Flavor is both the present and the future blueprint for growth in the alcoholic beverage market, Dan Wandel, senior director of insights for Mark Anthony Brands, shared earlier this month during Beer Marketer’s Insights spring business conference in Chicago.
“We are very bullish that flavor is not only here to stay, but it is the future,” he said. “That’s where the consumer has been going for many years.”
Mark Anthony Brands – the maker of top-selling hard seltzer brand White Claw and flavored malt beverages (FMBs) Mike’s Hard Lemonade, Cayman Jack and MXD – is the No. 1 supplier in the flavor category, which encompasses malt-based hard seltzers, FMBs, spirits-based ready-to-drink offerings, cider and cheladas.
Throughout his talk, Wandel laid out a case for flavored alcoholic beverages, which rank as the ninth largest beverage category, ahead of traditional spirits and behind sports drinks.
The flavor category is attracting “the consumers of tomorrow,” with more than a third of them coming from Generation Z or the millennial generation, Wandel continued, citing Numerator data. Additionally, 51% of flavor consumers have higher incomes (“greater than $80,000 annually”) and the category “over-indexes with Hispanic consumers.”
Gen Z and millennial consumers “grew up on flavor their entire lives” in “everything they consume,” Wandel said.
“Are we really thinking they’re not going to be looking for flavor as they become a legal age to consume alcohol?” he asked. “That is what has me so excited about the future with flavor.”
Wandel shared Numerator consumer data that showed flavor consumers make “nearly 20 more trips” to retailers per year than traditional beer, wine and spirits shoppers, and their spend goes beyond alcoholic beverages, making them “really, really valuable shoppers.”
“As a result, their annual spend on alcohol is 37% higher than traditional beer, wine and spirits,” Wandel said.
Five years ago, Mark Anthony Brands began analyzing flavor trends across various consumer packaged goods categories, Wandel shared. The company found that flavor offerings accounted for just 12% of the beer category then and began advocating for more shelf space with its retailers. By 2020, the fourth category had emerged.
In 2022, the flavor category was around 400 million cases and $17 billion in retail sales, with 80% of the volume sales coming from hard seltzers and FMBs and 10% from spirits-based RTDs and 10% from ciders and cheladas, Wandel said. The fourth category is expected to keep growing with a compound annual growth rate around +6% through 2026, pushing to 500 million cases and $30 billion in value, he continued. By comparison, traditional beer, wine and spirits are expected to grow by about +1% during the same period.
“This year, flavor is growing, so far up +6% versus traditional beer, wine and spirits, which is up just under +2% at +1.8%,” he continued.
Beyond growth rates, flavor ranks first in:
- attracting new consumers to alcoholic beverages;
- household penetration gains;
- driving innovation sales;
- and consumer choice.
“Whenever we look at consumer decision trees, which are made up of attributes that consumers rank in importance, flavor is first in choice,” he said.
Over the last five years, the number of suppliers and SKUs have both increased 70%, which Wandel described as “a flavor frenzy.” The number of suppliers have increased from 512 in 2018 to 852 over the last year. The number of flavor items has also increased in the same period, from 3,926 in 2018 to 6,631 over the last 52-week period, Wandel shared, citing Circana data.
“Everyone wants to be in this category,” he said, which has led to “crossover chaos” as suppliers from across the alcoholic beverage spectrum and non-alcoholic drinks producers get into the space.
Even with the influx, the top seven flavor category suppliers account for 78% of the dollars, he said. At the top, Mark Anthony Brands and Boston Beer, which produces Truly Hard Seltzer and Twisted Tea, account for nearly half of the category (49%), he continued.
“That means 845 suppliers – and rising – are competing in the fringes of flavor, which is a tough place to be right now,” he said.
White Claw’s Return to Growth, Share in ‘mid-50s’ After 2021 Losses
Mark Anthony Brands is the fourth largest beer company in the U.S. Since launching in the U.S. in 1999, the company has sold 700 million cases, with half of those cases selling in the last three years, driven by White Claw and “shifting consumer demand for flavor and increased at-home consumption,” Wandel said. In that period, the company has generated $5 billion in gross profit for its retailer and distributor partners, he added.
Wandel admitted that White Claw faced a challenging 2021 as competition in the hard seltzer segment peaked. After its share declined to 39% during the July 4, 2021 weekend – which corresponded with the week that the most malt-based seltzer items sold per store – the brand has “clawed back 17 share points” and is now “in the mid-50s.”
