including convenience (+4.8% YoY). Regional cider brands had an even stronger performance, increasing dollar sales +20.4% in c-stores, as well as +10.3% in drug stores (total cider declined -15%) and +5.4% in food (total cider -1.7%).
Regionals Outpacing National Brands
Regional brands have been increasing share of total cider across channels each year, and broke the threshold in 2022 to now claim more than 50% share.
Regional brands accounted for 52.8% of total on-premise cider volume in the 52 weeks through November 5, a +2.2% increase YoY, according to Hummel. Regional brands also increased volume +22.3% YoY in the channel. National brands – which had a 47.2% share of on-premise cider volume – increased volume +11.9% in the period, but lost -2.2% share.
In the off-premise, regional cideries held a 54% share of total cider dollar sales in the L52 through December 31, up from 50% in 2021, 46% in 2020 and 39% in 2019. Regional ciders also grew dollar sales +7% YoY in NielsenIQ tracked off-premise channels, despite the total cider category performing “a bit softer,” Mills said.
Nearly half (44%) of the off-premise cider sales in 2022 came from the Pacific division of the U.S. (Washington, Oregon and California), which increased dollar sales +11.1% in 2022.
“That’s amazing if you think about how big of a piece of the category it is, still growing double-digits,” Mills said.
The South Atlantic division (Maryland, Delaware, West Virginia, Virginia, North Carolina, South Carolina, Georgia, Florida and Washington, D.C.), the next largest division for cider sales with 16% share, recorded a -1.7% YoY decline in off-premise dollar sales. The Mountain division (Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico) recorded the largest percentage increase in dollar sales (+16.5%), with a 4% share of total off-premise cider.
Consumer Crossover Provides Opportunity for Cider with Hard Seltzer Slowdown
About one-in-10 consumers in a fall CGA user survey said they drink hard cider at on-premise establishments. However, consumers who drink hard seltzer are more likely to order hard cider when out, according to Hummel.
About 30% of hard seltzer consumers surveyed said they also drink hard cider at on-premise establishments – 20% more than the average U.S. consumers – according to Hummel. Similarly, about 42% of hard cider drinkers also consume hard seltzer on-premise.
The crossover provides an opportunity for hard cider producers to capitalize on consumers looking for flavor-forward offerings in the on-premise, particularly as hard seltzer sales slow and consumers look to other segments or categories.
“Historically, hard cider and hard seltzer have both struggled at times to find their spot on a menu,” Hummel said. “Ideally, you want a hard cider section. But if you can’t get that, fighting for placement near hard seltzers is going to catch more eyeballs than potentially being buried in a craft beer draft list.”
Younger LDA consumers are also more likely to choose cider on-premise, with 16% of respondents aged 21-34 saying they consume hard cider on-premise.
Among those younger hard cider drinkers, the main reason they choose to drink something “other than hard cider when out” is due to the time of year, with 28% of respondents aged 21-34 indicating that seasonality is a factor.
“There’s an opportunity to create some seasonality of ‘Hey, this is the right time of year to be drinking your cider right now,’” Hummel said.
About 16% of hard cider drinkers said they choose an alternative because the cider offered is too sweet, but that decreased to 14% when surveying only the younger demographic of hard cider drinkers.
“As an industry we talk a lot about ‘Is this sweet cider, is this a dry cider, how do you define it?’” Hummel said. “Real cider drinkers are not necessarily turned off from the category by those attributes.”
In fact, more than one-third of hard cider drinkers surveyed (34%) drink a cider that is “sweet” when visiting the on-premise, followed by apple-focused offerings (32%), berry flavored (25%), pear flavored (23%), dry and tropical/citrus flavored (both 22%). Imperial ciders are more popular with younger LDA consumers, with 16% consuming imperial ciders on-premise, vs. 13% of total hard cider drinkers.