Please ensure Javascript is enabled for purposes of website accessibility

Molson Coors Ups Bet on Beer While Rivals Double Down on Hard Seltzer

By James Brumley - Feb 19, 2020 at 2:38PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The owner of Coors, Miller brands of beer plans to (mostly) focus on its core business, only dabbling in a new, fast-growing category.

Decisive differentiation can be compelling to investors. But is it possible that refusing to follow your rivals into a new, proven opportunity takes the idea of differentiation too far?

It's a question Molson Coors (TAP -0.44%) (TAP.A -0.72%) shareholders will be forced to contend with sooner rather than later. The company's CEO Gavin Hattersley made clear last week when he said beer -- and not hard seltzers -- would remain the organization's priority going forward.

It matters simply because hard seltzers have been driving the bulk of the growth within the alcoholic drinks market of late. In 2019, the United States' hard seltzer revenue soared 212% year over year. Overall beer sales have been in a slump, in fact, with volumes from major names like Coors and Anheuser Busch Inbev (BUD -0.75%) brand Budweiser slipping 4.1% in 2019, according to numbers from market research firm Nielsen.

In other words, Molson Coors shareholders are (perhaps unknowingly) making a big bet that seltzer mania will subside and that Coors and Miller brands will buck the bigger beer tide.

Photograph of various glasses of beer on a bartop.

Image Source: Getty Images.

What Molson Coors' CEO said

"This notion that a lot of the seltzer volume is coming from premium light is not necessarily supported by the facts that are underlying the Miller Lite and Coors Light's performance," Hattersley explained during Molson Coors' fourth-quarter conference call last week.

Specifically, he detailed "Coors Light gained segment share for the third straight quarter" and that Miller Lite "gained [market share] its 21st consecutive quarter and it actually grew STR [sales to retailers] volume in Q4 in the face of this seltzer trend."

The numerical data isn't in dispute. Anheuser Busch brands like Budweiser and Michelob, along with sales of craft beers made by the likes of Boston Beer Co. (SAM 0.05%), have been and continue to lose more than their fair share of the beer market.

In fact, Boston Beer chairman Jim Koch insists, "hard seltzer is pulling from hard liquor and from wine," jibing with Hattersley's assessment and implying Molson Coors shareholders have little to worry about.

The underlying numbers leading Koch and Hattersley to their common conclusion, however, may be short-sighted in more ways than one.

Splitting hairs to support a story

To the company's credit, Molson Coors has improved market share in the face of the hard seltzer headwind. That may not be the case into the future though, given data from alcoholic drinks brand Mark Anthony. Its White Claw brand is the hard seltzer market leader by a country mile, boasting more than half the market, according to UBS, (versus the distant-second Truly brand from Boston Beer with its control of just a little more than 30% of the market). Mark Anthony reports that 40% of its customers were wine and spirits consumers, while the other 60% were beer drinkers. Specifically, 31% of White Claw fans are/were reportedly "premium light" drinkers of beer, wine, and spirits.

It's conceivable that the entirety of 2019's $1 billion-or-so worth of hard seltzer revenue in the United States didn't siphon off any Coors or Miller customers -- conceivable, but not likely.

More realistically, Molson Coors lost fewer beer customers to the fast-growing alternative than its beer-making rivals did. Mark Anthony's data also begs the question as to what Hattersley meant exactly by "premium light."

Regardless, even if Molson Coors has fared better than the rest, that may not be the case through 2020 and into 2021. UBS believes the hard seltzer market will expand to $2.5 billion by 2021. Those consumers are going to come from somewhere. An already-weakened beer industry is vulnerable, including the strongest names in the business.

Will it be enough?

And there's the rub for Molson Coors investors. It will launch a new hard seltzer called Vizzy next month, adding it to its existing play called Henry's Hard Sparkling Water. Hattersley claims "this is going to be our biggest bet yet on the hard seltzer segment."

That's not saying much, however, given how inconspicuous Henry's Hard Sparkling Water has been within the segment despite Molson Coors' deep marketing pockets. Rather, the company's chief made clear during its quarterly earnings call that beer remains the priority. He commented, "We believe that our marketing [of Miller Lite and Coors Light] is resonating. We're going to put more effort and money behind that at the same time as we are going to enter the seltzer category."

It may end up being a brilliant bet, even if hard seltzers grow as much as expected. While they're growing much faster than beer, hard seltzers only make up about 3% of the nation's alcoholic beverage market, whereas beer accounts for roughly three-fourths of it. There's just more money to be made in brewing.

Investors respond to stories, though, and think in relative terms rather than absolute terms. If Hattersley's intuition is even just a little off base, it could mean trouble for the stock.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
$56.46 (-0.44%) $0.25
Molson Coors Beverage Company Stock Quote
Molson Coors Beverage Company
$58.98 (-0.72%) $0.43
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
$54.48 (-0.75%) $0.41
The Boston Beer Company, Inc. Stock Quote
The Boston Beer Company, Inc.
$382.00 (0.05%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.