Anheuser-Busch InBev (NYSE:BUD) has decided to enter the rapidly expanding cider market as it launches Johnny Appleseed Hard Apple Cider on April 7 nationwide.
The launch comes during a period where beer sales are falling and beverage makers are looking to expand their offerings to make up the difference.
"Some 22% of Americans say they are drinking less domestic beer because they're drinking wine instead, and 18% are focusing their alcohol consumption on liquor in lieu of domestic beer," according to new research from Mintel as reported by Food Product Design.
Fellow Fool Rich Duprey wrote in Why Anheuser-Busch InBev Isn't Worried About Falling Beer Sales that "after a meager 1% increase in sales in 2012, the first increase in years, the industry succumbed again in 2013 and saw sales turn south once more."
According to both Technomic and the Beverage Information Group, total U.S. beer volume sold in the U.S. fell to 2.8 billion 2.25-gallon cases, a 1.4% drop from 2.84 billion cases sold the year before.
What Anheuser-Busch is doing
As beer sales fall, beverage makers are looking to expand their product lines into trendier categories. One of the fast growing has been cider.
Hard cider saw sales rise 78% at retail and in restaurants in 2012, according to market tracking firm Technomic, USA Today reported.
The company describes the beverage as "refreshingly sweet and intense hard apple cider with a crisp apple bite." It has 5.5% alcohol by volume and will be produced in Baldwinsville, New York, with apple juice sourced from apples in the U.S. and orchards from around the globe.
"Cider is hotter than ever right now, and Johnny Appleseed is an exciting new entry to the category," said Adam Oakley, VP of High-End at Anheuser-Busch. "We have something very special here – the perfect balance of sweetness and intensity with a refreshing crisp apple bite. It's unlike any other hard cider on the market today."
Whether that's true or not, the product is joining a growing but increasingly crowded marketplace. Earlier this month, MillerCoors launched Smith & Forge Hard Cider.
A new Anheuser-Busch brand is a big deal
In development since 2011, Johnny Appleseed Hard Apple Cider is the first wholly new brand from Anheuser-Busch in eight years. The company has of course released new products, but those are generally variants of its existing brands. Its growing line of Bud Light Lime Ritas, for example, grew out of the Budwesier brand.
The cider market is crowded
While the cider market is crowded, Anheuser-Busch needs to continue to diversify its product line as consumers shy away from beer. The research from Mintel, as reported by Food Product Design, shows that a number of Americans are still consuming alcohol just not as much beer.
"Twenty percent of Americans say they are cutting back on domestic beer consumption because it has too many calories and 15% believe it to be unhealthy," the report said. "This has helped buoy the sales of wine, traditionally seen as a healthier option, which saw sales increase 2.6% in 2013 to an estimated $42 billion."
Anheuser-Busch is not a sure thing
While the company has had success with both Bud Light Lime Ritas and Budweiser Black Crown, it has stumbled in the past when launching new products. The ill-conceived Spykes brand, which launched in 2007, were 2-ounce bottles of flavored malt beverage that were meant to either be mixed with beer and other drinks or consumed as a shot. Packaged in colorful bottles, Spykes contained 12% alcohol by volume.
As you might imagine, the colorful packaging and flavors that included lime, mango, melon, and hot chocolate drew some criticism as the company was accused of marketing to underage drinkers. The product was pulled from shelves due to poor sales and public outcry, which seemed justified as Spykes clearly -- at least at face value -- appeared to have a lot of appeal for underage drinkers, even if that was not the intention.
"Due to its limited volume potential and unfounded criticism, we have ceased production of Spykes," Michael J. Owens, Anheuser-Busch Cos.' marketing vice president, said in a statement at the time, NBC News reported .
This is the right move for Anheuser-Busch
While the company has stumbled with products like Spykes, Anheuser-Busch has traditionally done an excellent job of profiting off a craze started by other companies. Black Crown was an attempt to win back some market from craft brewers; while the brand has not fooled any beer snobs, the company touts it as a success in its 2013 annual report. It also cites the Bud Light Lime Straw-Ber-Rita as the "No. 1 product launched in the industry in the U.S. in 2013."
With the cider market exploding, Anheuser-Busch through its huge ability to not just market a product but force it into retail channels should capture a piece of it. Anheuser-Busch has a huge advantage over the smaller players who must fight for shelf space in a market exploding with new local, regional, and national brands.
By not using the Budwesier brand name, the company has the ability to put its might behind Johnny Appleseed Hard Apple Cider while still selling it to people who would never be caught dead drinking a Bud Light.
Daniel Kline has no position in any stocks mentioned. He prefers liquor to beer. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.