Ask any market researcher in 2015 to define the future of craft beer and the answer would have been “more beer.” Craft brewing was soaring, with brewery numbers overtaking the pre-Prohibition era and a veritable flood of SKUs hitting liquor store shelves.
Ask that same economist about the future of beer in 2019 and the answer might be “more variety.” But not just among beer styles. In 2017, the sales volume of the national craft beer market increased just 5 percent, and production volume for 24 of the top 50 regional craft brewing companies either declined or remained flat.
The nation’s second-largest craft brewer, Boston Beer Company, was one of the companies caught up in this slowdown. Production levels of their entire portfolio in 2017 had fallen 500,000 barrels from their peak of 4.2 million barrels in 2015, largely driven by decreases in their Samuel Adams beer brand. The company did, however, post a 24.2 percent growth in revenue for the third quarter of 2018—thanks to everything but beer.
In 1997, Boston Beer began to diversify its portfolio with the launch of HardCore hard cider. (HardCore was replaced with the wildly popular Angry Orchard brand in 2012.) In 2001, the craft brewery diversified even further with Twisted Tea, an alcoholic iced tea. Boston Beer added the hard seltzer Truly Spiked & Sparkling to their lineup in 2016, and the decision paid off with booming sales.
These non-beer lines are so popular for Boston Beer that they could soon eclipse the brewery’s beer portfolio in overall production. This reality seems to have informed the Brewers Association to drop the requirement that a majority of a brewery’s total volume must be derived from traditional brewing ingredients in order to be defined as “craft.”
Hard seltzer is set to make big waves in 2019. Late last year, several national craft breweries and cideries—including Platform Beer, NoDa Brewing, Two Beers Brewing together with Seattle Cider, Oskar Blues Brewery, Perrin Brewing, and 2 Towns Ciderhouse—announced the addition of a hard seltzer to their portfolios. In Minnesota, Third Street Brewhouse released the state’s first hard seltzer, HULA, in July 2018.
The sudden success of hard seltzers across a widening demographic of female and male drinkers is partly attributed to Americans’ heightened interest in health and fitness. The beverage contains no allergens, around 120 calories, an average of two to four grams of sugar, and about 5% ABV. We know consumers were rethinking beer from a nutritional standpoint the same way we know everything: Twitter. Last year saw a sharp increase in tweets pairing the words “beer” and “carbs.” Simultaneously, dollar sales of White Claw variety packs went up—by a whopping 453 percent—during the first 10 months of 2018.
The uncertainty of the beer market is leading brewers to seek out ways to expand their pool of drinkers. Matt Schwandt, co-owner, chief operating officer, and head brewer of Bauhaus Brew Labs, characterizes hard seltzer as a natural diversification for breweries. “Craft breweries are facing challenges in today’s market,” he says. “In the past few years, we have observed consumer behavior trend toward placing greater value on what is ‘new’ than on brand loyalty.”
Brad Glynn, co-founder of Lift Bridge Brewing Company, echoes Schwandt’s sentiment. “We need to innovate to stay relevant,” he says. Market research by Lift Bridge supports that theory and shows that hard seltzers are not the flash in the pan that past trends—like hard sodas—ended up being. That information, together with huge demand from accounts, motivated the brewery to make their own version of the beverage (even though, according to Glynn, they’re “not typically a brewery that jumps on trends”). The biggest challenge facing Lift Bridge was differentiating their hard seltzer from the national brands.
Making a hard seltzer is straightforward—add sugar to water and ferment it with yeast—and can be done on regular brewing equipment. Yet this seemingly manageable process involves a surprisingly steep learning curve. Yeast behaves differently in this solution than in wort, and, because sugar and yeast nutrient don’t entirely mimic what grains provide, the fermentation cycles don’t play out as they do in beer. The results are fermentation by-products, many of which aren’t palatable. But after months of tinkering, Glynn believes Lift Bridge hit on a line of hard seltzers that will stand apart from the competition through its local origins, its “Midwest-inspired flavors” like the apple-cranberry Northwoods Juicebox, and thoughtful packaging.
Fulton Beer is also jumping in this spring with a line of hard seltzers under the brand name “Break.” Fulton CEO Ryan Petz says there was no hesitation in deciding to get into the hard seltzer market. Like many in the beer industry, hard seltzers are a product they enjoy. “Is it something we would drink? If the answer is yes, we don’t have a problem with it,” he explains.
