Does Heineken need hard seltzer?

Speaking after his company's full-year results in February, Heineken CEO Dolf van den Brink made quite the revealing remark: "We maybe underestimated seltzer." Andy Morton looks into the story behind that admission.

Hard seltzers first emerged about a decade ago but in the past two years have grown into a significant section of the alcohol market, electrifying the industry even during lockdown.

According to Nielsen data recently cited by investment analyst Bernstein, the alcoholic sparkling water category accounts for about 8% of US off-premise beer. 

Last year, in just one of the many signs of hard seltzer's phenomenal growth, US ecommerce platform Drizly said that the category's sales accounted for 25% of total beer sales on US Independence Day, leapfrogging light lagers for the first time.

With those types of numbers, it's no surprise that Anheuser-Busch InBev, Constellation Brands, and Molson Coors Beverage Co all launched their own hard seltzers. The surprise is that Heineken sat on the sidelines.

The company is working to change that. In February, Van den Brink announced that Heineken is keen to explore new growth categories outside of beer, with the implication being that it is ready to go all-in for hard seltzer. 

Until now, Heineken's efforts have been localised, with Pure Piraña unveiled in Mexico and New Zealand in September 2020; and a month later teaming up with the owner of Arizona Beverages to roll out Arizona Sunrise hard seltzer for the US.

Heineken is looking to "stretch beer and move beyond beer", a phrase that immediately brings to mind Molson Coors' corporate messaging when the group announced in October 2019 that it was to become more than just a brewer and chase down opportunities in 'near-beer' and seltzer.

That Heineken is now taking the same path speaks volumes about where the beer industry is right now following years of declines in mainstream beer. If they hadn't already, brewers are wising up about the need to explore beyond their traditional portfolio and embrace a wider, more varied world of near-beer, canned cocktails and wine spritzers. Molson Coors did this before the coronavirus hit and appears to be reaping the rewards.

"The fact is our plan is working," CEO Gavin Hattersley said this week when his company announced full-year results. By 2023, Molson Coors expects to make more than $1bn in sales from non-beer brands.

Compare that to Heineken, which revealed it will cut one-tenth of its staff. Rather than hit new sales targets, as with Molson Coors, Heineken's aim for 2023 is to claw back its pre-pandemic operating margin.

A deep dive into non-beer will come spiked with danger. The underlying question for hard seltzer is: how long can its rise continue?

One problem with the category is that it has yet to be accurately defined. Its constituent parts can be parsed out as a canned alcoholic beverage that contains little sugar, a roughly-5%-abv strength, and about 100 calories. Beyond that, all bets are off. Recently, category launches have included a mince pie-flavoured seltzer and a Pabst Blue Ribbon THC-infused variant.

The category is so ill-defined that virtually every sector of the alcohol industry has jumped on the hard seltzer train. Even The Coca-Cola Co, which previously kept any alcohol launch safely corralled in Japan, is rolling out a hard seltzer around the world.

Add to that the international distillers that are playing in the same low-sugar, 100-calorie ballpark with recent canned cocktail launches, and you have a very noisy category that is increasingly difficult to be heard in.

The underlying question for hard seltzer is: how long can its rise continue?

Meanwhile, the powerful tools that big brewers normally have at their disposal – their household brand names – are unlikely to be used with hard seltzer. Heineken may have launched a successful zero-abv version of its namesake lager but would be far less willing to stick the words 'hard seltzer' under the brand name.

Ultimately, hard seltzer is the modern incarnation of Bacardi Breezer and Smirnoff Ice, with a health & wellness twist. And, as those brands eventually discovered, there is little value in a race that anyone can enter.

Those races always tend towards the bottom. Meanwhile, tax benefits in the US that have boosted the flavoured malt beverage category that hard seltzer is part of are not shared around the world.

Heineken is aware of this. Speaking in February, van den Brink warned about the dangers of stepping too far outside of beer.

"You still want to make sure that you stay true to your core competencies, to the power of your brewery footprint, your logistical footprint," the CEO said, cautioning against investing too heavily in all-new production lines.