Cider Is Trending Vs. Beer, And American As Apple Pie

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Move over IPA and that slew of microbrews. A new "it" drink is on the rise around the U.S.: hard cider.

Though it's still a small niche -- less than 1% of the big beer business -- U.S. retail sales of cider have nearly doubled in a year, the highest growth niche in percentage terms.

Sales of craft beer and flavored beers are hopping too, though traditional mass-produced beer has fallen flat the last few years. Brewers embraced cider to capture a new market and appeal to changing consumer tastes in alcoholic beverages.

Those tastes now include fermented apples, sometimes pears.

"Today's consumers tend to look for quality and authenticity and a connection to nature," said Dan Rowell, the CEO and President of Vermont Hard Cider Co., which has been making Woodchuck cider for more than 20 years.

Rising interest in natural food and drink, and even in things like gluten-free diets, has boosted cider consumption, Rowell says. But those aren't the only spurs.

"Consumers are willing to try new things if it's something interesting, something different and something benefiting to them," said Marc Riddick, a senior analyst at Williams Capital.

Cider Sellers

Cider rang up $261 million in U.S. retail sales during the 52 weeks ended May 18, up 94% from a year earlier, data from market tracker Information Resources (IRI) show. The whole beer category rose a bit over 4% to $30.6 billion.

The cider showing up on shelves and menus around the nation includes brands from Angry Orchard and Woodchuck, the top two in U.S. retail sales. In the middle are big-brewer launches Smith & Forge and Stella Artois Cidre -- the former targeted at "guys" who want "the sturdy side of hard cider" according to its marketing materials, and the latter aimed at white-wine drinkers.

Analyst Riddick says beverages are an affordable luxury Americans are willing to splurge a little extra on, even in tough economic times.

"Trying a different type of craft beer or cider, you don't need to go out and get a mortgage for that," he said, adding that 20-somethings are more apt than their parents to explore new tastes.

Cider's roots in the U.S. aren't new. The alcoholic drink goes back to the days of the first settlers in New England. Cider topped beer as America's drink of choice until the 1900s, when German settlers to the Midwest grew large amounts of barley for beer.

Prohibition in the 1920s sealed cider's fate, as the Volstead Act limited the production of cider and prohibitionists burned apple orchards. So the orchard owners planted trees yielding sweeter, noncider apples instead.

Cider production resurged this century, in 2009 consisting of 6.9 million domestic gallons and 2.5 million imported for a total of 9.5 million gallons, according to the Beer Institute. In 2013, domestic production soared over 360% to 32 million gallons. Imports doubled to 4.8 million gallons for total cider volume of 36.9 million gallons.

Angry Orchard's Appeal

Small-scale brewerBoston Beer ( SAM ), known for Samuel Adams Boston Lager, has also brought several craft beers national and gained ground among cider drinkers with its line of Angry Orchard ciders.

"Cider drinkers are a lot like craft beer fans; they are looking for great tasting but refreshing beverages crafted with quality ingredients," David Sipes, Angry Orchard cider maker, told IBD via email.

Angry Orchard uses wine yeast for its cider and its Crisp Apple flavor has a similar flavor profile to Pinot Grigio or Pinot Blanc wine.

Boston Beer said that in the first quarter this year, its depletions (distributor sales to retail) growth rose 34% over a year earlier thanks to a boost from its Angry Orchard, Samuel Adams and Twisted Tea brands. Core shipment volume rose 32% to 835,000 barrels.

Boston Beer still gets the majority of its revenue from beer, but according to a 2013 report from Goldman Sachs, Angry Orchard is expected to make up 20% of Boston Beer's total volume by the end of 2015.

U.S. retail sales for the No. 1 Angry Orchard brand family rose 218% year-over-year to about $146 million in the 52 weeks ended May 18, according to IRI.

Some large brewers are trying to follow Angry Orchard's plan to entice non-beer drinkers. Danny Brager, senior vice president of Nielsen's Beverage and Alcohol Practice Area, says 80% of wine drinkers are also buying cider.

Belgium-based multinationalAnheuser--Busch InBev 's ( BUD ) Stella Artois Cidre, which went national in the U.S. this year, isn't focused on attracting a typical beer drinker.

We're "going primarily for the white-wine drinker," Chris Hanson, Stella Artois Cidre brand manager, said in a January interview with CNBC.

Courting The Wine Crowd

The Stella Artois cider brand family reached nearly $9 million in U.S. retail sales in the 52 weeks ended May 18, according to IRI.

Wine has been growing in popularity with millennials, the generation reaching young adulthood around the turn of the 21st century.

Dutch brewing company Heineken International says that 51% of female alcoholic-beverage drinkers don't drink lager and 26% of total alcoholic-beverage drinkers don't drink lager, so the company is expanding into cider flavors such as Bulmers Bold Black Cherry and Bulmers Pressed Red Grape to try and capture the nonlager drinkers.

Brager says roughly 75% of beer drinkers are also buying cider and beer drinkers tend to skew more toward male consumers.

"There was always a perception that it was more of a female drink, but we don't think that's the case. I would say that our consumers are 50-50 male-to-female ratio," Vermont Hard Cider's Rowell said.

Both men and women seem to be enjoying the drink as cider's volume explodes in the U.S. In the U.K., cider was always viewed as a "manly" drink to enjoy at the pub after a long day at work. S ome big brewers are taking note and targeting cider specifically to men.

Molson Coors Brewing Co. 's ( TAP ) ads for its new Smith & Forge brand hard cider feature a blacksmith and the tagline "Made Strong" to emphasize historical cachet and appeal to men who might think of cider as too sweet or feminine. The brand also tapped actor Jonathan Banks, known for his tough guy role as Mike Ehrmantraut on AMC's "Breaking Bad," to help promote the drink.

Smith & Forge brand U.S. retail sales were just over $3 million in the 52 weeks ended May 18, according to IRI data.

Analysts are bullish on cider's growth potential. Millennials have just started their alcohol purchasing and cider makers still have room to grow.

As demand and competition increase, brewers are coming up with new flavors to appeal to consumers and differentiate their products. Angry Orchard's Cinnful Apple features notes of cinnamon and its Elderflower flavor has floral notes. The Woodchuck ciders include raspberry and Granny Smith apple cider flavors.

"For most of the last 23 years we were trying to convince retailers and wholesalers to carry at least one cider," Rowell said. "But now we have to convince them to carry our cider."

Woodchuck cider ranked No. 2 after Angry Orchard, at $41.3 million in retail sales in the 52 weeks ended May 18, IRI data show.

Liquor companies have considered clambering on the cider bandwagon too. Louisville, Ky.-basedBrown-Forman (BFA) tested out Winter Jack, a seasonal offering of its Jack Daniel's whiskey seasoned with apple cider liqueur.

Could it, or something like it, go year-round? Answering an analyst's query on a third-quarter fiscal 2014 conference call, Brown-Forman CEO Paul Varga said "we're looking at it" and "aware of the appeal of that flavor profile and those offerings, particularly in the U.S. market these days."

The Beverages-Alcoholic group is ranked No. 44 out of the 197 industry groups IBD tracks.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas
Referenced Symbols: SAM , BUD , TAP

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