Big brewers are trying to create a buzz by selling a broader range and tastier styles of nonalcoholic beer as they seek to offset mediocre growth in traditional beer markets while promoting responsible drinking.
Anheuser-Busch InBev SA, the world's biggest brewing company, said 8% of its current beer volume is from low- and nonalcoholic beer, which it aims to increase to 20% in the next six years. Carlsberg A/S plans to offer all its nonalcohol brands in all of its markets by 2022. Heineken Holding N.V. sells 125 low- and nonalcohol brands, up from 67 such brands five years ago. In January, it launched Heineken 0.0 in the U.S., a drink made from the same hops and barley as its mother brand but with half the calories and none of the alcohol.
"The feedback from our consumers is that Heineken 0.0 tastes like a real beer," Ilaria Lodigiani, Heineken's global director for low and no-alcohol, said in an interview.
Growth in the traditional beer industry is almost flat. The global beer market is unlikely to grow by more than 2% per year for the foreseeable future, according to GlobalData. In the U.S., beer volume dropped for five consecutive years between 2012 and 2017, according to the Beverage Information Group.
Consumer tastes have shifted. About 84% of global drinkers are trying to reduce their alcohol consumption, according to GlobalData. Heineken said a fifth of all 18- to 24-year-olds now abstain from alcohol. Even among young drinkers, many prefer wine or cocktails. In some markets, legal marijuana is becoming a growing alternative to beer.
"The driving engine of the beer market is stalling," said Spiros Malandrakis, head of alcoholic drinks research at Euromonitor. "In 10-15 years, the big companies will have a major problem on their hands."
For years, nonalcoholic beers have been associated with inferior taste and mouthfeel. But now, many companies are using new recipes and refined brewing techniques to create a broader range of near beers that they claim stand up to the real thing. Zero-alcohol lagers, pale ales, wheat beers and even stouts are now on offer, including popular brands such as Budweiser, Stella Artois, Becks and Hoegaarden. Global sales of low- and nonalcoholic beers are poised to jump more than 25% to 4.49 billion liters in 2020 from 3.56 billion liters in 2015, according to Euromonitor International, a market research provider.
Large brewers hope to lure more young, health-conscious drinkers to nonalcoholic beers, which command higher margins because of lower taxes. They are also tapping burgeoning demand in parts of the Middle East and Africa, where alcohol consumption is low for religious reasons. Today, the Middle East and Africa account for more than 40% of global sales of alcohol-free beer.
Selling more nonalcoholic beer can also form part of a company's social responsibility drive, an increasingly important topic for investors. Such products "can play an important role in reducing harmful consumption," AB InBev CEO Carlos Alves de Brito said on a recent earnings call with analysts. "Smart drinking is also good for our business, and we have made it part of our commercial strategy by providing our consumers with more choices." AB InBev now sells 76 low- or no-alcohol brands.
Carlsberg A/S said the alcohol-free segment is growing three times faster than the overall beer market in eastern and western Europe, and it expects at least 10% sales growth each year. "What excites us is that it's a category that's becoming an active, positive choice for consumers," Myriam Shingleton, a trained brewmaster and head of product development at the Danish company, said in an interview. Before better-tasting brews came along, alcohol-free beer "was a choice by default — if a person was ill or if they were driving," Shingleton said.
There are two ways to create near-beer: make the regular concoction and remove the alcohol, or restrict the alcohol level in the normal brewing process. Big brewers often prefer the first approach, using reverse osmosis to filter out the alcohol under high pressure, or vacuum distillation, which dramatically lowers the boiling point of alcohol and makes it easier to remove. Though expensive, the techniques can help maintain the aroma and flavor of beer.
Smaller craft brewers prefer to simply restrict the alcohol in the normal brewing process. It is cheaper but risky. "If you don't get it right, it will be too sweet," said Steven Livens, a microbiologist by training and policy manager at the British Beer & Pub Association.
Big Drop Brewing Co. of the U.K. makes its nonalcoholic beer using less grain, higher temperatures and a "lazy yeast" that is not very good at turning sugar into alcohol — exactly what is required. At the 2017 World Beer Awards, its 0.5% chocolate milk stout was blind tasted by experts against other full-strength brands, including one with 10% alcohol by volume. The milk stout won the silver medal. "We were most chuffed by that," said Rob Fink, CEO and founder of Big Drop, which expects to double sales in 2019.
There is more innovation in the pipeline. The number of patents, based on the number of patent families, relating to low- or nonalcoholic beer filed each year was largely flat in the early 2000s. That figure has jumped in recent years, rising from 25 in 2011 to 66 in 2015 to 89 in 2018, according to PatSnap, a provider of R&D analytics, which researched the data for S&P Global Market Intelligence. A patent family represents the total number of patents relating to a single new innovation. The top three assignees for patents in this area, both published and pending, are Japan's Suntory Beverage & Food Ltd., Asahi Holdings Inc. and Kirin Holdings Co. Ltd.
One big challenge is cracking the U.S. market, where alcohol-free beer has yet to catch on in a meaningful way. "The U.S. is an untapped market because no one has invested in the right way," said Lodigiani. That could change. In January, Heineken rolled out in the U.S. its 69-calorie 0.0 brew in a bottle, with the familiar green label turned blue to differentiate it from the alcoholic version. AB InBev piloted its 0.0% Budweiser Prohibition brew in Canada and is now testing the same in some U.S. markets. The company's CEO said, "For sure, the U.S. will follow that trend."