Managing Director, the Lead Consumer Staples Research Analyst at Guggenheim Partners, Laurent Grandet, joins Yahoo Finance to discuss the factors contributing to seltzers becoming the fastest-growing segment in US alcohol and how brands like Truly are distinguishing themselves amongst the competition.
JULIE HYMAN: Well, it seems like the hot vax summer is also going to mean a hot hard seltzer summer. We are still seeing rapid growth in that category. So let's talk about who may be the big winners there. Laurent Grandet is joining us now. He's the managing director and lead consumer staples research analyst at Guggenheim Partners. Laurent it's good to see you. So according to your research that you've been doing, what are the most popular drinks in the category right now? And what's the capacity and the potential throughout this summer?
LAURENT GRANDET: Yeah, so right now, I mean, the White Claw is still the leading brand in seltzer. But they are kind of going down to market share. The brand that is clearly the hottest right now is Truly, as they have been launching what we call bolder flavors, like lemonade a year ago, tea at the beginning of the year, and more recently, punch. So we think Truly will catch up on White Claw, closing the gap. Not entirely, but reaching the 7% market share this year, this summer, and White Claw is likely to go down in high 30s. But White Claw first, we set it off, but Truly is the hot brand right now.
BRIAN SOZZI: Laurent, all these new hard seltzers and now even increasingly hard teas, is that coming at the expense of certain areas of the beer market?
LAURENT GRANDET: Yes. So we did a piece of work about that valuation about three weeks ago, when we at Guggenheim did a deep dive. And what we are seeing, that about 60% of the seltzer consumption is coming from beer. And about half of that is coming from light beer. And the price and more the craft than the imports. But yes, 60% is coming from beer. About 10% coming from spirits. About 10%, 15% from white wine mostly. And the rest is really more incremental.
MYLES UDLAND: You know, Laurent, if you go back in time 10, 15 years, it was all about how are these big beer companies going to deal with the craft trend. As you think about crafts' position within consumption, has that grown? Has that trend faded? Is seltzer replacing it? I mean, I know you mentioned that a lot of this comes from light beer consumption is going to seltzer, but what is the state of these craft investments, which have been sizable for so many of these major spirits makers?
LAURENT GRANDET: Yeah, so it's interesting, because in craft, you could look at the business in different ways. And if you include the big craft brands like the Blue Moon or Sam Adams. I mean, the craft beer in retail has been growing. Now what is interesting, is that most of the craft beer was sold in tap rooms and on premise, and those were closed. So you have lots of smaller regional brands that just disappeared. Didn't have the financial backbone to stay.
So what we are seeing now in retail is actually in the older, smaller craft beer as these operate, and the shelf space is over to get seltzer. So craft seems to be doing well in retail, but it's really driven by Blue Moon and Lagunitas and those brands that are, I mean, really not as crafty as you would consider.
One thing that I think is interesting to note here, is craft came with lots of flavor, but also usually a higher ABV, higher alcohol content, which kind of reduced the ability for drinkers then to drink as much as they were doing before with light beer. Seltzer being just five degrees of alcohol in general, what we've seen, we saw in our research is that consumers are inclined to drink more of those in one shot. So that's increase if you want the volume of beer, if you put seltzer into it, and for the first time for quite a long time. Craft higher ABV was not so much of a factor of losing the more volume.
BRIAN SOZZI: And Laurent, the new Topo Chico launch between Molson Coors and Coca-Cola, that seems to have gotten off to a pretty strong start. Is Molson Coors the best hard seltzer stock to own for a hot vax summer?
LAURENT GRANDET: So two things. I mean, you know, one of the reason why we explained the growth of bold flavors in seltzer is that two demographics under buying the seltzer, and it was African-American and Hispanic. About 10% of household penetration last year. And with bold flavor, but now we Topo Chico, which is really an interesting brand, I mean, we are, I mean, those brands are reaching out in the Hispanic. And Topo Chico, for example, reach about 35% of household penetration with Hispanic consumers last month. And so that's we think it could be the number three and four brands in the next few months.
Now is Molson Coors the best stock to own right now? It's the one with the most upside. But at the end of the day, seltzer is still a small part of the overall business. We think that it will reach about 7% of market share this year with Topo Chico, Vizzy, and hard seltzer, those price points. Which for them, it's a good, it's a good really factor to bounce back.
They were, it's a company that's in the US was declining 1% roughly in the pre COVID, and we believe that will be growing about 2% post COVID, thanks to seltzer, with also some privatization they are doing. So in terms of upside, I mean, we like some as a gross investment and we like Molson Coors it's all but actually, because it's still a value play and there is very little risk, but lots of upside.
JULIE HYMAN: Laurent Grandet, cheers, thanks so much for speaking with us about the hard seltzer market today, appreciate it. Laurent is with Guggenheim Partners.