Hard seltzer’s late summer slowdown has pushed several financial services firms to adjust their forecast for the sparkling segment’s performance.
“We are incrementally more cautious on the beer and hard seltzer category based on feedback from our beer distributor contacts in our new proprietary ‘Beverage Bytes’ survey,” Goldman Sachs equity research analyst Bonnie Herzog wrote in a report published today.
Hard seltzer revenue declined -0.4% in the four weeks ending August 14 — the first time the segment has ever dipped into the red, according to a report from Cowen analyst Vivien Azer. Cowen revised its bear case scenario for the segment to +8% growth for the full year.
Distributors told Goldman Sachs they expect hard seltzer to grow about 24% in 2021, down from their June prediction of 32%, and they no longer expect Boston Beer Company’s Truly Hard Seltzer, the segment’s second-best selling brand, to gain share. Herzog predicted “stronger incremental headwinds ahead” for Boston Beer “given its disproportionate exposure to hard seltzers.”
Year-to-date through August 8, the Truly brand family accounted for 55.2% of Boston Beer’s total off-premise sales at multi-outlet food and convenience stores tracked by market research firm IRI. Truly’s dollar sales growth has been decelerating (+20.4% in the latest four weeks, +29.6% in the latest 12 weeks), but still outpaces the overall segment (25.5% YTD, +5.4% L4W, +11.1% L12W), according to IRI. Truly dollar sales in NielsenIQ tracked channels have decelerated to +14.2% in the latest four-week period ending August 14, and are up +40.9% year-to-date. In fact, the Truly brand family is the only seltzer among the top five in the segment to post growth over the last four weeks in NielsenIQ tracked channels.
The company missed its second quarter growth projection, which 60% of distributors told Goldman Sachs was unsurprising. Some blamed the whiff on out-of-stock issues and others pointed to the reopening of the on-premise, where hard seltzer has weaker penetration.
“Some distributors believe Truly will remain one of the top 4-6 brands that remain on shelves following a shakeout of the hard seltzer category,” Herzog wrote. “However, some distributors are concerned that the biggest brands will continue to face headwinds given the saturation of the seltzer category and the proliferation of low-proof RTD alcoholic beverage products.”
The pressure on Truly to perform above and beyond the rest of Boston Beer’s portfolio (Samuel Adams, Angry Orchard, Twisted Tea, Dogfish Head) reminded Azer of several years ago when outsized predictions for Angry Orchard growth upset the company stock price’s proverbial apple cart.
“While we acknowledge SAM’s share gains in the category throughout the year, category growth has come in below our expectations and reminds us of the setup for SAM shares in 2015 when valuation became stretched due to overly high expectations for the growth of SAM’s cider business,” she wrote.
Goldman Sachs held its neutral rating for Boston Beer’s stock (SAM), but Cowen downgraded it to “underperform” and set its target price for SAM at $400, less than half its previous target of $825.
“While SAM is gaining more share than we’d expected, the category is slowing more dramatically than we’d modeled,” Azer wrote. “We don’t see an on-premise recovery as a sufficient offset.”
Half of the respondents in the Goldman Sachs survey said Truly is gaining the most traction in the on-premise trade, led by Truly Draft, which the company launched in 2019 as a flavorless offering before switching to its Wild Berry flavor just as the pandemic shuttered bars and restaurants in March 2020, and Truly Punch. A quarter of respondents said Mark Anthony Brands’ White Claw is catching on the most in their on-premise accounts, and 8% called out E. & J. Gallo-owned, vodka-based High Noon Sun Sips as an on-premise winner.
“In terms of concerns, distributors cautioned against too many flavors, which is emerging as an issue as many wholesalers carry only variety packs (which are not always what retailers want),” Herzog wrote. “A few distributors noted that consumers continue to prefer Truly to White Claw, which is helping to drive on-premise demand for Truly.”
About 65% of distributors told Goldman Sachs they see “some” to “a lot of” interest in hard seltzer in the on-premise channel (down from 85% in the June survey). In June, 44% of respondents said they saw “a lot” of appetite for hard seltzer on-premise, but by the August survey, that number declined to just 10%. However, the “some” interest bucket increased from 41% in June to 55% in August.
A third of wholesalers said they see “not much” interest for hard seltzers on-premise — more than doubling the 15% who reported the same in the June survey — and 2% said they see none.
Distributors said they expect about 7% of hard seltzer’s sales to flow through the on-premise by the end of the year, driven by three to four lead SKUs from segment leaders White Claw and Truly. Distributors said “much of the interest [is] coming from event-specific locations such as outdoor festivals and concerts, rather than traditional bars/restaurants.”
Just as on-premise interest in hard seltzer has waned between surveys, so has distributors’ predictions for growth of the segment overall and its lead brands. In November 2020, distributors said they saw 89% growth in 2021 for the segment at large. By June, that number had declined to 32% and dipped to 24% this month. Respondents predicted triple-digit, full-year growth for the top two brands (103% for White Claw, 101% for Truly), but cut those expectations back to 18% growth for White Claw and 55% for Truly in the June survey. This month, distributors are expecting White Claw to finish 2021 with +8% year-over-year growth, and Truly +25%.
Distributors said they expect the most growth relative to 2020 sales for High Noon (+54%, down from +88% in the June survey), Molson Coors’ Vizzy Hard Seltzer (+39%, up from 35% in the June survey), and Anheuser Busch InBev’s Michelob Ultra Organic Seltzer (+33%, up from 20% in the June survey). A-B’s Bud Light Seltzer (+3% in the August survey, down from +7% in the June survey) and Constellation Brands’ Corona Hard Seltzer (+2% in August, down from +21% in June) received the smallest growth projections from wholesalers.