What Can RTD Cocktails Learn From the Hard Seltzer Craze?
Is there a new trendy drink dethroning hard seltzer? Can we go as far to say that the bubble has burst on hard seltzer? Will brands launching ready-to-drink (RTD) cocktails learn from their missteps with hard seltzer?
R.I.P Hard Seltzer
Have you heard that the hard seltzer category is now dying? Everyone that’s been around the block a few times in the alcohol industry knows that the beverage category is notoriously trendy. The problem is that today’s six-second attention span internet gurus and pundits seem to write off trends faster than a college kid can shotgun a Happy Dad…
The hard seltzer category as we know it today debuted in 2013 with Bon V!V. Over the past five years, hard seltzer has grown from a relatively unknown category to the best-selling beer subcategory across pretty much every retail channel. It even surpassed light lager as the best-selling beer subcategory during the Fourth of July in 2019.
After its meteoric rise (growth of 226% in 2019 and 165% in 2020), however, hard seltzer is finally showing signs of leveling out. Does that mean the hard seltzer category is dying? If it was the case, it would mark the brightest “shooting star effect” maybe in the history of the alcoholic beverage industry. The reality is that the hard seltzer market couldn’t grow at such a high pace forever. It’s the simple law of large numbers, which states that exponential growth rates often do not scale.
Hard Seltzer Missteps
With the benefit of being able to play these scenarios out backwards, it’s a bit easier to see how brands producing hard seltzers got themselves in trouble.
New Sub-Category + Hypergrowth + Seasonality = Forecasting Whoopsie
You have a newer beer sub-category. The summer of 2019 was historically massive for hard seltzers. What maybe wasn’t as apparent at the time was that hard seltzer sells extremely well in the warm months, but struggles as the temperatures cool off. This ended up creating a demand forecasting nightmare.
“COVID-19 Effect”
The lockdowns caused by the COVID-19 pandemic completely accelerated the growth of hard seltzer. When bars and restaurants were forced to close, consumers turned to off-premise locations (e.g. grocery stores) to make their alcohol purchases. This was an understated tailwind for hard seltzers because it’s almost an entirely off-premise beverage. Conversely, it’s also why we’re now seeing sales level off.
During this period, you also had elevated stress levels, which almost always turns into increased consumption of vices like alcohol. With consumers stuck at home, alcohol marketers took advantage of this stasis and threw huge advertising dollars to create arguable peak hard seltzer buzz. This ended up turning into a super cycle of converging events that pulled demand ahead for the hard seltzer market.
Brand Proliferation
The hard seltzer category has been dominated by Mark Anthony Brands (White Claw) and Boston Beer Company (Truly). Additionally, if you throw in the dominant offering from AB InBev and Molson Coors, you have about 90 percent of the hard seltzer market share. That might seem extreme, but it’s fairly similar to the how the overall beer market compares to craft beer.
With insane growth and buzz at its peak for hard seltzers, the market saw massive brand proliferation. While the top brands over the past 12 months are the same as those in the previous 12 months, consumers have welcomed its share of new entrants that are willing to diversify the category. You can now buy a lot more “long tail” brands that maybe are local or offer flavors/features that are more interesting than the market leaders.
Regardless, the hard seltzer category has increasingly become a very crowded space. With a large chunk of the category carved out by the big players, the remaining piece of the pie simply doesn’t have enough mouths to feed. While consumers will always be a bit exploratory in the category, most are starting to figure out what they like and sticking to it.
Desperate Times
Despite total alcohol consumption recently jumping to its highest rate in nearly two decades, traditional and craft beer volume has been relatively flat. These Big Beer portfolios continue to face shareholder pressure to find growth opportunities, so how could they not get ultra aggressive with hard seltzers? It’s no surprise that Big Beer added tons of hard seltzer capacity, leveraged valuable brand IP, and sought M&A opportunities…just like they had done with the previous trend of craft beer.
Hype & Adoption Cycles
So, what’s going on and why do I believe you shouldn’t write off the hard seltzer category yet? There’s an interesting consumer behavior theory if you plot the adoption curve and hype cycle together…
I believe the innovation trigger for hard seltzers happened as entrepreneurs saw the wellness halo hitting all CPG categories (especially with non-alcoholic seltzers) that has continued to mature into a massive beverage category. The hard seltzer market hit the peak of inflated expectation in 2020, as early adopters started drinking it. This can create a false signal because early adopters tend to be the loudest voices and could make you believe they are indicative of the entire market.
Perception isn’t always reality (aka trough of disillusionment). While adoption rates are growing for hard seltzers, the market isn’t able to sustain the previous levels. Once the hysteria subsides, you’ll hit the slope of enlightenment that will eventually become majority adoption. The hard seltzer market is crossing “the chasm” right now and I predict more older millennials and Gen X will join the younger crowd to show that this growing alcoholic beverage category is from over anytime soon.
Why RTD Cocktails Are Hot Now?
Another alcoholic beverage category that saw a positive “COVID-19 Effect” was ready-to-drink (RTD) cocktails, driven by consumers’ desire for high-quality, easy-to-enjoy, highly portable cocktails. RTD cocktails were also seen as safer alternatives amidst pandemic health concerns. But as consumers have returned to restaurants and bars, demand for RTD cocktails has continued to skyrocket.
Fact is, RTD cocktails are a utilitarian approach to certain types of booze. Maybe the some consumers don’t have this problem, but most don’t stock all the ingredients to be a margarita or a fancy tropical rum drink or maybe even a vodka whatever. These RTD cocktails allow you to stock no additional ingredients, perform zero prep, and not worry about clean-up.
Today’s RTD cocktails have come a long way from decades-old predecessors like malt-based hard lemonades or sugary margarita mixes. Now, we see a massive variety that encompasses everyone’s tastes and some extremely intriguing strategic partnerships. I think we will continue to see lots of innovation in the RTD category as brands look to find a niche in the increasingly crowded market. Ultimately, the ubiquity of RTD cocktails proves that alcohol brands are listening to the consumer.
Final Thoughts
Hard seltzer is far from dead, but as growth begins to level off, RTD cocktails are likely to benefit. The question remains though if the largest alcohol companies in the world will learn from their missteps in the hard seltzer category. I’d put my money on them repeating similar mistakes, but what might save them is that I believe RTD cocktails have more staying power and an overall larger total addressable market. That isn’t to say that RTD cocktails won’t face similar hype and adoption life cycles.
