Grocery stores add some fizz to sales for Philly craft soda maker Hank’s

Hank’s Gourmet Beverages got its start 25 years ago in Philadelphia by selling craft sodas primarily through bars and restaurants. That could have been a disaster during the coronavirus pandemic this year when on-premise restaurant sales went flat.

But about two years ago, the family-owned Bucks County company made a strategic decision to expand supermarket sales of its pricey sodas, a move that proved prescient this year. Grocers, who now account for about 70% of sales, kept the fizz in Hank’s business during the COVID-19 lockdown

“March was tough and April, May were very difficult because a huge part of our business is casual dining,” said John Salvatore, chief executive of Hank’s, based in Southampton. But he said Hank’s sales have rebounded strongly and were up 48% in the last three months compared with 2019. Salvatore expects that revenue will be up 12% by the end of the year.

“Consumers have shifted their buying to retail markets,” he said. “They are buying more. They are buying for home, and they are buying it with greater frequency.”

Salvatore hopes to maintain the momentum with the company’s latest move: Hank’s announced a distribution agreement this month to expand into the New York Metro market with Arizona Beverage Co., the Woodbury, N.Y., company behind the popular Arizona iced tea and juice brands. Hank’s will be the only craft soda in Arizona’s portfolio of products.

Arizona’s reach geographically and commercially is much bigger than that of Hank’s current New York distributor, which sells primarily to bodegas and specialty grocers, said Tom Barreca, the head of business development at Hank’s. Arizona sells much more broadly, to grocers, convenience stores and neighborhood pizza and sub shops.

“Arizona’s installed base in the metro area is huge,” Barreca said. “It’s any kind of business where you would see an upright cooler, essentially.”

Hank’s hopes the new distribution channels will help it keep pace with rivals in the highly competitive market for craft sodas, one of the few bright spots in the sluggish carbonated beverages category, which has contracted for more than a decade in the face of shifting consumer preferences away from sugary refreshments.

Volume sales of craft sodas grew 11% nationwide last year to 257 million gallons, but was not enough to offset the overall sales decline of conventional carbonated soft drinks, according to Beverage Marketing, a consulting and research company. But the sector’s success has attracted the attention of Coke or Pepsi, which launched or acquired their own craft soda brands in recent years.

Craft sodas generated $1.55 billion in wholesale revenue last year, about 3% of total U.S. soft drink sales of $55.6 billion in 2019. The U.S. market for carbonated soft drinks last year was about 12.1 billion gallons, or 36.8 gallons a person. That’s more than one 12-ounce can a day a person.

The definition of craft sodas is loose, but typically they have natural ingredients, unusual flavors, unique packaging, and premium pricing. They are sold primarily in small bottles, and in small quantities: Craft sodas typically are priced at about $5.99 a four-pack.

Hank’s sells its products in more than 40 states, but about 70% is concentrated in the mid-Atlantic. It doesn’t disclose sales volumes.

“Most people think we’re a lot bigger than we are,” said Salvatore, who is not about to disabuse wholesalers and distributors of their beliefs. The company has only nine employees, and outsources the distribution, and much of the sales, to wholesalers. Production and bottling are handled by a boutique bottler in Hillside, N.J.

Salvatore says that Hank’s actually predates the emergence of craft sodas. The company was founded in 1995 as the non-alcoholic division of their family’s multigenerational beer distributorship, run by Hank Salvatore, then a state senator. He brought in sons Frank, John and Tony, and daughters Gloria and Liz to help. The soda company, named for the father, is now led by John as chief executive and brother Tony Salvatore, the chief customer officer. Bill Dunman, a longtime partner, is also part of the company’s leadership.

Hank’s initial product was Gourmet Root Beer, inspired by an old Philadelphia tradition (the country’s first commercial root beer, Hires, was launched in 1876 by Philadelphia pharmacist Charles Elmer Hires). Root beer still makes up about half of Hank’s sales.

The company expanded its offerings, and now has 10 flavors. Vanilla Cream, Wishniak Black Cherry, and Orange Cream sodas each account for about 13% of sales. They’re also very proud of Hank’s Birch Beer, which has a regional following, and the Caribbean Recipe Ginger Beer, whose primary market is as a mixer for cocktails.

This year, Hank’s rolled out its second seasonal flavor, Caramel Apple Cream, which joined last year’s autumnal hit, Pumpkin Spice. The seasonal flavors are timed to coincide with their annual “Hanksgiving” promotion. Hank’s also produces Grape soda, and is exploring the launch next year of ginger ale.

Hank’s executives describe their flavor profile as “rich," “full-bodied,” and “deep.” Their palate does not include such nuanced flavors as hibuscus and lavender, offered by some other craft soda brands, or such off-the-wall novelty flavors as dill-pickle and bacon sodas, which capture headline and go viral on social media.

Hank’s customers are primarily male and millennial (aged 23 to 39 years old). They buy the beverage as an indulgence, and Hank’s sole diet soda offering, a root beer, is not a big seller. “The same people that are drinking craft beers are also drinking craft sodas,” Barreca said.

The target audience may have been in mind when Hank’s redesigned its packaging in 2007, adopting a proprietary long-neck amber bottle with gold foil labels on the front and on the neck, and a raised cartouche. It resembles a high-end bottle of beer, a desirable appearance in some social situations, where many millennials prefer to hoist a non-alcoholic beverage.

“We hear that from different people, younger people, who may be in a bar drinking a Hank’s,” Barreca said. “It looks like you’re still drinking a beer.”

The move into supermarkets coincides with millennials' migration into the suburbs.

But first the company needed to familiarize itself with an entirely new distribution channel. Hank’s targeted mid-to-upscale chains where it believed its consumers shopped. It wants Hank’s products in stores that feature a section for craft sodas, so that Hank’s does not get lost amid the $1.69 two-liter bottles of store brand soda. Supermarkets also demand financial inducements to take in new products, so it’s expensive to launch into a grocery chain.

“It involves a fair amount of investment and you sort of have to buy your way in,” Salvatore said. The product is now sold at Giants and Acme in the Philadelphia area, Harris Teeter and Ingles Markets in the Carolinas, Safeway in Washington, and Tops in upstate New York.

Hank’s move into the supermarkets, where females shoppers are more likely to make the decisions than men, allows it to also broaden its contact with new consumers.

“Consumption has historically been at casual dining places out of home,” Barreca said. “But in the last six months, we’ve had a lot of lift in supermarkets and we seem to be picking up kind of a wider cross-section of family members.”