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Hard seltzer consumption is slowing as consumers head back to bars and restaurants during the COVID recovery, but that downturn should be temporary, UBS data shows.
Hard seltzers, fizzy alcoholic beverages that have taken off with consumers looking for a lighter alternative to beer, wine and spirits, are still relatively new to the market. Many consumers had yet to become loyal fans before the pandemic upended life around the globe.
With that in mind, analysts think there’s still plenty of room for the category to grow.
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“We believe the decline in regular consumers is driven by the gradual reopening
of on-premise channels where hard seltzer is currently under-indexed vs. beer, wines and spirits. The impact of this channel shift may prove somewhat transitory as respondents in late May were eager to return to their pre-COVID behaviors/channels where hard seltzer has yet to establish a foothold,” analysts wrote.
“The easing in regular consumption correlates with the steady rise of intentions to dine out.”
Beverage companies like Boston Beer Co.
SAM,
and Molson Coors Beverage Co.
TAP,
have turned their focus to hard seltzers as their popularity has taken off. White Claw, a big name in the category, is privately held.
Molson Coors announced last month that it will quadruple production in Canada, where hard seltzers are a new entry. And beer brewers around the world are launching new hard seltzer products at a fast clip.
A UBS report in March forecast that hard seltzer sales will reach $15 billion by 2025.
UBS data from the report published Tuesday shows that consumption of hard seltzer on a regular or somewhat regular basis has slipped since February. The report shows that a lack of availability at places like bars, restaurants and venues is a big factor in consumption.
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“While we continue to believe that over the long-term hard seltzer will
under-index other alcohol categories in the on-premise, we expect that the dominant brands (White Claw, Truly) will command an outsize share of that opportunity,” UBS said. On-premise refers to places where diners can consume alcohol, like bars and restaurants, versus grocery and convenience stores where alcohol is taken off-premise.
Truly is a Boston Beer brand.
“What’s more, we believe that high-density channels like sporting events and concert venues will be slower to return but will have greater hard seltzer penetration.”
UBS rates Boston Beer stock buy with a $1,480 price target.
RBC Capital Markets said in a report published on May 17 that consumer and distributor checks are yielding strong results for Truly.
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“Boston Beer’s continuous stream of innovation (lemonade, tea, punch) and their new Canadian subsidiary focused on nonalcoholic cannabis drinks speaks volumes about the company’s vision, consumer insights engine and ability to get product to market quickly,” analysts led by Nik Modi wrote.
“We expect the hard seltzer category to accelerate as the year progresses due to easy comps but also due to a return to group gatherings (which is a key occasion for the hard seltzer category).”
Analysts also note that Constellation Brands Inc.’s
STZ,
Corona Seltzer is growing share. RBC rates Constellation Brands outperform with a $300 price target.
And RBC rates Boston Beer shares outperform with a price target of $1,538.
Boston Beer stock has gained 5.6% for the year to date. Constellation Brands is up 8.4% for the period. And Molson Coors has gained 34.4%.
The benchmark S&P 500 index
SPX,
is up 12.7% for 2021 so far.
