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Definition: The hard seltzer industry is a subset of the brewing industry, and primarily

produces alcoholic beverages using the combination of fermented cane sugar, carbonation, and

flavoring. While a similar production process to that of beer, in our working definition of the

hard seltzer industry, we exclude beer, wine, cider, and hard liquors. Hard seltzers are produced

around the world, but for the purpose of this industry analysis, we are focusing on the US market

where the vast majority of sales take place.

Buyers for hard seltzer consist of liquor stores, supermarkets, convenience stores, and

wholesalers. The next segment of buyers includes consumers aged 21-64 and restaurants.

Suppliers include sugarcane processors and metal can manufacturers. Earlier in the production

process, sugarcane harvesters and steel rollers are also suppliers. The major competitors in this

space are White Claw Hard Seltzer, Truly Hard Seltzer, Bud Light Hard Seltzer, BON V!V, and

Smirnoff Seltzer (T4). Substitutes for hard seltzers are any other intoxicants like wine, hard

liquor, or marijuana. Although it is defined as a subset of the overall brewing industry, hard

seltzers still compete with some of its other outputs like beer and hard kombucha. Almost any

rich company is familiar with the brewing industry and the production of canned beverages is

well situated to enter the hard seltzer industry. We see many established beer companies

releasing their own hard seltzer variants due to its similar production process to making beer.

Hard seltzers are primarily sold in the American market, so look for imported seltzers to make a

dent at some point in the future.

Porter’s Five Forces: Rivalry Among Existing Firms- The hard seltzer industry is

concentrated among a few brands. As of 2019, White Claw saw a 58% market share, followed by

Truly at 26% and BON V!V at 6%. The next two closest were Smirnoff with 4% and Natural

Light with 2% (T4). Sales of hard seltzer have been skyrocketing over the last few years. It has
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grown from a $41M industry in 2016 to a $2.5B industry in 2021 (T4). Even with Truly

dropping in market share, their sales are still rapidly increasing due to the fast industry growth.

High demand has the same effect, an example of this being White Claw, who experienced

shortages in 2019, meaning they could not even keep up with the high levels of demand. Fast

industry growth, high demand, and high concentration are all indicative of low degree of rivalry.

There isn’t a lot of product differentiation among the top 5 brands. There are some unique

flavors among the offerings and slight variations in alcohol content and calories, but mostly, the

seltzers stick to the same script. In addition, there are virtually zero costs incurred by switching

from one brand to another, other than the slight risk of buying a new brand that you end up not

enjoying. Low product differentiation and low switching costs are both characteristics of strong

rivalry. The top brands retail from $19.49 to $20.49 for a 12-pack, so quality matters over price.

While the low product differentiation and switching costs raise the degree of rivalry

slightly, the true dominating factors in the hard seltzer industry are the high concentration along

with high industry growth and demand. Because of this, the degree of rivalry in the hard seltzer

industry is on the low end of the spectrum.

Threat of New Entrants- There are significant economies of scale able to be achieved in

the seltzer industry. High economies of scale means a lower threat of entrants, because it’s hard

to enter a market where the major players can produce much cheaper than you. According to

IBISWorld, successful branding through label designs and marketing efforts are necessary to

succeed in a brand-centric market like hard seltzers. The cost to compete within marketing

within the industry is extremely high, because the incumbents are notorious for spending huge

amounts on branding and advertising. Because of this a new entrant trying to get a chunk of the

market is bound to face some difficulties. In addition to branding, building out manufacturing
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facilities requires a lot of capital. To compete with large-scale production (and there isn’t really

any other way into the market, the craft hard seltzer industry is practically nonexistent as of

now), a new entrant will need to put up lots of capital to buy equipment. Similar to having high

economies of scale, high capital requirements typically mean a lower threat of entrants. Access

to distribution is low within the hard seltzer industry because established businesses usually have

contracts with distributors and shelf space is extremely limited. Also, the sale of alcohol is a

highly regulated activity. In many states, producers are not even allowed to act as wholesalers.

Like low access to distribution, strict policies make it more difficult to get your product out

there, which is why both are bad news for hopeful new players.

