While the overall beer category has remained relatively flat over the last decade, it remains a “very dynamic” and attractive market, Nadine Sarwat, equity research analyst and director of European and American alcoholic beverages at Bernstein Autonomous LLP, said during an industry update panel.
The panel – moderated by Rebecca Maisel, general counsel at Gulf Distributing Holdings and NBWA board secretary – also included Preslar and Mary Guiver, principal global category merchant for beer & spirits at Whole Foods Market.
“Whenever I talk to institutional investors in my job when it comes to U.S. beer, I tend to hear the following statement from people who aren’t familiar with the industry and it goes something like this: ‘U.S. beer is flat, therefore, it’s an unattractive sector,’” Sarwat said. “And that really is only partially true.”
Craft beer has had various booms in the past 10 years, while segments such as imports and flavored-malt-beverages (FMB) and hard seltzers are now recording significant growth. American consumers are also “far more receptive to innovation” than other countries, and the three-tier system is the “most meritocratic route to market” and “allows for really superb margins for suppliers,” Sarwat said.
The attractive nature of the market has caused non-alcoholic beverage brands to begin to enter the industry at an accelerating pace, likened by Sarwat as “barbarians at the gate” of bev-alc. The NBWA once again brought up concerns over the entrance of PepsiCo into beer distribution with the creation of Blue Cloud Distributing – a topic mentioned several times in yesterday’s general session meeting — for the distribution of Hard MTN Dew produced by Boston Beer Company.
Beverage producers’ entrance to the market can go via three routes, Sarwat said:
- Licensing a non-alcoholic beverage brand to a bev-alc producer, such as The Coca Cola Company’s licensing agreement with Molson Coors to create Topo Chico Hard Seltzer;
- Producing a bev-alc product and distributing it through beer wholesalers, such as Monster Beverage’s The Beast Unleashed FMB, the first new product following the company’s merger with CANarchy Craft Brewery Collective;
- Or licensing a product to a beer producer and creating a distribution arm to distribute said product in the way that Pepsi has with Hard MTN Dew.
The third option has some beer distributors concerned over large beverage producers such as PepsiCo using existing retailer relationships and slotting fee practices to threaten free competition in beer. But Blue Cloud does not have a “good chance of becoming a meaningful threat” in the “long term” to beer distribution regulation as we know it, according to Sarwat.
The reasoning is “two major headwinds.” First, the company has already seen licensing delays and outright denials in some states – including a complaint filed in Virginia last week against Boston Beer over the distribution agreement with Blue Cloud – creating “an uphill battle” for market entry. Second, the distribution arm may have issues reaching scale, as it does not distribute some of the country’s major beer brands which beer distributors often lean on for sustainability and growth.
Many of these soft drink producers have entered the bev-alc space through hard seltzer or FMBs – disruptive beer segments that have recorded exponential growth in short amounts of time. Asked what the next disruptor will be in beer, Sarwat listed hard tea, spirits-based ready-to-drink canned cocktails (RTDs), hard kombucha – although she noted the latter segment may be too niche for a total market impact – and cannabis-infused beverages. However, she said she does not see “any big hard seltzer wave of innovation, at least in the immediate future.”
Whole Foods’ Mary Guiver: Consumer Habits Still a Mixed Bag
Whole Foods still remains “very much a craft destination,” though consumer buying habits remain a “mixed bag,” Guiver said. While she noted some growth in some of the grocery chain’s premium beer offerings, including higher priced craft and import offerings, there has also been exponential growth in domestic value brands – something Whole Foods is “not known for.”
“[Domestics are] a small part of our overall volume,” Guiver said. “However… It is absolutely based on customers, and we have folks who want to come in and shop at Whole Foods for produce and meat and seafood, and then they’re buying the beer somewhere else. So we were like, ‘What are they buying?’ And it doesn’t take a genius to realize what they’re buying.”
The variety of consumer buying habits, as well as the growing gray area in beverage segment lines, have complicated how retailers approach merchandising and placement, even for a retailer such as Whole Foods, which has more stringent “quality standards,” Guiver said.
Cross-category growing segments such as RTDs have made it “really hard” to decide where to allocate space for innovation products, particularly when said products are coming from existing producers and “brands that you’re already working with start making something that’s not necessarily the same occasion.”
“How you merchandise that in a brick-and-mortar, how you strategically allocate spaces, that’s the ultimate challenge we’re faced with right now,” Guiver said. “While we’re keeping our eye on the prize of the emerging categories, we’re so committed to some of the brands and the craft producers that are out there. It’s just that now they’re starting to produce things that are just beer.”
The situation becomes even more complicated when retailers have to consider “responsible merchandising” around bev-alc products that come from traditionally non-alcoholic brands, such as Molson Coors’ Simply Spiked – a topic that is one of the “biggest” concerns for investors, Sarwat said.
