Convenience retailers expect the hard seltzer segment to grow +10% year-over-year in 2022, according to Goldman Sachs Equity analyst Bonnier Herzog’s latest “Beverage Bytes” report.
The report, which includes a survey of nearly 40,000 convenience stores, found that beer sales at c-stores “significantly accelerated” in the fourth quarter of 2021. Total beer category sales increased +8% in Q4, compared to +1% in Q3, at c-stores.
Hard seltzer sales slowed to +13% at c-stores in Q4, down from +18% in Q3, +32% in Q2 and +94% in Q1 as the calendar cycled against 2020 numbers.
“The slowdown is consistent with recent trends in Nielsen data and broadly reflects: 1. Very tough prior year comps, 2. The reopening of the on-premise channel, and 3. An over-proliferation of SKUs/brands contributing to customer/retailer confusion and fatigue,” Herzog wrote.
C-store retailers’ expectation of +10% growth for hard seltzer in 2022 marks a “modest acceleration” compared to their prediction of +8% in Goldman Sachs’ Q3 survey. Retailers were most optimistic about Molson Coors’ Topo Chico Hard Seltzer’s growth in 2022, calling for +39% growth of the brand, which launched in early 2021, followed by E & J Gallo’s High Noon Sun Sips (+17%), Boston Beer Company’s Truly Hard Seltzer (+9%), Constellation Brands’ Corona Hard Seltzer (+5%), Anheuser-Busch InBev’s Bud Light Seltzer (+3%), Mark Anthony Brands’ White Claw (+2%), and Molson Coors’ Vizzy Hard Seltzer (+1%).
About 30% of c-stores plan to increase shelf and cooler space for the hard seltzer and flavored malt beverage segments, down from more than two-thirds in 2021. Nearly 85% of retailers said they will allocate incremental space to ready-to-drink (RTD) canned cocktails.
Nearly one in five respondents (17%) said they would create entirely new space for RTD cocktails, the only segment to receive incremental space in c-store sets. Respondents were most split on what space to dedicate to spirits-based High Noon in 2022. Forty percent said they would give the brand more space, while 20% each said they would dedicate the same amount of space, less space and no space at all.
Meanwhile, 40% of respondents said they would devote more cooler and shelf space to Topo Chico, which Molson Coors recently rolled out nationwide; 60% of respondents said they would give Topo Chico the same amount of space.
C-store retailers were evenly split on what to allocate for A-B’s hard seltzer brands, Bud Light Seltzer, the third largest brand in the segment, and Michelob Ultra Organic Seltzer. Half of respondents said they planned to cut space for both brands, and the other half said they would give the brands the same amount of space as they had in 2021.
One-third of respondents said they would allocate more space to Truly; 50% said Truly would get the same amount of space, and 17% said they would give Truly less space. For segment leader White Claw, two-thirds of respondents said they would maintain the same amount of shelf and cooler space; 17% said they would give the brand less space, and 17% said they would give the brand more space.
One-third of respondents said they planned to give no space at all to other emerging hard seltzer brands other than those in the survey (White Claw, Truly, Bud Light Seltzer, Corona Hard Seltzer, Vizzy, High Noon, Topo Chico, Michelob Ultra).
Enthusiasm for new entrants in the segment is concentrated around Boston Beer and PepsiCo’s incoming HARD MTN DEW, Truly Margarita and Truly Punch, and Topo Chico. Some retailers are taking a “wait and see” approach to HARD MTN DEW because they are “unsure” about Pepsi’s decision to distribute it rather than relying on Boston Beer’s network, Herzog noted.
“We believe that the much-expected hard seltzer category shakeout is already underway, with retailers being more selective with shelf space allocations to hard seltzer specifically in response to the proliferation of SKUs and new market entrants over the last 1-2 years,” Herzog wrote.
More than 71% of respondents said a shakeout of the hard seltzer segment is coming or “already underway.” Fewer than one-third (29%) said no. Retailers believe a shakeout “would disproportionately benefit the large incumbents such as White Claw and Truly (along with other brands that have generated significant traction in recent quarters – including High Noon, Topo Chico, Bud Light Seltzer and certain hard craft cocktails),” Herzog wrote.
About 70% of retailers said “hard seltzer inventories are elevated in their stores,” an increase from the 45% who reported the same in the Q3 survey.
“Interestingly, despite the fact that inventories have burgeoned, a majority of retailers are still not seeing a need to increase promotional intensity (i.e., via stepped up promos or reduced pricing) to drive demand,” Herzog wrote. “What’s more, many retailers still market and price seltzers as a premium product — and expect inflation to push prices higher since distributor costs are up (something that in turn will be passed along to retailers).”
However, Herzog noted that “there is a greater risk that the hard seltzer category could experience some degree of price wars as wholesalers/retailers address excess inventory,” and added that Boston Beer’s expectation that pricing will increase 3-6% “could prove difficult.”
Retailers expect pricing to increase “given the inflationary environment and the impact of supply chain pressure on the major brewers,” Herzog wrote. All respondents said overall beer category pricing would rise, either “significantly” (20%) or “moderately” (80%) in 2022. However, this balance has shifted markedly from the Q3 survey when 57% expected a significant increase and 43% said there would be a moderate one.
Out-of-stock issues “remain pervasive across alcoholic beverages,” respondents said, with 60% of retailers describing the situation as bad or very bad, down from 75% reporting the same in the Q3 survey. Molson Coors appears to be hamstrung by out-of-stocks the most, with 80% of respondents saying the company’s issues are “bad or very bad,” followed by A-B (60%). Molson Coors and A-B were the only two large brewers to have out-of-stock issues worsen between the Q3 (67% for Molson Coors and 50% for A-B) and Q4 surveys.
Heineken out-of-stock issues held steady with 20% of respondents calling them bad or very bad in both quarters. One-quarter of respondents said Boston Beer had bad or very bad out-of-stocks, down from 40% in Q3.
Constellation posted the biggest improvement in out-of-stock issues, with 20% of retailers reporting bad or very bad issues in Q4, down from 67% in Q3.