More product variety makes companies more appealing to shareholders looking to create

a diversified portfolio. Because of this, the threat of new entrants into the seltzer industry

actually becomes higher, due to the fact that many established players will elect to produce more

types of alcoholic beverages, hard seltzer included. As mentioned in the previous force,

switching costs remain low- also a characteristic of a high threat of entry.

The major beer companies already have launched their own variants. This, in addition to

the immense costs that come with competing with large-scale producers and the highly regulated

nature of alcohol sales, make the threat of new entrants low for the hard seltzer industry.

Power of Buyers- Buyers are not extremely sensitive to price in the hard seltzer market.

Alcohol does not make up a huge portion of total expenditures. However, because such a large

fraction of consumers of hard seltzers are younger (and usually have less money), price still

plays somewhat of a role (Numerator). The quality is not a huge issue for this demographic

either--if it was, there are plenty of much more expensive substitutes. One thing to note is that

wholesalers have some market power because the quantities they can buy are limited. Worse, it
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is more cost-effective for wholesalers to contend with a limited number of manufacturers

because this decreases their transaction costs.

The concentration of buyers isn’t high; hard seltzers are sold through many different

channels, and because demand is so high at the consumer level, there is pressure on the

wholesalers, grocery stores, and convenience stores to have them in stock. However, low product

differentiation and low switching costs give buyers some bargaining strength because they feel

as though they can find comparable alternatives.

The strength of buyer power lies somewhere in the middle. While alcohol isn’t a major

cost, many consumers are strapped for cash, making price sensitivity fairly neutral. Similarly,

while buyer concentration is low, buyers have lots of other options, giving them a fair amount of

bargaining power. These conflicting factors make it difficult to fully assess the extent of buyer

power.

Power of Suppliers- As mentioned in the first force, the hard seltzer industry is extremely

concentrated--more so than any of its suppliers. In addition, the products the suppliers provide

(sugarcane, metal cans) are staples and do not differentiate. However, there are not really good

substitutes for these products. Sugar is imperative to the production of hard seltzer, and while

glass bottles can serve as a substitute, it is generally more expensive and less functional (you

can’t take glass to the beach).

The sugarcane producers and metal can manufacturers both serve other industries, the

former more so than the latter, meaning they will try to profit from the seltzer industry rather

than protect it. Switching costs for seltzer producers are high--they often locate their production

lines next to a supplier’s manufacturing facilities, making it costly to change.

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Low concentration and product differentiation combined result in supplier power

remaining generally low, despite low substitutes and high switching costs. We have to keep in

mind that even though the suppliers might have some power over the hard seltzer industry, the

companies producing hard seltzer are giant and could take away a huge portion of business from

a supplier should they try to play hard ball.

Threat of Substitution- Wine, hard kombucha, hard liquor, beer, and marijuana are all

intoxicants that can be considered substitutes. There is almost no switching costs for buyers to

switch to one of these. However, the function of hard seltzers to many is to provide intoxication

without the downside of high sugar and high carbohydrates.

Taking this into consideration, the threat of substitutes is not as high as one might first

believe. It is probably somewhere in between high and low, because while the substitutes for

hard seltzers are functionally equivalent in one sense (getting you drunk), most sacrifice the

lower calories and carbs.

Hard Seltzer Industry Overview: Overall, the hard seltzer industry has high value

appropriation and high attractiveness for those who are already in it. The fast growth (193% in

2019) in addition to a 19% profitability margin (4% higher than average) are the primary drivers

behind this conclusion. While the strength of buyers, suppliers, and substitutes are moderate, the

more important factors in declaring the hard seltzer industry attractive are the low threat entrants

and low degree of rivalry, situating companies like White Claw and Truly (who own 84% of the

market) to be profitable for a long time. The strong growth of the category has shown investors

that the alcoholic seltzer market is durable, and that it will be more than just a fad. Hard seltzer

producers are pulling consumers from other beverage alcohol categories, not just beer. We

contend that the existing players are positioned in an industry that is profitable and attractive.
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