“For anyone who works in the alcohol beverage category, if you’re not seeing what’s happening in the non-alcoholic space, then you’re not ready for consumer trends when they happen.”
Christian McMahan, president of Massachusetts’ Wachusett Brewing Company, shared this pointed comment with GBH last year when discussing the wild success of hard seltzer. Understanding broader consumer shifts away from sugary soda—and toward coconut or flavored water—is just one hint of how the “better-for-you” category has taken the beer industry by storm. Now, hard kombucha is the latest beverage with a “health halo” set to make an impact.
“Based on what you hear, learn, and see, there are implications to other categories and what we should think about,” he concluded.
According to at least one analysis, the compound annual growth rate of the global kombucha market is set to rise about 17.5% through 2023—a far greater increase than other drinks. Tea (5.7%), flavored and “functional” water (5.2%), and craft beer (12%) are set to grow in a similar timeframe, but not as much. And although total velocity of kombucha is slowing thanks to rapid expansion beyond specialty and natural grocery stores, kombucha became a $1.2-billion industry in the U.S. in 2018, and is primed to reach global sales of $5.45 billion by 2025.
To further support the segment’s growth, there's even legislation in the works led by Oregon Sen. Ron Wyden that would give tax breaks to kombucha manufacturers. Wyden also helped lead the charge for the Craft Beverage Modernization and Tax Reform Act in 2017, which benefited U.S. breweries by cutting the federal excise tax on beer producers. (Because kombucha is a fermented product, it generally contains a very low percentage of alcohol, and the bill would raise the limit to 1.25% to avoid kombucha being taxed like beer.)
In the same way that sales of non-alcoholic sparkling water jumped in 2016 and 2017, giving a boost to the hard version of the drink, there’s now an eye toward boozy booch. In 2018, hard kombucha was a $3.6-million category for packaged sales in IRI-tracked grocery, convenience, and other stores, about the same in dollar sales as beer brands like Creature Comforts' Tropicália IPA, Dogfish Head's Flesh & Blood IPA, and Leinenkugel’s' Berry Weiss.
Hard kombucha’s 2018 dollar sale total was more than double the previous year’s, and it is set for another big jump in 2019. By Nielsen's count, the category was up 247% in the 52-week period leading up to April 20, 2019.
Earlier this year, an upstart hard kombucha maker, JuneShine, bought Ballast Point's old production facility. In North Carolina, four breweries are selling non-alcoholic and alcoholic kombucha. Michigan's New Holland Brewing Company released a new seasonal this February, which combined the most popular craft beer style and this growing trend: Kombucha IPA. According to a release announcing the beer, it's meant to offer "refreshing fruit forward flavor of a citra hopped IPA with the tartness and spiciness of a lemon and ginger Kombucha."
The place of hard kombucha within beer has become so important that it was specifically called out—alongside other beverages, like hard seltzer and flavored malt beverages—in the Brewers Association’s recent update to its definition of “craft brewer.” The trade organization included it among a list of products its members are shifting toward (previously, breweries would be at risk of losing their “craft” definition if production of beer products dipped below 50% of total volume).
Left Hand Brewing founder and BA board chairman Eric Wallace wrote that "nearly half of the membership is already brewing—and more than half would consider making in the future—products that fall outside the existing Brewers Association traditional tier.”
One such business is Oregon's Full Sail Brewing Company, a “small and independent” member of the BA which launched KYLA Hard Kombucha in 2018. Cory Comstock, Full Sail CEO, said that as a “better-for-you hard beverage,” it connects four key trends in alcohol: low-calorie, gluten-free, craft, and low-alcohol. Hard kombucha has also offered the brewery a boost after it lost 49% of its IRI-packaged beer sales from its peak in 2014. Full Sail hasn't been immune to the general slowdown of American beer sales, and adding KYLA "has helped boost the company’s overall bottom line," he notes.
Beer will always be around, Comstock says, but with consumers becoming more health-conscious, there was an opportunity to be had.
“It’s a buzz with benefits for our consumers who are mindful eaters and cultured adventurists,” Comstock says. “Focusing on the health benefits on the label is intended to let consumers know that KYLA is healthy-ish. It’s still alcohol, but it has a reasonable ABV, low sugar, and live cultures so you can have a few with friends and ‘hang without the over.’”
