Cider Scramble

How’s the state of the hard cider market these days?

Well, as a cider maker might say, it’s mostly sweet and a little bit sour.

There’s a lot of sugar to the tongue these days. Though it’s still hovering around the 1% mark of the $100 billion beer market, the industry has seen tremendous growth in the past decade, and it’s been picking up even more the last year, with growth in 2013 at a whopping 65.6%, according to the Beverage Information Group. By one measure, last year’s sales (from late January 2013 to late January 2014) hit $220.7 million. That translates to nearly 16.8 million 2.25-gallon cases, compared to just over 10.1 million the year before. Within the industry, experts say they wouldn’t be surprised if hard ciders were 3% to 5% of the beer market within the next five years.

“I would say you’re looking at a $2 billion market in 2020,” says Jeffrey House, president of the California Cider Company, which puts out ACE Premium Hard Ciders. “In 2030, my guess is it will be as big if not bigger than it is in the British market, probably 15% of the market.” In other words, few industry observers consider hard cider to be a niche anymore.

“Cider is growing at tremendous rates across the country as consumers are discovering and converting to the category with no clear signs of slowing down,” says Alejandra de Obeso, Heineken USA brand director for Strongbow.

“We don’t believe cider is going to do what it did in the past, which is to say be a category that shrank overnight,” says Eli Aguilera, marketing executive for Johnny Appleseed, the new Anheuser-Busch InBev hard cider. “Consumers are more accepting today than at any time in the history of the variety.”

The surge of cider comes at a particularly critical point for non-distilled alcoholic beverages. Since 2007, beer has been coming out flat at the U.S. tap, with consumer-research firm Mintel reporting sales have been stuck on what’s basically a plateau from 2012 to 2013, with 2.79 billion cases sold last year compared to 2.78 billion cases sold the year before. And neither of those figures looks great compared to 2009, when the beer industry was bemoaning the 2.9 billion cases sold. Analysts point to a number of reasons for the decline, chief among them the fact that younger people simply aren’t drinking as much beer — in the early and mid-’90s, 71% of 18- to 29-year-olds considered themselves beer drinkers. In 2012, according to Gallup, only 41% did.

It seems like a layup for hard ciders, whose strongest demographic group is the 21- to 35-year-old set — it’s hard not to notice how quickly the term “millennials” comes to the lips of hard cider makers. (Notably, Anheuser-Busch InBev is seeing consumers similarly embrace its line of drinks like Lime-A-Rita and Straw-Ber-Rita, fruity hybrids of margaritas and light beer.) And with a disproportionate say in setting down the initial taste profiles of new drinkers, cider makers hope they’re planting the seeds for market growth for decades to come.

“The legal-drinking-age millennial is eager to experiment with new flavors, and they expect choice,” says Royce Carvalho, brand manager of the MillerCoors canned cider, Smith & Forge, which is marketing itself as the cider of choice for young males. The company also markets Crispin Hard Cider.

It isn’t just young adults who are buoying cider’s prospects these days. Americans are more conscious about health and food-and-beverage sourcing than ever before. Hard ciders can sell themselves as lower in calories than beers, gluten-free, and “all-natural.”

“Millennials make a connection to the apple,” says Dan Rowell, CEO and president of Vermont Cider, maker of Woodchuck Cider, and treasurer of the United State Association of Cider Makers.

And significantly, the hard cider consumer profile is nearly a 50-50 split among men and women, producers point out.

 

Big Brewers in the Game

The big boys of the brewing industry have noticed America’s renewed love affair with cider. In 2012, MillerCoors acquired Crispin Ciders. This spring, Heineken’s Strongbow brought two new flavors, Honey & Apple and Gold Apple, to market. And the normally cautious InBev similarly added Johnny Appleseed cider to its lineup in early April, offering an unusually stark alternative to its already successful Michelob Ultra Light Cider. InBev’s bolstering its new entry’s chances with a “significant” media buy on television programming meant to strengthen the Johnny Appleseed’s identity as what Aguilera described as a “100% co-ed brand.” Observers have dubbed the brand an Angry Orchard killer, designed specifically to steal market share from today’s No. 1 hard cider.

“Right now, we’re all over entertainment cable, and also on late-night TV shows like Jimmy Fallon, we’re on Colbert Report and the Daily Show,” Aguilera says. “We decided to make a big investment no this, and we don’t take brand launches lightly–it’s been eight years since we’ve launched a new brand, and we want consumers, wholesalers and retailers to know they can be confident we’re a brand that’s here to stay.”

Just as you notice when the biggest kid in summer camp climbs into your once-light canoe, InBev and MillerCoors’s interest in the cider market has forced adjustments from those who’ve been slinging apple juice for years. Right now, Boston Beer Co.’s Angry Orchard sits on top of the heap, far above everyone else, commanding more than one-third of the market, according to Beverage Information Group research–in fact, its sales are more than twice as much as the second place entry, veteran hard cider producer Woodchuck. MillerCoors’s Crispin nabbed the No. 3 spot after boasting a stunning 71.1% increase in 2012-2013. Heineken’s Strongbow followed at No. 4, while Irish-based C&C’s longtime cider stalwarts, Hornsby’s and Magners, which both saw modest growth, hung on at No. 5 and No. 6. InBev’s Michelob Ultra Light Cider, meanwhile, saw a 63% climb to No. 7.

