By Sam A. Rushing, President – Advanced Cryogenics, Ltd.
Special to The Digest
New markets are opening, and competition is heating up over carbonating more than the traditional Coca – Cola, Pepsi, Dr. Pepper – Snapple, and many private labels of purely soft drinks. The rise, and rapid growth of hard seltzers is impressive. The merchant CO2 industry prides itself on developing new and unique applications for the product. Over the last decade or so, uses including CO2 ‘blast cleaning’ appeared, which uses small rice-sized dry ice under pressure to clean surfaces from precision electronics, to ship hulls. Other newer applications include strengthening concrete and sequestering CO2 within the application of CO2 into concrete – thus enhancing the strength and calcium carbonate content. With the spotlight on a growing cannabis industry, both enhanced photosynthesis in greenhouses and on the vine use CO2; and the use of CO2 under pressure for supercritical extraction of CBD oil are growing. All of which is relevant to specialty drinks often carbonated, along with CBD oil.
On the subject of beverage carbonation, this use is old, dating back to the early Coca – Cola days and remaining critical in the production of carbonated soft drinks. The use of CO2 in soft drink and beer carbonation has been flat to a modest growth for some years; which represents an important, but smaller portion of the overall CO2 merchant market. The table below summarizes the demand for merchant CO2 domestically.
Application Approximate percentage of merchant market
Food chilling, freezing 50%
Beverage carbonation 20%
Industrial uses 30%
The approximate use of CO2 in the beverage sector has typically ranged from 17 to 20% of the entire merchant market. Such merchant market data does not include large captive demands for CO2 in the manufacture of some industrial chemicals such as urea, and the use in enhanced oil recovery (EOR). Most of us have noticed the rather explosive growth of new carbonated drink products, including flavored, unflavored water products, carbonated alcoholic and seltzer products; and carbonated CBD infused drinks. This growth of additional brand names and product types continues.
GROWING USE IN NEW BEVERAGE PRODUCTS
Initially, some of the soft drink majors entered the flavored, canned, carbonated water business, such as Pepsi. Then numerous private – label carbonated water products appeared over the recent years. As of late, there has been an explosive growth in the spiked seltzer market, brands including Bud Light Seltzer, Smirnoff Spiked Sparkling Seltzer, Coca – Cola’s Topco Chico Hard Seltzer; and a myriad of other non-alcoholic flavored drinks, hard seltzers, and CBD infused waters and soft drinks.
It is interesting to see really conservative companies such as Coca – Cola dipping their toe into hard seltzers; and the thought of other majors in the soft drink industry thinking of launching CBD – infused soft drinks in markets such as Canada. CBD is already a billion dollar business; and on a path toward continued growth. Hard seltzer could grow to be a $2.5 billion beverage category by 2021, according to some reports; however others consider the growth to be even more rapid. Further, the (alcoholic) hard seltzer market and CBD – laced beverages will likely experience significant growth into the coffee, tea, and protein drink markets.
At some point, logically, this should settle out, however, these days, and for the foreseeable future, this trend should provide a boost to the production of alcohol, whether this is within the existing infrastructure of major brewers, for example, or for beverage – grade ethanol which will spike these beverages along with, of course, the carbon dioxide. Of course, this does not take our Covid – world today, which represents a drop in consumption of certain food and beverage products in restaurants and bars. In the end, in the very worst case, at least these spiked products sold in cans and bottles and sold by retailers, will help replace what is lost in the hospitality industry.
There are competing forces behind the loss of sales of alcoholic and CO2 laced beverages in the hospitality industry, and the increased sale of hard seltzers and other CO2 laced products for consumption outside of the hospitality industry. Further, on the front of beverage infused CBD – oil additions to beverages, this represents CO2 consumption in a carbonated drink; as well as in cases when the CBD oil is extracted via supercritical CO2. As to supercritical CO2, this is now the preferred method of extraction of CBD oil, rather than the use of hydrocarbons, from longer chain hydrocarbons such a pentane, down to propane. When we think about it, who would prefer the use of a hydrocarbon product over a natural product such as CO2 to be applied in extraction of a product to be consumed?
