As Soft Drink Sales Soften, Hard Soda Gains

The third top-selling craft beer brand in the U.S. in the past 12 months isn’t an IPA or a lager. It’s a boozy root beer, according to IRI, a Chicago-based market research firm.

The growth of Not Your Father’s Root Beer, made by the Small Town Brewery in Wauconda, Ill., hasn’t gone unnoticed by larger brewers. This week, Anheuser-Busch InBev launched its own. And next month, Chicago-based MillerCoors is hoping to stretch the field by releasing Henry’s Hard Soda ginger ale and orange soda.

The growth comes at a time when Americans are rejecting nonalcoholic soda — regular and diet — in favor of bottled water and other alternatives considered more healthful. Industry experts and company executives say alcoholic sodas are different because they tap into consumer nostalgia and a new feeling of indulgence.

“There’s going to be an explosion of those things coming out,” said Dan Wandel, principal of beverage alcohol client insights at IRI. “Time will tell if it’s going to be a fad.”

The top nine alcoholic root beers — led by Not Your Father’s Root Beer and Coney Island Hard Root Beer — amounted to more than $116 million in 12 month period ending Nov. 29, according IRI sales data that did not include liquor stores and Costco.

Most of that was Not Your Father’s Root Beer, with more than $92 million in sales.

MillerCoors plans to stake its claim next month, using its significant marketing muscle. Henry’s Hard Ginger Ale and Henry’s Hard Orange Soda will be on shelves throughout the U.S. beginning Jan. 1, followed by a national advertising push.

While Henry’s Hard Soda is essentially an expansion of the segment now dominated by root beers, Bryan Ferschinger, senior director of innovation for MillerCoors, said it’s intended to be different than what’s already out there. At 4.2 percent alcohol by volume and with a recommended price of $8.99 per six-pack, it has less alcohol and a lower price than Not Your Father’s Root Beer, which has 5.9 percent alcohol by volume and a recommended retail price of $10.99.

Ferschinger said he and his colleagues talked at length about the decline of nonalcoholic soda in the United States. But he pointed to the growth of the much-smaller craft soda niche and the “underserved” Generation X consumers as signs that hard soda remains “a strong proposition.”

It’s been a tough decade or so for carbonated soft drinks, said Linda Montag, senior vice president of Moody’s. Schools have banned soda-vending machines; municipalities have debated soda taxes. Consumers worried about high-fructose corn syrup turned to diet soda, only to develop a new wariness of artificial sweeteners.

As a result, companies such as Coca-Cola and PepsiCo have had to diversify their products. Sales volume of carbonated soft drinks is projected to decline in the single digits in 2016, according to a recent Moody’s report, driven by the rapid drop in diet soda consumption, which fell 7.5 percent in 2014.

The alcoholic soda rage is distinctly American, said Spiros Malandrakis, a senior industry analyst for Euromonitor International. The closest comparison is the recent popularity of Harry Brompton’s London Ice Tea in the U.K.

“Now, the question of whether it’s sustainable is open for debate,” Malandrakis said.