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Daily Intelligence Briefing

Monday, March 29, 2021

Identifying Change-Driven Investment Themes – Five sections, explained here.

The Daily Intelligence Briefing is published by McAlinden Research Partners. The report is provided to Hedge Connection blog readers once per week for free. Below is just one of the five sections that delivers Change-Driven Investment Themes everyday.

I. Today’s Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

Summer of Seltzer II: Beverage Brands Betting Big on the Growth of Spiked Seltzer

Summary: As many sectors of the US economy continue to unwind pandemic restrictions, consumers are expected to get out and about in a big way compared to last year. The summer of 2019 marked the beginning of a boom era for alcoholic seltzer beverages, one that was not heavily interrupted by the COVID-19 pandemic, but saw bar and restaurant sales disappoint in 2020.

This year, the peak seltzer season is expected to be a boon for big beverage brands like Coke and Anheuser-Busch, each of whom are launching a brand new offensive in the hard seltzer market.

Related Stocks: The Boston Beer Company, Inc. (SAM), The Coca-Cola Company (KO), Constellation Brands, Inc. (STZ), Anheuser-Busch InBev SA/NV (BUD)

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Summertime is right around the corner, which means hard seltzer beverages are on the verge of their peak season. This year could mark a breakout summer season as millions of consumers are chomping at the bit to wind down and make up for the warm-weather festivities they lost out on last year.

MRP first covered the seltzer boom in 2018 when we noted that the beverage sector was experiencing the latest phase of an evolution that began after soda sales peaked in the late 1990s. Consumers have continually demanded healthier, lower calorie options from their beverages over the last 2 decades and it was only a matter of time before those preferences spread to adult beverages.

Even in the face of a largely uneventful summer 2020, devoid of concerts, publicly-attended sporting venues, packed bars, and other non-socially distanced events, as well as tough comparisons from the 2019 “summer of seltzer,” hard seltzer still managed to one up the previous year – largely due to stockpiling and spending more time away from the office during COVID-induced lockdowns.

In January, Forbes reported that 2020 hard seltzer sales were likely in the area of $4.1 billion, representing 160% growth. Goldman Sachs has stated that they expect the Hard Seltzer market to reach $30 billion in sales by 2025. Meanwhile, beer volumes were down 1.6% for 2019 according to a report released by the Brewers Association, and a recent report they released predicted an 8% drop last year due to COVID related disruptions to on-premise businesses.

Per IWSR, hard seltzer volume in the US is currently about 82.5 million nine-liter cases (which is already larger by volume than the leading spirits category in the US – vodka). The firm forecasts that by 2023, the category will more than triple, to reach over 281 million cases.

Rabobank sees the possibility of hard seltzers becoming 20% of all beer category sales (up from an estimated 10% today) within the next 5 years.

This summer may be a game-changer, as many bars and other indoor venues expanding their capacity – expecting a return to semi-normalcy. Vaccinations are on the rise as cases of COVID are largely stable and steadily trending down through 2021. Though to-go sales of liquor and spirits did well last year at retail locations, the restaurant and hospitality industry are looking forward to a bounce back this year.

The daily number of doses administered hit a new record last Friday, jumping up to about 3.38 million, according to White House COVID-19 Data Director Dr. Cyrus Shahpar. Earlier this month, the CDC reported that the number of jabs administered surpassed 100 million, meaning about 35 million people (13.5% of the US population) have been fully vaccinated.

President Biden has pledged to make all Americans eligible for vaccination by May 1, a key date that’s just about 4 weeks ahead of Memorial Day weekend – the unofficial start of Summer in the US.

With Americans feeling more confident about immunity and their own vaccination status, it’s likely many will be ready to get some much-needed sunshine in social settings.

Despite a thickening field of contenders, hard seltzer revenues remained heavily concentrated through 2019 with White Claw and Boston Beer Company’s Truly controlling 80% of the hard seltzer market, according to Bank of America.

However, beverage giant Coca-Cola is looking to break off a piece of that share by leveraging their massive advertising budget and superior supply chain networks, launching a brand-new hard seltzer under their subsidiary Topo Chico. That comes after Coke eliminated almost 200 beverage brands in their portfolio to focus on newer ventures.

Per Gear Patrol, Topo Chico Hard Seltzer will hit US shelves today in exotic pineapple, strawberry guava, tangy lemon lime and tropical mango flavors.

That launch comes just weeks after Anheuser-Busch, a subsidiary of Belgium-based AB InBev, had to boost production of its latest hard seltzer offering. The beverage, Cacti Agave Spiked Seltzer – developed alongside rapper Travis Scott – sold out online after it was opened up to ecommerce sales.

As CNBC notes, Cacti is the third hard seltzer launched under the Anheuser-Busch banner, following Bud Light Seltzer and Michelob Ultra Organic Seltzer, demonstrating how much potential beverage companies see in this expanding market. The company has said it will invest more than $50 million this year on new seltzer brewing capabilities.

Bud Light Seltzer has recently gained a significant amount of traction after adding a lemonade variant, competing with Mike’s Hard and Truly’s similar products.

Spiked lemonade seltzers captured approximately $314 million of hard seltzer category sales for the year ending December 26th, according to a Nielsen report. This is a fragment of the larger pie, but one that was growing at a faster pace than other flavors, promising a robust 2021.

As The Drum writes, White Claw, part of Mark Anthony Brands (also a parent to Mike’s Hard Lemonade) owned a majority share of the category in 2020, but Truly has begun to close that gap in 2021, capturing a 27% share compared to White Claw’s 47%.

Boston Beer Company, one of the more cutting-edge players in the alcoholic beverage industry, ended 2020 on a high note, announcing industry-leading sales through December thanks to the Truly hard seltzer and Twisted Tea product lines.

Depletions, an industry measure of sales, rose 26% in the fourth quarter to meet investors’ expectations and put Boston Beer at 37% growth for the year. By comparison, the Motley Fool notes that Constellation Brands, which successfully introduced Corona Hard Seltzer last year, notched growth of just 11% 2020.

On top of the growing popularity of seltzer, profit-generating beverage brands have recently broken out as an especially interesting trade amid a broader rotation toward value stocks.


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