With the emergence of Covid – 19, of course there are challenges surrounding the potential growth of hard seltzer and CBD beverages, despite knowing the spiked, carbonated beverage market is growing. The loss of on-premises consumption of beer, soft drinks, carbonated waters, and the growing range of hard seltzers provides a challenge with respect to net sales of alcohol and carbon dioxide consumption, despite the growing demand for spiked seltzers. It is said by the National Beer Wholesalers Association, the beer industry still has a hold to dig out of, due to the loss of on – premises sales and consumption.
On the other hand, even with the pandemic upending the beer and beverage industries, market share for major beer manufacturers, such as A-B InBev, Molson Coors, and Constellation Brands has held steady so far in 2020. Hard seltzers have shown substantially more growth than beer alone. When considering the year thus far, broken down into three segments (pre- Covid, shut down, and reopening), only the hard seltzer segment has maintained share growth. Given the Covid impact on food and beverage sales, it is clear that the hard seltzer market is the current driver. Further, given human behavior being what it is, we tend to want to experience new brands and products; therefore, this trend should continue, with, or without the influence of Covid. The beverage packaging has largely transitioned to cans and bottles, v. draft beer; given the reduced capacity of restaurants, and often the closed status of bars and pubs.
CO2 is an ever-important ingredient for most of these products; and the ethanol industry has been hampered due to the drop in fuel – grade ethanol, as a function of less traffic on the roads. Over 40% of all merchant CO2 is a by-product of fermentation, and there are few to no replacement sources available. Source types for by-product merchant CO2 include anhydrous ammonia production, hydrogen reformer operations in refineries, the production of ethylene oxide, and titanium dioxide. There are also natural CO2 reserves which source the markets.
Despite other source types operating domestically, due to logistics and source availability, the CO2 market is short of adequate product for the merchant markets. This is a realistic factor which inhibits sufficient CO2 product availability for the expanding spiked seltzer, CBD laced, and traditional beverage markets. Due to these shortages, CO2 prices have increased significantly, and allocations have occurred. Only after the Covid economy has passed, will we see full availability of CO2 sources and refined merchant product.
THE ISSUE OF CO2 QUALITY IS ALWAYS THERE
Quality is a major issue for the CO2 beverage sector; where in some cases, this quality standard is among the most stringent in the industry, with respect to applications of the product in food and beverage markets. Organizations such as the CGA (compressed Gas Association), ISBT (International Society of Beverage Technologists), and the EIGA (European Industrial Gases Association), have strict standards for CO2 which is added to beverage products. Clearly, when the beverage industry expands into craft beverages, hard seltzers, CBD drinks, and more, the same beverage grade CO2 will be used for such beverage carbonation; thus be extension, the demand for quality.
THE CHALLENGES AND BENEFITS AHEAD
For the carbonated beverage industry, we will have to cope with the Covid – culture which has emerged every day, including a reduction of consumption in restaurants and bars. The significant explosion of hard seltzers, and other products discussed in this piece, which are sold in the stores for non – hospitality consumption, can only help replace some of the losses suffered in bars and restaurants, due to Covid.
There is also the issue of CO2 shortages, driven by factors precipitated by the Covid economy. There are statistics all over the place, however, it is clear that hard seltzers have far outpaced beer in 2020, and as long as the hospitality industry remains closed or impaired, this trend should continue. Logically, as the hard seltzer market continues to grow, and when the economy opens up, when there should be a post – Covid climate, these beverages will be served within the hospitality industry as well; thus growth should continue on all fronts for non-alcoholic, hard seltzer, and CBD products. The CO2 industry will enjoy whatever markets which they serve with respect to beverages.
About the author
Sam A. Rushing is a chemist, and president of Advanced Cryogenics, Ltd., a major CO2 and cryogenic gas consulting firm. The company has a combined 43 years of expertise in the CO2 industry, covering all subjects, including source types, applications, markets, process, and quality issues. Please contact Sam for CO2 and cryogenic consulting expertise of any kind.
Tel: 305 852 2597