Beer volumes will be flat in 2022 and for the next several years, due to a drastic slowdown in the previously meteoric growth of hard seltzer, distributors told financial services firm Jefferies in a recent survey.
“Our distributor respondents expect total beer volumes to be flattish in ’22, owing largely to moderation in hard seltzer expectations,” Jefferies equity analyst Kevin Grundy wrote in a report.
Distributors expect hard seltzer volume to increase +2.9% in 2022 and temper to +0.4% for the next three to five years. They predict overall beer category volume will decline -0.1% in 2022 and hold that rate of decline for the next three to five years.
Much of this pessimism is driven by recent slowdowns in sales of hard seltzer, which exploded last year when the COVID-19 pandemic forced the closure of the on-premise channel.
Only 20% of respondents said they remained “confident on the growth outlook” for hard seltzer.
As bars and restaurants began to reopen, consumers shifted their behaviors and hard seltzer began to slow. Survey respondents are unsure the segment will gain a foothold in the on-premise channel.
Nearly a quarter (23%) told Jefferies that they believe there’s a “big opportunity” for hard seltzer in the on-premise channel, but 40% said they think it is “unlikely to become very large” on-premise.
Two-thirds (67%) of respondents said they “have become less confident on the growth outlook for the hard seltzer category.”
Respondents were evenly split about seeing higher levels of hard seltzer discounting in the market in recent months, but nearly half (47%) said they believe the segment “is likely to get much more promotional on price given the recent slowdown.”
Wholesalers reported seeing more discounting among Anheuser-Busch InBev hard seltzers, Bud Light Seltzer (73%) and Michelob Ultra Organic Seltzer (53%), followed by Molson Coors’ Vizzy (53%), Mark Anthony Brands’ White Claw (33%), Constellation Brands’ Corona Hard Seltzer (33%), Boston Beer Company’s Truly Hard Seltzer (20%), and Molson Coors’ Topo Chico Hard Seltzer (7%). Thirteen percent reported seeing discounting among other brands.
Respondents’ confidence in White Claw’s and Truly’s ability to maintain their dominance of the segment has waned in recent months. In Jefferies’ Fall 2020 survey, 62% of respondents agreed that hard seltzer “will remain a ‘two horse’ race with White Claw and Truly maintaining share leadership.” That number dropped to 47% and 43% in the Spring 2021 and Fall 2021 surveys, respectively.
A year ago, nearly half (46%) of respondents said they agreed that “Truly will continue to gain share in the coming months.” In the Fall 2021 survey — after Boston Beer revised and then pulled its financial guidance due to the hard seltzer slowdown, drawing a lawsuit from investors — only 17% of respondents believed Truly would gain share, compared to 20% who said Truly would continue to cede share. Jefferies has downgraded Boston Beer’s stock to an underperform rating and predicts the company’s sales will increase 23% this year and 2-5% in 2022 and 2023.
Only 7% said they agreed that segment leader White Claw “should regain lost share in the coming months.” However, respondents have softened their prediction that White Claw will continue to lose share with 37% agreeing with that statement in the most recent survey, compared to 57% and 58% in the Spring 2021 and Fall 2020 surveys, respectively.
Distributors were most optimistic about the future of Mexican imports, which they predict will grow 6% this year and 4-9% in the next three to five years. Jefferies expects Constellation Brands — which imports and sells Corona, Modelo and Pacifico in the U.S. — to grow 6.5-7% each year through fiscal year 2024. Constellation’s beer volume mix is 99% Mexican imports, and hard seltzer accounts for the remainder.
Of the four companies profiled in the report, Boston Beer has the most exposure to hard seltzer, which accounts for 50% of its product volume mix, followed by Twisted Tea (23%), craft beer (Samuel Adams, Dogfish Head, Coney Island, Angel City — 17%) and Angry Orchard (10%). Boston Beer’s “exposure to hard seltzer had been game-changing in 2018-2021,” Grundy wrote, adding that this could become a weakness, given that hard seltzer has slowed and “challenges in the company’s beer and cider portfolio persist.”
Despite several high profile hard seltzer launches — Bud Light Seltzer in 2020, Michelob Ultra Organic Seltzer and Cacti in 2021 — the segment only accounts for 1% of A-B’s volume mix. Domestic premiums account for half, followed by economy (30%), domestic specialty (17%), craft (2%) and cider (1%).
Molson Coors’ volume mix is 2% hard seltzer (Vizzy, Topo Chico). Domestic premiums make up 55% of the company’s volume, followed by economy (28%), craft (7%), flavored malt beverages (4%) and cider (3%).
Full On-Premise Recovery Won’t Happen in 2021
About half of respondents told Jefferies they expect the on-premise to recover fully by the end of 2022, up from 43% in the spring survey.
“While on-premise demand was recovering quite strongly through the spring and early-to-mid-summer (both units and velocity), the Delta variant and labor issues have tempered the recovery in recent months,” Grundy wrote.
Nearly half (46%) of respondents said they noticed a slowdown in their on-premise accounts in recent months, though the majority (54%) did not. Of those who have observed a decline in on-premise, nearly all (94%) attributed it to concerns about the highly contagious Delta variant curbing demand, followed by labor shortages (69%) and tight supply of aluminum cans and glass bottles (38%).
The number of respondents who predict the on-premise to recover by the end of 2021 dropped by half from the spring survey (30%) to the fall survey (14%). Nine percent of respondents said they expect the channel to recover by the end of 2021, up from 3% in the spring survey. About a quarter (26%) predict “permanent impairment,” up from 20% in the spring survey.