Sorry, Snobs. Hard Seltzer and Canned Cocktails Are Blowing Up

·8 min read
Photo Illustration by Sarah Rogers/The Daily Beast / Photos via Getty
Photo Illustration by Sarah Rogers/The Daily Beast / Photos via Getty

The chorus of voices this spring announcing the death of hard seltzer seems smaller, yet more strident, a sure sign of the continued power of the fizzy drinks.

Some folks desperately want hard seltzer to go away and for it to be just a fad. But I’m here to tell you hard seltzer isn’t going anywhere and it’s set to shift into a higher gear.

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Hard seltzer dollar sales in retail stores increased by 160.4 percent from 2019 to 2020, according to Bump Williams Consulting, the go-to source for beer category numbers.

You might be tempted to attribute that increase to the fact that the Coronavirus pandemic closed bars and restaurants across the country. But 2020, saw overall hard seltzer sales top $4 billion, up from $2.6 billion the year before, and capture nearly ten percent of the overall beer category. Those are massive numbers for a product that first launched less than a decade ago.

Hard seltzer has fully penetrated national distribution channels and almost every major brewer has at least one brand. The craft folks have also gotten on board with these drinks, too. Truly, the second-largest seller in the U.S. hard seltzer market, is the product of Boston Beer, which is the parent company of Sam Adams. Hardly a week goes by without another craft brewer—large or small, new or old—announcing that it is launching a hard seltzer, too.

Recently, it was Stone Brewing, and it’s making an interesting case for entering this business. “We’re paying close attention to data, and the hard seltzer category just can’t be ignored,” the brewery’s new CEO Maria Stipp told me. “At the current rate, seltzer will pass craft in terms of category size. So, that’s meaningful to us. Beers are still our priority, we’re not walking away from that, but craft fans are drinking hard seltzers from their favorite breweries now.”

Stone IPA drinkers may be confused, even angry, about all this, but its seltzers have been selling strongly in its own taprooms. The launch also shows that Stone has its ears open to the sound of the market. The name of these drinks—Buenavida—and the look reflect a deep understanding of hard seltzer’s attraction: clean, healthy-looking, low calorie and fun.

The look? Stone chose to put Buenavida in a clear, embossed bottle, instead of the almost universal 12- ounce slim can. “Our decision to launch in glass bottles is intentional,” said Stipp. “Glass gives us the opportunity to show off that clean, clear liquid and it feels premium and special.”

Premium feeling is something hard seltzer has been missing, and it’s going to need it to continue to grow. We’ve come to expect a luxury option to almost anything in 2021, from cars to paint to toothpicks, and the major brands have been so busy just trying to keep up with basic demand that there’s been no time and little chance to build one.

But there is a new player in the canned drinks category that has a lot of experience with producing premium products now entering the fray: spirits companies.

What took them so long? The short answer: tax codes.

While no one could blame you for thinking that hard seltzer was essentially a canned Vodka Soda, it’s actually more like beer. You see, because of tax rates it’s much cheaper to brew alcohol from sugar and then carbonate it than to use a distilled spirit and mix it with club soda.

Blame the temperance types who were scared of demon rum. The U.S. federal excise tax (FET) is different depending how the alcohol in a drink is made, and it’s a lot more on spirits than it is on wine or beer. Keeping it as simple as possible (which isn’t easy), a gallon of wine at 16 percent alcohol by volume (ABV) or lower is taxed $1.07. The tax on a gallon of sparkling wine, oddly, is $3.40. A gallon of beer, no matter what ABV is just taxed at 58 cents. Cider, which always received special treatment because of its rural, “real America” image, is taxed at 22.6 cents a gallon. But a gallon of spirits at 100-proof (50 percent ABV) is taxed $13.50. The additional state taxes are similarly slanted.

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A number of craft distilleries and some new beverage brands have started to make canned cocktails that actually use hard spirits. They, of course, pass along the tax costs to the consumer. But the big liquor brands have taken notice of the rapid growth and the money being made on hard seltzer and they want in. Give consumers seltzers with real spirits in them, from brands they already know and love, like Bacardi Rum, Tanqueray Gin or Ketel One Vodka, and they’ll likely switch over from hard seltzer and even pay more for them.

That idea is enough to get the beer companies scared, Jim Koch founder of Boston Beer and owner of Truly, recently wrote a missive to his colleagues in the industry urging them not to get complacent and see the threat that is emerging.

What’s even more terrifying for Koch and his compatriots is that the spirits brands are trying to change the tax code, so that these spirits-based drinks would be treated more like hard seltzer in the eyes of the federal government.

David Ozgo, the chief economist at the Distilled Spirits Council of the United States, notes that thanks to these ready-to-drink beverages (RTDs) the once-clear lines between beer, wine, and spirits are getting blurred. Consumers don’t really care what kind of alcohol they’re drinking, it’s about how it tastes, how much it costs and where they can get it. “Currently,” he said, “spirits consumers are forced to pay much higher taxes for a spirits-based RTD product even if it has the same alcohol content as malt and wine-based RTDs, which are permitted to be sold at more than three times as many retail outlets. That’s completely unjustified and unfair to the consumer.”

This fight isn’t just taking place on the federal level but also on the local level. Some states are looking at treating beer-strength RTDs (of any alcohol type) like beer or wine for purposes of taxation and for where they’re allowed to be sold. In my home state of Pennsylvania, for instance, a move is being considered to allow spirits-based RTDs to be sold outside of the state stores that currently have a monopoly on their sales.

Don’t underestimate the value of expanding access to these canned cocktails and hard seltzers made with actual vodka. Dave Williams, vice president of analytics and insights for Bump Williams Consulting, believes it’s necessary for the success of spirit-based RTDs. “Until they can become as widely available as hard seltzers from a class of trade perspective, then I doubt we will see them reach the same heights,” he told me. “But that does not mean that this is not a fertile area for growth, because we have seen a number of brands do very well in this space, including the recently launched Crown Royal lineup.”

Much as I dislike the use of the phrase “market disruptors,” hard seltzer fits the bill. Now spirit-based RTDs are looking like market disruptors for hard seltzer. It should satisfy the continuing desire for new products, for a while anyway.

So, where does that leave us? Keep in mind that a substantial number of people only drink the latest thing’s the latest thing. They don’t really love what they’re drinking, but they love drinking what everyone else is drinking. Hard seltzer frees them from that in the same way a Vodka Soda does. Or as a friend of mine put it when he found hard seltzers, “I’m just glad I don’t have to drink IPAs anymore.” That goes along with my own thought that the popularity of Michelob Ultra indicates that a lot of people want to drink beer...without having to taste it.

That lack of flavor isn’t necessarily all negative, either. You can add a range of ingredients to hard seltzer, from fruit, juice and bitters to even wine for a fizzy sangria. Hard seltzers can be your drink, or the canvas upon which you paint your drink. They’re versatile, and fun, and don’t require or reward connoisseurship at all. Anyone who tries to be a hard seltzer snob will richly deserve the derision they receive.

For me, I’m going to stick with beer, because I honestly like it, and whiskey, because it’s delicious and definitive. But I’m also going to stick with what I said 18 months ago: “hard seltzer may be the next light beer, something that completely shifts the basic assumptions of the market.”

Right now, it’s nowhere near done with that work. Stay tuned.

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