For Vermont, the big guys’ meteoric rise has meant familiar ciders like Woodchuck have had to concentrate on keeping their feet firmly on the ground–at least for now, Rowell says.

Vermont ceded the top spot to Angry Orchard between 2012 and 2013, though Woodchuck enjoyed a respectable 22% increase in sales. “When the first cider makers conference met, there were 35 of us, Rowell said. “Last time, in Chicago, we had to cut people out at 450–and there were a lot more at the entrance. Commercial ciders are getting the distribution, new ciders are coming into the category, and consumers want to try different things. But we’re confident they will come back to us.”

Far from being worried about the abruptly ultra-competitive environment, cider makers swear they welcome the newcomers, making for an unexpected esprit de corps among rivals.

“We spent 23 years trying to convince retailers to carry a cider,” Rowell adds. “We don’t need to convince them anymore. They believe because the big guys believe.”

And the big guys agree.

“Ideally, we’re supporting the growth of the entire category, and we’re hoping to bring more drinkers to cider,” A-B’s Aguilera says. “Choice and variety are the new rules of the game, and they’re not going away. We intend to prove that hard ciders aren’t a fad.”

What’s going mostly unspoken in all the camaraderie is the general consensus that, once the dust settles, there will be two viable subcategories of hard cider left–economy brands and premium brands. The alcohol behemoths can afford to hedge their bets by introducing lines in both groups, while smaller makers believe that their decades of experience and loyal followings will help them weather the chaos and come out with their reputations as premium brands intact.

And maybe, just maybe, say the older cider houses, being top dog right now isn’t a great idea, with so many giants suddenly in the mix.

“They’re going to saturate the hell out of it–they’re all trying to beat up Angry Orchard,” says House, whose family-owned ACE Cider is currently the No. 8 brand. “They’re just jealous of the growth Jim’s [Boston Beer Chairman Jim Koch] getting, so they want some of that. We just want to be the top-shelf brand for the 10% of people who want quality, not quantity.”

 

Not All Upside

If all that’s the sweet, then there’s still the sour to consider.

Though cider makers openly say that there’s plenty of room for everyone in the market, basic math might suggest otherwise. If a typical bar has every tap dedicated to a beer but for the one that’s reserved for specialty beverages, then the huge influx of new hard ciders likely means that each cider brand will enjoy shorter and shorter rotations, leaving smaller windows of time in which brands can attract new devotees. To keep the consumers coming back and asking for their brands, the smaller, established makers swear by the relationships they’ve built over the years with distributors and consumers. Mammoth newcomers, on the other hand, are saturating the airwaves with ads. Someone’s going to be proved wrong, unless bar owners can be convinced that it makes sense to add another specialty tap for a drink has currently has only one taker for every 100 beer drinkers.

“It’s not an industry for the faint of heart,” House says. “Distributors are difficult to deal with, and there are fewer and fewer of them. Some of these artisanal guys will have to take a farmhouse position, or do direct mail. It will be difficult to be a marketer of a cider brand if you don’t have years of experience with it.”

Then there’s hard cider’s fuzzy tax status with the Internal Revenue Service that penalizes cider makers more than brewers or winemakers. Under the present code, cider is taxed as a beer until its alcohol content reaches 7% by volume, at which point it’s taxed at the higher rate for wines. On top of that, cider suffers an even higher champagne tax if its carbonation level reaches 39%. Of course, it’s impossible to explain the vagaries of federal tax code to apples, whose sugar content varies from year to year, making hard cider’s alcohol content change from vintage to vintage.

It’s a no-win situation, as observers have noted, because American consumers like fizzier ciders. So if makers put out the cider that consumers want them to, the IRS takes more of their money. But if they put out the cider the IRS encourages them to, fewer consumers buy it. In the House of Representatives and the U.S. Senate, respectively, U.S. Rep. Earl Blumenauer (D-OR) and U.S. Sen. Chuck Schumer (D-NY) have sponsored their versions of the Cider, Investment & Development Through Excise-Tax Reduction, or CIDER, Act, which would loosen tax restrictions and bring U.S. cider laws more in line with their European counterparts. But no one’s holding their breath on any law getting passed in Congress these days.

There’s even debate about where hard ciders belong in stores–no small matter when, according to Rowell, grocery sales account for 40% to 43% of sales. He says it’s time cider came to be considered its own category, instead of being lumped in with beer.

“We want to define ciders within themselves, and we still need to define ciders within the market,” he says. “It’s led to a lot of confusion in the market, even with the big guys coming in. Some say cider should be in the beer cooler. Some say it should be in an alternative place. I think ciders should be with ciders.”

Still, big or small, premium or value, cider makers don’t hesitate to say they expect the sweet times to only get sweeter in the near future.

“It’s an exciting time for our category,” Aguilera says. “And we really believe we’ve got a big winner here.”

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