Fermented apples have become a not-so-forbidden fruit in the beer market. This category’s impressive growth rates in recent years have caught the attention of some of the largest players in the industry. As beverage companies continue to search for new opportunities, the fast-growing hard-cider market appears to be a highly sought-after opportunity. As a result, big brewers have been picking alcoholic apple drink makers from the proverbial tree of late. An uptick in deal activity highlights this developing market, which until recently had long been an afterthought in the beer market.

Consumer taste preferences continue to evolve thanks to a vast array of beverage options available. An increasing number of SKUs (stock-keeping units) in the marketplace illustrates the wide-range of beers available. The craft beer boom has been the primary factor in this phenomenon. Craft breweries are growing at a feverish pace and, in turn, continue to bring new beers to market. Consumers have become much more adventurous when it comes to trying a new brew thanks to this influx of flavorful beers. This trend has created an opportunity for hard cider beverages to increase their presence in this evolving market. Hard-cider brands often share the local and niche characteristics that have helped make craft beer so popular. Furthermore, hard cider is starting to be viewed as having a more universal appeal than beer in certain regards. It is a beverage that does not have a lager’s frat-boy stigma, yet it still fits in at the bar scene with its more mainstream beer counterparts. Furthermore, large brewers have long searched for products that would appeal to women and cider may just fit the bill. Generally speaking, the beverage’s sweeter flavor profile lends itself to the female palate more so than widely-consumed light lagers. An increasing number of new flavor variations of hard cider should only further this trend in the months ahead. All told, new cider offerings generally have been well received by both sexes over the past few years.

It is no secret megabrewers have an appetite for new product categories and markets to bolster their top and bottom lines. Slumping sales from some of their core offerings have pressured these businesses to search for new growth avenues amid a tough economic environment. The hard-cider market makes up less than .5% of the United States beer market. However, hard-cider volumes are expanding at an impressive rate. In fact, the alcoholic cider category grew over 20% last year. What’s more, it appears poised to continue to expand for the foreseeable future. Moreover, the recent deal terms have been attractive when considering similar purchases in the beverage industry. Consequently, beverage stalwarts have been investing in this burgeoning market.

The usual suspects have entered this market either through acquisitions or products launches. On point, industry titan Anheuser-Busch InBev (BUD) recently rolled out Stella Artois Cidre in the United Kingdom and Michelob Ultra Light Cider in the U.S. Heineken took over the distribution of Strongbow cider in August.  MillerCoors, the joint venture between SABMiller and Molson Coors (TAP), purchased Crispin Cider Co. for roughly $40 million earlier this year. This past April, craft brewing giant Boston Beer (SAM) launched its Angry Orchards brand in the hopes of establishing a lead position in this growing category. C&C Group appears to have its sights aimed on this market as well. The Dublin-based beverage company, which makes Magners, Bulmers, and Tennent’s cider, purchased Hornsny’s for roughly $24 million last year. More recently, C&C Group has agreed to acquire Vermont Hard Cider, the maker of Woodchuck cider, for $305 million. If the Vermont Hard Cider acquisition is completed, C&C Group will control over 50% of the U.S. alcohol cider market. The multinational deal is awaiting regulatory approval, and is expected to close early in 2013.

The hard-cider market is still very green. Brewers will likely continue to invest in these products as a way of capturing market share. Looking ahead, investors should expect to see many more fermented apple beverage introductions in the beer market over the coming years. Innovation will remain key as all the usual players attempt to stand out in a relatively small market. We believe the beverage companies that focus on unique premium products will win out over the long term in this niche space. All told, investors interested in equities in the beverage industry may want to pay attention to this growing market. Emerging opportunities remain crucial for these companies to bolster their top and bottom lines over the long term.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.