Comstock’s comparison of hard kombucha to other alcoholic drinks echoes those associated with products like hard seltzer. KYLA, for example, distinctly lists its calories, sugar, and carbs on labels, along with icons to indicate that it is gluten-free and contains live cultures.
That last part is a big sell for kombucha as a whole. The microbes found in a variety of fermented foods and beverages—kombucha included—can provide probiotics that benefit your digestive system. There is some debate on how many microbes actually survive a beer-strength alcoholic environment, however, but beneficial acids such as acetic, lactic, glucuronic, and butyric would still remain, and would offer some amount of a dietary boost for those drinking kombucha of any alcoholic strength.
Given the wild growth of "regular" kombucha, getting involved in the early days of hard kombucha, in the context of a broader health movement around booze, offers great opportunity. Full Sail produced 7,500 barrels of KYLA in 2018 and has "aggressive growth plans" for 2019 and beyond, Comstock says. While IRI isn't able to capture all sales of KYLA because so much can be sold in specialty stores that aren’t tracked by the market research company, the volume that is followed showed that KYLA had sold almost half its entire 2018 volume in the first four months of 2019 alone.
KYLA isn’t the only player going after that kind of success.
Along with JuneShine, which has potential to make a splash thanks to the capacity of that old Ballast Point facility, Boston Beer is entering the category with Tura Hard Kombucha. Anheuser-Busch InBev's investment arm, ZX Ventures, has money behind Kombrewcha. And Deschutes Brewery, which has faced declining sales for a few years, has introduced a kombucha radler called Humm Zinger.
Even though many new products backed by national or multinational companies are entering the hard kombucha category, they’re still playing catch-up to the undisputed (so far, at least) leader: Boochcraft.
Nearly two-thirds of the category’s IRI dollars come from sales of the 7% ABV “high alcohol” kombucha, which comes in a range of flavors like Ginger Lime Rosehips, Grapefruit Hibiscus Heather, and Lemon Maple Thyme. In 2018, Boochcraft pulled in almost $2.1 million, and earned $818,000 through the first four months of 2019—twice KYLA’s dollar sales. A big selling point for the brand, aside from common “better-for-you” points like calories and carbs, is the addition of cold-pressed juice with each bottle or can.
“We really focus on the things that we do that are special, which is juicing all our fruit in-house and adding that raw, cold-pressed juice right to the product, which is a massive undertaking to add to a kombucha brewery,” says Adam Hiner, co-founder and CMO of Boochcraft.
But a quickly-shifting market means it’s not just about selling on ingredients. Against the backdrop of many new entrants in a rapidly-expanding marketplace, Hiner recognizes the threat a bad experience with another hard kombucha could create. If someone tries another product and doesn’t like it, that customer could be lost to the category forever.
“But this makes it clear the category is legitimized now,” he says. “In the beginning, we had to fight for share of mind with drinkers and distributors, but now that’s flipped.”
Still, both Hiner and Comstock recognize the value of additional consumer education. That, and their health-related sell, will be pivotal in moving the category forward. Last year showed that there’s a large collection of willing and interested customers, so 2019 is about gauging how deep that interest goes.
“We know that while consumers drink kombucha primarily because it’s healthy—specifically for its probiotic benefits and live cultures—unique flavors are also very important in their decision making,” Hiner says. It's a reason why KYLA added Cold Brew Coffee to its lineup of flavored products late last year, to go alongside products like Ginger Tangerine, Hibiscus Lime, and others.
So far, the focus for distribution has been on the western half of the U.S., from the Mountain West through California and the Pacific Northwest. Health-conscious states like Arizona and Florida (two of the original proving grounds for Michelob Ultra) have also been a focus for KYLA, Boochcraft, and others. “I think the Pacific Northwest is going to be the kombucha capital of the world,” Hiner says.
That said, with other companies based in eastern states (Boston Beer) or with significant financial backing (ZX Ventures’ Kombrewcha) coming on board, the coasts are primed to play a major role in growing the overall category for regular and hard kombucha—pretty much every other region under-indexes in comparison.
“One of the things that's become clear to us is this isn't just an auxiliary category to craft beer," Hiner says.
The dollar sales of hard kombucha are minor compared to beer overall, but given the rush of players entering this part of the alcoholic beverage game, plenty of others are thinking the same way.