Third Street Brewhouse, the craft-beer arm of Cold Spring Brewing Company, has seen huge success with HULA. Despite the fact that Cold Spring has a massive portfolio spanning all types of beverages, HULA was their first alcoholic non-beer product. For the four full months it was available on shelves in 2018, HULA accounted for more than 5 percent of total annual sales revenue. Cold Spring brewmaster Karl Schmitz says it only makes sense from a business standpoint for craft breweries to create seltzer in order to increase market share. At the same time, he acknowledges that craft beer isn’t going anywhere.
In Northeast Minneapolis, Fair State Brewing Cooperative recently launched a taproom-only hard seltzer (or, as they call it, “hard water”). “New and fun” is about as much credence Fair State co-founder and CEO Evan Sallee gives to the product though: He firmly disagrees that hard seltzers and non-beer products will become mandatory additions to craft breweries’ portfolios in order to survive.
“Certainly in an increasingly competitive landscape, breweries have to find new ways to engage with their consumers and stay relevant,” he argues. “But I just don’t see that meaning that all of the country’s 6,000-plus breweries need to choose between solvency and producing products like this.”
A Better NA Beer
If the hard seltzer market is still somewhat speculative in Minnesota, the non-alcoholic craft beer market is totally uncharted waters. The big brewing conglomerates currently have the NA market cornered with O’Doul’s (Anheuser-Busch InBev) and Kaliber (Guinness Ltd.)—products that, along with other NA beers widely available, taste terrible, says Ben Jordan, co-founder of St. Paul–based ABV Technology. “The non-alcoholic beer bar is so low,” explains Jordan, that he and business partners Kurt Koppelman and Patrick Frimat decided to develop a system to create full-flavored NA craft beer.
In a Willy Wonka-esque splitting of beer atoms, ABV’s system breaks down a fully fermented beer into two outputs: water with ethanol and subdued flavors that can be used to create hard seltzer, and a “non-alcoholic cereal beverage” that has nearly all the flavor of its alcoholic counterpart but hardly any of the booze (about 0.5% ABV). Bauhaus Brew Labs in Minneapolis was the first client brewery to use ABV’s system, running their Homeguys Helles through the machine. The results are Bauhaus’ first hard seltzer and one of the first NA beers made by a craft brewery in Minnesota since Prohibition ended. (Hairless Dog Brewing Co., in partnership with an anonymous Minnesota brewery, launched their own NA craft beer product into the market in December 2018.) While Bauhaus may have gotten there first, the brewery won’t be alone in the craft NA game for long: as of late February, ABV was working with 12 Minnesota breweries, including Badger Hill, Eastlake, Excelsior, Fulton, Indeed, LynLake, and Surly.
While Bauhaus’ NA offering is a taproom-only product, for the time being, Schwandt thinks there’s untapped potential for it at liquor stores and bars. ABV’s Jordan sees the same potential; several bars and restaurants he’s spoken with have cited their top-selling non-draft, non-soda product as NA beer.
Not What, But Why?
For craft breweries, choosing to make non-traditional beverages is largely about inclusivity. Hard seltzer is gluten-free and low-calorie. Craft NA beer gives non-drinkers—or drinkers craving a break from booze—a good-tasting beer option.
But even with the market potential inherent in the hard seltzer, NA, and non-beer markets, not all breweries are ready to diversify beyond beer. Surly Brewing Company is among them. “As with all of our R&D efforts, we have to answer ‘why’ before we double-down on the ‘what,’” says Bill Manley, Surly’s VP of marketing. “We’re working on dozens of other R&D projects, including toying with NA products and seltzer-like ideas, but nothing (so far) that we’re comfortable with releasing to the world.”
Other breweries see growth into the non-beer realm as at least helpful, if not—eventually—necessary. Fulton’s Petz considers seltzers a significant addition to the Fulton product line and is happy to please distributors and taproom patrons alike. “Even if hard seltzer is a single-digit percentage of sales, that helps keep the lights on and makes Fulton a stronger overall company,” he says.
The steady trend in health and fitness, coupled with the fact that consumers are more likely to try new beverages in the warmer months, adds up to excellent timing for Minnesota breweries to release their own craft seltzers. The national brands have already highlighted what the masses are looking for, now it’s time for craft brands to deliver where distributors can’t keep up.
Correction: An earlier version of this story misspelled ABV Technology.