Old-Fashioned Hard Cider Makes Comeback Heineken Buying U.S. Rights to the Strongbow Brand in the U.S.; Sweeter Brew Appeals to Women and 'Millennials'

Source: WSJ

By Mike Esterl

Aug 14th

Hard cider is making a comeback in the U.S., and Heineken plans to announce Wednesday it is taking over the U.S. distribution of the Strongbow brand.

Hard cider was eclipsed by beer as Americans' alcohol of choice in the 19th century and largely disappeared here after Prohibition.

Now the storied beverage made from fermented apples is enjoying a renaissance-increasingly lifted by big brewers tapping into the small but fast-growing category for a new revenue stream after U.S. beer shipments dipped in the past three years.

Dutch brewer Heineken NV plans to announce Wednesday it is taking over the U.S. distribution of Strongbow, the No. 2 alcoholic cider in the country by sales, from closely held Vermont Hard Cider Co., maker of the market-leading Woodchuck brand. Neither company disclosed financial terms.

Brewers of barley are adding hard cider-which, like beer, typically has about 5% alcohol by volume-to their product mix after more Americans switched to liquor or wine over the past decade. They hope it will lure young, experimental "millennial" consumers who often prefer sweeter drinks.

Hard cider also is consumed more equally by women and men, unlike beer drinkers, who are roughly 80% male.

MillerCoors LLC, the second-largest U.S. brewer, acquired Minneapolis-based Crispin Cider Co. earlier this year, paying about $40 million for a company that produced its first cider in 2008. Anheuser-Busch InBev NV, the No. 1 brewer in the U.S. and maker of Budweiser, launched a low-calorie cider under its Michelob beer brand in May. A month earlier, Boston Beer Co., maker of Samuel Adams lager, rolled out Angry Orchard cider nationally.

Hard cider still makes up less than 0.5% of beer volumes in the U.S., totaling about 6 million cases. But growth is accelerating, with $448.8 million in retail sales last year, up 23% from 2010 and the fourth straight year of double-digit growth here, according to Euromonitor International.

Cider sales volumes at U.S. stores have surged 56% this year through mid-July, estimates Nielsen, another data service.

Heineken plans to significantly ramp up distribution of Strongbow in the U.S., leveraging its network of hundreds of wholesalers already carrying the company's flagship lager and Mexican beer labels including Dos Equis and Tecate. The Amsterdam-based brewer also is betting Americans' historic ties to cider will fuel faster growth than in other countries.

"There's a latent understanding of this category, which is very different from other markets," said Dolf van den Brink, chief executive of Heineken USA.

Alcoholic cider was widely available in American colonies by the early 18th century after British immigrants brought apple seeds with them and planted orchards. The fermented drink was seen as safer than well water, which was often contaminated. John Adams, the second U.S. president, reportedly drank a tankard of hard cider each morning.

Its popularity waned during the latter half of the 19th century after immigrants from Germany-including Anheuser-Busch co-founder Adolphus Busch-and other European countries began brewing beer. Many built their breweries in the Midwest, where barley proved a good match for the soil. After Prohibition ended in 1933, hard cider sales stayed depressed as beer volumes soared again.

Today, consumers in the U.K. drink about half the world's annual alcoholic cider supply of 1.8 billion liters. U.S. consumption totaled just 59 million liters last year, according to Euromonitor.

Heineken already boasts roughly a 20% global market share in hard cider, including about half the U.K. market. It gained control of the Strongbow and Bulmers cider brands in several countries after acquiring parts of Scottish & Newcastle PLC in 2008.

Strongbow has been imported from the U.K. until now by Vermont Hard Cider, which also has made Woodchuck in southern Vermont since 1991. Heineken has agreed to pay Vermont Hard Cider an undisclosed amount to assume U.S. control of the Strongbow brand next January, two years before the contract was set to expire.

In addition to competing against Heineken and other brewers in an increasingly crowded field, Vermont Hard Cider is battling Ireland's C&C Group PLC, which exports its Magners cider brand to the U.S. C&C also acquired Hornsby's, a California cider producer, last year from E. & J. Gallo Winery for about $24 million.

Woodchuck and Strongbow had a 23.8% and 11.7% share of the U.S. cider market last year by volume, respectively, followed by Hornsby's with 11.5% and Magners with 10.5% share, according to Euromonitor.

Bret Williams, chief executive and majority owner of Vermont Hard Cider, said the arrival of big beer companies and their marketing and distributing clout should also help his company by increasing Americans' appetite for hard cider.

"The pie is getting bigger. We're better off with a smaller market share of a much-larger pie," said Mr. Williams, whose company is based in Middlebury, Vermont.

Vermont Hard Cider is breaking ground next month on an additional 100,000-square-foot production facility near its existing 62,000-square-foot plant to meet rising demand. The company uses McIntosh, Granny Smith and other apples grown in the U.S., unlike many rivals that source from abroad.

Angry Orchard, Michelob Ultra Light Cider and Woodchuck have accounted for about 85% of cider's U.S. growth this year, according to Nielsen. MillerCoors, which sells Miller and Coors beers, says sales of its Crispin cider are growing at a 150% clip this year and thinks U.S. cider sales industrywide could grow fourfold over the next five years.