The White Claw brand returned to growth in 2022, finishing the year +2% in dollar sales and is building on that momentum with +7% sales growth and +5% depletion growth year-to-date, per Circana scan data.
White Claw remains the leader across all seltzers, generating $9 billion in sales since 2017, according to Wandel. The company owns the top-five seltzer SKUs in total beverage alcohol seltzers (all bases), and White Claw has sold more cases (16 million) this year than 350 other brands combined (15 million cases), per Wandel. The brand is also tops in household penetration overall and with 21- to 34-year-old consumers, he continued.
Of the 1,253 total beverage alcohol seltzer SKUs being sold in U.S. retailers this year, White Claw and High Noon account for 8% of those SKUs, Wandel added.
“Now, we are starting to see some signs of seltzer shakeout,” he said of the overall segment. “I believe malt seltzer SKUs are down -25% year-to-date versus the same period a year ago. However, this has been partially offset by spirits SKUs increasing +18%. So all in, total beverage alcohol seltzer SKUs are down about -9% year-to-date.”
With the spring shelf resets, the decline in seltzer SKUs increased to around -13%, but there’s “still a long way to go,” he added.
Although malt seltzer isn’t growing, both energy drinks and imported beer “had periods of stagnation” after posting strong growth, before returning to growth, he noted.
“We continue to advocate that with increased focus on the lead brand, that we believe malt seltzer, especially, will get back to growth,” he said.
Among the big bets for White Claw this year is a spirits-based vodka soda, entering a segment growing +90% year-to-date, Wandel said. Among the reasons for optimism is White Claw’s household penetration, which is twice that of spirits-based seltzer leader High Noon Sun Sips. There is about 11% overlap between High Noon and White Claw shoppers, he added.
“Our goal is to really establish ourselves as a strong No. 2 competitor,” Wandel said.
Over the last three weeks, White Claw Vodka + Soda is the No. 3 spirits-based seltzer behind NUTRL and High Noon, according to Wandel. “We’re really encouraged by the fast start that it’s getting off to,” he said.
FMBs Top Growth Segment, Reached Nearly 10% Share of Beer Category in Early May
FMBs are the No. 1 growth segment and are driving 47% of the innovation dollar sales in the broad flavor category this year, “more than malt- and spirits-based seltzers combined,” Wandel said.
Following a record sales year for FMBs in 2022, the segment, for the week ending May 7, reached its highest share of the beer category at 9.5%, Wandel noted. Mark Anthony and Boston Beer combined accounted for 53% of the FMB business, thanks to the Mike’s Hard, Mike’s Harder and Twisted Tea brands.
For Mark Anthony, Mike’s Hard has held the crown as the top-selling hard lemonade brand for the last 24 years. It’s also the No. 14 beer brand overall and “consistently ranks as the No. 1 FMB in awareness, penetration and trial,” per Wandel.
Additionally, the Mike’s Harder brand is the No. 1 high ABV FMB brand.
Nevertheless, Wandel admitted that there is work to do to return Mike’s Hard Lemonade to growth. The Mike’s Hard brand increased dollar sales +8% in NIQ-tracked off-premise channels in the last 52 weeks (ending April 22), according to data shared by 3 Tier Beverages. However, four of the top five dollar sales contributors from the brand recorded declines: Mike’s Hard Original Lemonade (dollar sales -7%, volume -12%); Mike’s Hard Lemonade assorted (dollar sales -3%, volume -11%); Mike’s Hard Black Cherry Lemonade (dollar sales -12%, volume -17%); Mike’s Hard Strawberry Lemonade (dollar sales -5%, volume -10%).
Mark Anthony’s other top FMB brand, Cayman Jack, is the top-selling FMB margarita brand, “is starting to really scale” and “has a massive distribution runway,” Wandel said.
Another opportunity Mark Anthony sees is in zero-sugar FMBs, Wandel said. He pointed to sugar and calorie content as the two biggest barriers to new consumers entering the FMB segment or the reason for leaving it.
Zero sugar versions of Mike’s Hard Lemonade and Cayman Jack, each containing 100 calories per serving, are already hitting retail shelves. The two brands have claimed about a 17 share of the zero sugar FMB subsegment, he said.