“A lot of them are not saying ‘I don’t want to invest in alcohol,” but they’re saying “will something like tobacco ever happen to my investment in alcohol?” Sarwat added. “I think that’s why the regulation piece is so important.”
Sierra Nevada’s Ellie Preslar on the ‘E-Premise’ and Doubling Revenue
In addition to wholesaler terminations, Preslar also discussed Sierra Nevada’s approach to e-commerce, which she dubbed the “e-premise,” which can involve anything from consumers using online platforms such as Drizly to buying beer and using their phones to look up menu options while at bars and restaurants.
“For me, what’s really important for us to understand and serve is how are the consumers looking not just to purchase, but also to get information,” she said.
Preslar joined Sierra Nevada in November 2021 from CPG giant Procter & Gamble, where she spent her later years working on the company’s diaper business, which necessitated studying the shopping behavior of Millennial and Gen Z parents.
“Millennials are very into shopping online and having that convenience factor during the research,” she said. “Gen Z is as well, but they actually really love visiting brick-and -mortar stores. But while they’re in the store, or before, they’re doing all of their research online.”
Sierra Nevada has set the aggressive goal of doubling its revenue in the next five years, which will require expansion beyond beer. The company began to diversify its offerings with the launch of Strainge Beast hard kombucha in 2020 and continued with Hop Splash sparkling water and Tea West hard tea this year.
“Beer is always going to be the core of what we do and who we are at Sierra Nevada,” Preslar said. “But we are going to expand, because we want to serve our drinkers for all of the occasions that they’re looking at, in a way that fits with our quality and our values and our standards.”
To do so, the company has begun construction on an innovation facility dedicated to beyond beer products on its Chico, California, campus. The “Can Do Innovation Center” will add 500,000 barrels of capacity to Sierra Nevada’s beyond beer portfolio.
Asked if Sierra Nevada plans to remain “family owned and argued over” as its tagline suggests, Preslar said the Grossman family has no intentions to sell the company. Founder Ken Grossman addressed distributors at a recent sales meeting and his son and daughter, Brian and Sierra, are senior leaders in the company.
“It’s one of the most special things about working for Sierra Nevada,” she said. “It’s why I joined Sierra, because I wanted to be part of a family company and the culture and opportunity that that creates and so it’s at the heart of who we are.”
Troy Aikman Talks Runway for Eight Light Lager in Texas and Beyond
NFL Hall of Famer and former Dallas Cowboys quarterback Troy Aikman’s Eight Light Lager was everywhere during Tuesday’s general session. Aikman discussed the launch of Eight in Texas with Andrews Distributing president and CEO Mike McGuire.
In one of the best marketing stunts at an NBWA convention, cans of Eight were served to all attendees and buckets of the beer were stationed outside of the ballroom. Such a move would hint at interest in expanding the 90-calories, 4%-ABV light lager into additional markets, however, Aikman said the plan is to take “a slow and steady approach” to building the brand before entering neighboring markets in about a year, such as Oklahoma and New Mexico.
“Texas is the ninth largest economy in the world, and so there’s a lot of growth yet for us and we’ve just scratched the surface. We’re in 50% of the grocery stores in distribution, our rate of sale on-premise is fantastic, but we’re just in 4% distribution. So we’ve got a lot of ground to cover, and we really feel that when it’s time, we’ll know.”
Eight, which is in a mix of Molson Coors and Anheuser-Busch houses in Texas, will look to “align and have partnerships with great distributors” outside of Texas. Consumer demand will also factor into the brand’s expansion.
“We’ve all seen a lot of brands that have tried to expand too quickly and it hasn’t ended particularly well. We don’t want to be that one of those,” Aikman added. “I would prefer that rather than us push ourselves into other markets and maybe they’re pulling us in.”
Aikman described himself as “a longtime health and wellness advocate,” and said he “wanted a beer that was consistent with my lifestyle.” He discussed the two-year process of bringing the beer to market, starting with working with Oregon State University to develop the product. Aikman added that he wasn’t interested in making a beer for the sake of making a beer. Eight is made with “100% organic grains and no adjuncts, no fillers.”
“We wanted to make a beer with the best ingredients and with the best flavor,” he said. “So I’m very mindful of what I put in my body. But with that said, I also know that there needs to be balance and there are moments in life that are to be celebrated. And there are small victories in life, sometimes big victories in life that are to be celebrated. For me, that always involves a beer.”
Aikman described himself as “all in on Eight,” which included doing a barnstorming tour of Texas to promote the beer over the spring and summer.
“You talked about us being the fastest growing independent, premium beer in the history of the state of Texas. You know, those things don’t just happen,” Aikman said to McGuire. “And we’ve had a lot of support, of course Andrews being you know, at the top of the list, but there’s been a lot of others who have really rallied behind us.”