Alcohol trends: Beer reinvents itself under pressure from hard seltzer category

27 Feb 2023 --- Consumers are drinking less alcohol overall but haven’t lost their appetite for thrills and adventure through beverages. This is leading to a wealth of innovation across the low and no-alcohol segments and premium drinks, as well as continued momentum in the “hard” category, which now sees hard teas, lemonades, and even water, come off the back of the initial success of hard seltzers.

With the alcohol category spilling over into the wide beverage arena, manufacturers are innovating with healthier options for any time of the day. 

Flavor-filled, premium pre-mixed libations are also hitting the shelves, with the ready-to-drink (RTD) category forecast to grow more than US$11.6 billion over the next five years, according to Kerry. 

Consumer demand for premium RTDs will drive the category, value growth outpacing volume growth at +8% vs. +5% CAGR 2022–2026.

FoodIngredientsFirst speaks with Innova Market Insights, Kerry, Treatt, Foodology by Univar Solutions, IFF and Kirin Holdings about fresh opportunities in the adult beverage market. 

Cheers to health 
Even before the COVID-19 pandemic put health top of mind, the alcohol category was evolving to create better-for-you alcoholic beverages with the advent of flavored, spiked sparkling water. 

The rise of the hard beverage segment is the result of the growing hybridization and fluidity within the beverage market.“Hard seltzers first launched in the US and took off from 2019 onwards. The key selling points are that they are relatively low in alcohol and calories while still being high in flavor,” explains Steven Thomissen, market analyst at Innova Market Insights.  

Since then, the category has rapidly expanded and crossed over into other areas, such as hard teas, coffees, water and soda. 

“The rise of the hard beverage segment is the result of the growing hybridization and fluidity within the beverage market, which is driven by consumer demand for 'better for you' options across every consumption opportunity,” says Tracy Gorman, insights executive at Treatt. 

“We believe this blurring of lines will only continue and is certainly creating an exciting playing field for those looking to innovate in this space.” 

Keeping it flavorful 
Flavor is the main driver of RTD consumption, with an increase in full-flavored products across all sub-categories, according to John Kelly, strategy director for beverages at Kerry. 

In an increasingly competitive market, Innova Market Insights’ Thomissen highlights that limited edition launches are required to stand out from the pack – especially in North America. 

Additionally, players in the RTD cocktail segment are ‘feeling the heat’ and are upping their innovation game, launching more varied products as well, such as new formats, local or seasonal ingredients as well as more premium launches. 

“Flavor innovation is key to keeping consumer interest high,” adds Sjors Peters, innovation marketing lead for beverages, IFF. 

The rise of RTD cocktails is a good example of how the market of hard seltzers is evolving to new product experiences.

Flavor is especially crucial in the alcohol-free space, where taste is the number one reason to consume them, according to a 2022 global Innova category survey. 

Fluid categories 
The rise of hard categories bridges traditional alcoholic beverages and non-alcoholic drinks, according to Jens Magnus Eiken, global product manager, brewing at IFF. 

“Pushing creativity, these categories represent an opportunity for brewers to expand beyond traditional beers, increasing the choice they offer to consumers and tapping into different consumer groups who have new expectations from alcoholic beverages.”  

Examples may include non-alcoholic beers, premium or more sub-premium beers, even lighter beers, flavored lower alcoholic beers or maybe also introducing categories that go “beyond beer,”’ such as kombucha, hard seltzers and RTD mixes, he adds.  Hard teas, coffees and water are emerging.

A revolution brewing 
Jon Fleege, industry manager at Foodology by Univar Solutions, agrees that “hard” drinks are a natural brand extension and are often manufactured by the same producers as beer and liquor. 

“Seeing these in stores is now ‘normal.’ These are another line of a producer’s business; traditional beer producers and brands will adapt to consumers' constantly evolving needs and interests.” 

Beer brands are stepping up to meet increased demand for innovative RTDs. 

In January 2020, Bud Light entered the seltzer market with 100-calorie cans featuring fruit flavors and less than one gram of sugar. 

Last April, Bud Light tapped into tea and daytime occasions with the release of the “Really Retro Afternoon Tea Flavored Seltzer” with 5% alcohol by volume (ABV) and zero sugar. 

By some degree, beer brands expanding into RTDs may be a question of survival. Kelly states that spirit-based and higher-ABV RTDs are taking a large share of new product development away from beer or malt bases, driven by pre-mixed cocktails. 

Moreover, beer prices have climbed with an increase in raw material prices and inflationary pressures. 

Danish brewer Carlsberg has already warned that “2023 will be another challenging year,” according to the company’s chief executive Cees 't Hart. 

“While beer historically has been a resilient consumer category, the higher prices in combination with generally high inflation may have a negative impact on beer consumption in some of our markets, particularly in Europe.”

But so far, data is looking positive for the beer category. Over the last three years, Innova reveals that launch activity for beer has grown 3%, which is higher than the alcoholic beverage category as a whole. 

This may be due to beer’s creative expansion into more flavors, types and lower alcoholic offerings, states the market researcher. 

“The beer market is still growing and has also been during the pandemic,” according to Eiken.

“This is probably at least partly thanks to the reactivity of the brewing industry to innovate and tackle the challenges presented by the economic situation.”

Less is more: the rise of premium 
Fleege notes the baseline price for premium beer skewed upward in part because of a noticeable consumer trend during the pandemic - expendable income, time, and consumers drinking more at home than in restaurants or bars.

Now that COVID-related restaurant shutdowns feel like a distant past, the trend seems to be carrying over, as consumers eat out less often due to inflationary pressures. 

“While consumers may look to make savings by going out to eat and drink less often, they may be more inclined to ring-fence their spend on alcoholic beverages within the home,” underscores Treatt’s Gorman. 

While consumers may look to make savings by going out to eat and drink less often, they may be more inclined to ring-fence their spend on alcoholic beverages within the home.“In this space, we see premiumization to be a key driver, where consumers will be looking for a quality experience that's worth the spend.”

In Heineken’s 2022 financial report, company CEO Dolf van den Brink stated that the company’s premium portfolio continued to outperform, propelled by the roll-out of Heineken Silver. 

The latest offering contains 4% ABV (rather than 5% as the flagship pilsner) and it is brewed at -1°C, which “removes more proteins and rough-tasting tannins” than its traditional brewing method. 

A similar trend is underway on the Japanese market, according to Naoto Kobuna, manager corporate communications at Kirin Holdings, who reports there is an increase in “willingness to spend on what one perceives to be of value,” which had been in progress since before COVID-19. 

"The trend toward value-added products and services is becoming more prevalent, especially among younger consumers, as diverse values are spreading,” Kobuna states. 

As a result, Kirin Brewery will continue to focus on increasing the appeal of core products, such as its Kirin Ichiban series, while increasing added-value products, including craft beer, to cater to the growing demand for a “sense of reward” or a “little luxury.” 

Looking ahead 
Fleege anticipates that health will continue to play a vital role in alcoholic beverage innovation. 

“We know that caloric reduction for consumers can make a difference in product purchase selection and can impact consumption, as well products that offer some essential vitamins and nutrients, including yeast that contains B12 used in beer.”

Kelly anticipates that functional ingredients will be a font of innovation, replacing the effects of alcohol with added value benefits from adaptogens and nootropics like ashwagandha, as well as caffeine, guarana, proteins and immunity-boosting ingredients.

For Peters at IFF, local trends are driving growth. “Everything local is coming loud and clear as a trend right now. Bringing local flavors is a way to connect with your local consumer.”

By Missy Green