THE GIST
On Aug. 10, Boston Beer Company announced a partnership with PepsiCo to launch a 5% ABV, non-caffeinated flavored malt beverage (FMB) version of Mountain Dew soda called HARD MTN DEW, set to debut in early 2022. HARD MTN DEW will be manufactured by Boston Beer, which also produces FMBs including Truly Hard Seltzer and Twisted Tea, but will be distributed by a new business entity within Pepsi. The line will launch with four flavors (Original, Black Cherry, Watermelon, and a fourth to be named soon) and three packaging sizes: single-serve, 24oz cans and six-packs and 12-packs of 12oz cans.
This deal signals several major developments in the alcoholic beverage industry—namely, that that market is increasingly connected with soft drinks, energy drinks, and other traditionally non-alcoholic products. Those segments have been in flux for some time: As traditional soda and juice sales have declined, soft drink companies have diversified their businesses with sparkling water, energy drinks, and sport drink offerings—and, recently, alcohol.
Energy drink company Bang launched its Bang Mixx hard seltzers early this year, and Monster Energy has long been rumored to have an alcoholic extension in the works. Distribution networks will be increasingly critical to the success of such products: Just as lines are blurring between alcohol categories, they’re also blurring in terms of which wholesalers deliver and sell those products. HARD MTN DEW only further cements Boston Beer’s view that non-beer products are its future.
WHY IT MATTERS
The beverage industry has traditionally seen rigid separation between non-alcoholic products like soda, energy drinks, and bottled water, and alcoholic products. Even within alcohol, producers and distributors have typically specialized in one segment of the market: wine or beer or spirits. Those days are over.
This move gives Pepsi a chance to dip its toes into alcohol distribution, a lucrative but—until now—logistically out-of-reach business for the food, snack, and beverage company. Pepsi likely wouldn’t have created an entirely new distribution arm of its company just for HARD MTN DEW, a product Boston Beer founder Jim Koch told Beer Business Daily (BBD) neither Boston Beer nor Pepsi “is expecting … to be a large part of our volume next year.” Given this modest assessment, Pepsi would seem to be at least mulling other alcohol-distribution agreements.
And if Pepsi finds its wholesalers adept at selling a beer-adjacent alcoholic beverage, it could encourage the company to expand those capabilities, or even entice rival The Coca-Cola Company to enter the field. (Coca-Cola already has a licensing deal with Molson Coors Beverage Company to produce Topo Chico Hard Seltzer.) As beer distribution has become consolidated, leaving fewer wholesalers for an increasing number of alcohol brands, traditional soft drink companies could see themselves as viable rivals to the traditional beer distributors affiliated with either Anheuser-Busch InBev or Molson Coors. When anything can become an alcoholic version of itself—yerba mate, coffee, or even hemp milk—these kinds of extensions to secure dollars can be an important change for these companies.
These shifts are occurring against a backdrop of changing consumer tastes, too. Drinkers increasingly seek out beverages based on flavor and function—rather than category or even ingredients—so alcohol makers have responded with products that increasingly cross or blend category lines. If the product lines are blurring, why wouldn’t traditional distribution lines do the same?
HARD MTN DEW is the second major non-beer deal to come out of Boston Beer this summer. In July, the company announced a long-term partnership with spirits giant Beam Suntory to produce ready-to-drink (RTD) cocktails and spirits under the Sauza tequila and Truly brand names. Molson Coors has also invested heavily in cross-category beverages, including deals to produce Topo Chico Hard Seltzer and to distribute canned La Colombe coffees. In October, Heineken partnered with iced tea brand AriZona to launch the AriZona SunRise Hard Seltzer. If the Beam Suntory deal was the shot indicating Boston Beer’s non-beer future, HARD MTN DEW is the chaser.
“They sure know how to make Mountain Dew,” Koch told BBD, of Pepsi. “But we sure know how to put alcohol in stuff.”
Per NielsenIQ data, Truly and Twisted Tea made up 84% of total volume for Boston Beer in the four-week period ending July 10, while Sam Adams accounted for less than 8%. Year-to-date through July 25, Truly and Twisted Tea made just over eight times as much as Sam Adams in dollar sales in chain retail stores tracked by market research firm IRI.
These FMB and hard seltzer products have proven lucrative, so much so that Pepsi considered it worthwhile to create an entirely new business unit in order to distribute HARD MTN DEW. That’s particularly interesting given Pepsi’s legal battle with Bang Energy; Pepsi remains Bang Energy’s exclusive distributor through October 2023. When launching Mixx Hard Seltzer earlier this year, Bang struggled to piece together a network of beer distributors to carry the products, a logistical impediment that loomed over its launch.
Pepsi potentially saw this as a warning sign and instead opted to create an alcohol distributorship in-house to handle HARD MTN DEW—and whatever other hybrid products might come next. BBD reports Pepsi will, in most places, become a licensed alcohol distributor to deliver HARD MTN DEW to its 17 launch markets, except where it might be prohibited by law. The product is intended to travel on the same Pepsi trucks as soft drinks and other non-alcoholic products. But Boston Beer’s existing wholesalers will handle most HARD MTN DEW sales to on-premise accounts, BBD notes, though given that HARD MTN DEW sales will focus on convenience stores, this isn’t likely to be a sizable chunk of business.
Convenience stores are a logical—but potentially tricky—play for HARD MTN DEW. Consulting firm Bump Willliams’ industry analysis published in early August found that all of the FMB category’s year-to-date dollar sales growth in off-premise channels is coming from c-stores; for hard seltzers, 57% of year-to-date growth in the off-premise has come from c-stores. Boston Beer has seen success for Truly in those stores, led by Lemonade and Punch flavors, closing the sales gap with White Claw in c-stores by more than 10 points this year, according to Boston Beer CEO Dave Burwick’s comments to BBD. But introducing HARD MTN DEW in the same stores, through a different wholesaler, could set up a battle for cooler space with existing seltzers and FMBs. That’s likely on the minds of Boston Beer sales representatives, who won’t want to see Pepsi representatives replace a Twisted Tea or Truly placement with HARD MTN DEW.
While much of the Boston Beer-Pepsi deal is related to the contemporary alcohol market, “hard” versions of soft drinks might feel like a thing of the past to some observers. The hard soda explosion, sparked by the debut of Small Town Brewery’s Not Your Father’s Root Beer in 2012, was a boom and bust. Not Your Father’s Root Beer spawned several similar hard sodas, including a Coney Island brand produced by Boston Beer, and Pabst bought the national distribution rights to the brand in 2015. In 2017, the Small Town portfolio sold more than $19 million in IRI-tracked chain retail stores; three years later, it sold just $277,000 in the same stores.
It seems Boston Beer is eager to distance HARD MTN DEW from that fad: The FMB prominently displays “zero sugar” on its cans, compared to the reported 43 grams of sugar in Not Your Father’s Root Beer. Koch would rather draw the comparison between HARD MTN DEW and Boston Beer’s increasingly successful Twisted Tea FMB, which has sold more than $400 million in IRI-tracked chain retail through July 25.
Koch drew the comparison between the two products’ loyal, if not extremely wide, audiences: “Mountain Dew is a little bit like Twisted Tea: Deep but not broad.”
HARD MTN DEW seemingly doesn’t need to match Twisted Tea’s sales to be considered a win for Boston Beer. Koch further tells BBD that the new Pepsi-Boston Beer partnership is something like a test case for the larger universe beyond beer, which likely will include further product crossovers.
“It’s stepping into a future that we all see coming, of lines continuing to blur… and convergence.”
Words by Kate Bernot