Nonalcoholic Beer Is Trending, BUT
Let's not get carried away
First, sorry for the typos in the last newsletter. I have no defense other than the fact that I’m a team of one! So there will be more typos! (This is part of why I continue to write for publications: I love being edited.)
Now, on to today's topic: nonalcoholic beer. After reading my Washington Post piece on Al's, Bryan Roth, news editor for trade publication Good Beer Hunting's Sightlines section, emailed me to say that he appreciated the story's perspective: Nonalcoholic beer is certainly growing, but we (the media) need to be clearer about the numbers and what they really mean. An excerpt from the piece:
Market share is still small. According to research company IRI, which tracks sales at chain retailers, nonalcoholic beer made up 0.49 percent of the beer market as of early March — up from 0.41 percent in March 2020 and 0.33 percent in March 2019. While these numbers are imperfect, as they don’t account for on-premise or direct-to-consumer sales, they give a more accurate picture than do growth numbers, which are skewed by the coronavirus pandemic. “Since we basically, overnight, stopped drinking in bars and restaurants and started buying everything at package stores or online, all the numbers are up,” says Bart Watson, chief economist for the Brewers Association.
Roth and his colleague, Good Beer Hunting's lead Sightlines reporter Kate Bernot, have been tracking this market for quite some time and they regularly try to rein in the narrative that nonalcoholic beer is booming. They kindly accepted my request to get into it a bit more, and you can find an edited and condensed version of our conversation about the excitement, the reality, and the potential of the nonalcoholic beer market below.
Julia Bainbridge: Alright, let's get situated first. What's going on in the world of nonalcoholic beer? Why have we been seeing it take up more space in the media over the past couple of years?
Kate Bernot: So, people are excited about nonalcoholic beer, the media is excited about nonalcoholic beer, and the beer industry is legitimately excited about nonalcoholic beer, which is something I have not seen until the last few years in my career covering beer. There are a few reasons for that: One is that better, smaller-batch products are coming to market. Better in the sense of better-tasting with a greater variety of styles. (These are not just nonalcoholic lagers anymore; there are stouts, IPAs, golden ales, etc.) So, there's greater variety and quality.
Also, it should be said that nonalcoholic beer is one of the growing subsegments of beer at a time when the overall beer category is floundering. So, it's a bright spot to talk about, especially when you see the triple-digit growth, a rate that is highly uncommon within the beer category. (I feel pretty confident saying that craft beer will never see that again.)
"Nielsen data shows that sales of craft nonalcoholic and low-alcohol beer (lumped together, frustratingly) are up 322% over the last 52 weeks versus the year prior. (Nielsen measures sales in chain retail like grocery, pharmacy, convenience stores, etc.)" -Bernot
And then third would be that, in addition to the small players, which are the craft nonalcoholic brands injecting variety into the market, you have big breweries like Heineken putting a lot of money behind alcohol-free. All of those come together to make it seem like there's massive energy around this, which… There certainly is interest and excitement, but it’s all about scale.
Bainbridge: In what ways is beer floundering?
Bernot: For the last two decades, beer has been losing share as an overall beverage category, mostly to spirits, and it doesn’t quite know how to get its groove back. Hard seltzer is keeping beer alive as a category because it counts as beer, government tax-wise. For example Boston Beer, which produces Sam Adams, also makes Truly, a hard seltzer. Boston Beer is Truly now; the company is essentially a hard seltzer company. The beer portion of their portfolio has been declining. And while craft beer has been exciting and cool, it's still a small portion of the overall beer market.
Bryan Roth: Over the past 20 years, millennials have been reaching their legal drinking age and earning disposable income. And this is the most diverse generation in America, or the most wide collection of drinkers that have ever existed in the US. I think that helps to pinpoint some of what's worked for a few beer categories, nonalcoholic beer being one of them. It's a differentiation. And it existed for a long time, but not in the way that it is right now.
Bainbridge: Can you expand on that? Do you have anything to add to the picture Kate painted of the current nonalcoholic beer landscape?
Roth: If we look back 20 years, we're talking about O'Douls, St. Pauli Girl, and Busch NA. It's just branding; the beer is the same. To me, it all tastes like unfermented wort. The big difference now is they are actually made to style, as Kate mentioned, so there are options available to you.
Bernot: And the marketing, too. The liquid is different and more diverse, but also the marketing is no longer shameful. It’s empowering: “You're making a good, healthy choice for yourself and this stuff tastes good and you don't have to be ashamed to drink this.” And it's sold everywhere from BevMo to high-end bars. People are coming out of the woodwork to talk about drinking these, instead of just, like, your uncle who was in recovery.
Bainbridge: Do you have thoughts on why now? Was there one maker that blew this open?
Bernot: We cannot talk about this without talking about Athletic Brewing Co. It’s the savviest company I've ever come across in reporting on beer, nonalcoholic or otherwise. Their product is good, they raised a lot of money, and they're wonderful at putting their founder Bill Shufelt in front of reporters and he's a great interviewee. Athletic’s sales are strong, they're building new plants and expanding, and they're raising more money. So, [for the media], Athletic is the perfect, “Ah! We have an example of the larger story.” I think a lot of credit goes to that company for putting this in the headlines.
And then it’s that weird chicken-and-egg thing: You read a lot of headlines, so you assume you have to write something about it because it's a thing that's happening, and then that’s another headline...
Bainbridge: This is something that bothers me about the way media works—or maybe more like has to work—today. It's all about metrics, which is dangerous in a number of ways, but one of them is exactly this. Such a high volume of output is required to maintain and improve upon web traffic, so you must cover everything, and you must jump on to whatever story is trending—and then that can make it seem to the reader like the thing that’s happening, as you put it, is more happening than it actually is. (Sure, some publications refuse to cover trends, but that’s not the norm.) It’s all part of a dysfunctional content farm!
But I digress. For the purposes of this conversation, my point is that nonalcoholic beer doesn’t exactly deserve the amount of coverage it's been getting, but everything gets a lot of coverage today because you have to keep feeding the beast. TL;DR: Coverage volume does not mean a trend is real.
Bernot: Beers brewed with fruit have had a crazy last couple of years, and Bryan is like the only reporter I have seen cover this. Modelo is doing gangbusters, massively eclipsing the entire nonalcoholic beer segment. A few trade people write about it, but the average consumer has no idea.
Bainbridge: What do the nonalcoholic beer numbers actually look like now?
Roth: Nonalcoholic beer is 0.5% of retail store sales volume for the beer category. (That beer category includes flavored malt beverages, of which two thirds are hard seltzer.) If we go back six years, it was 0.34%, and if we look at last year, it was 0.42%. And here’s what I think what matters most: That half a percent has been consistent for the first six months of 2021, including Dry January. If there was that momentum carrying it, it would be different today. We are now in prime beer sales season, but that 0.5% is consistent. So is it performing well? Yes, but it's not growing.
Bernot: It will grow by these little fractions—which, by the way, represent like $4 million, which is nothing to sneeze at—but this idea that it's going to become a mainstream product that the majority of Americans consume on a regular basis… Lester Jones, who is the chief economist for the National Beer Wholesalers Association, doesn't see it and frankly I don't either. Lester is like, "You can call me a liar if nonalcoholic beer ever gets to 1% of the US beer market, but I don't buy it.”
When Bryan and I read media coverage of nonalcoholic beer, every story checked the same boxes: There's an anecdote about a founder who used to drink and doesn't anymore; there’s a quote from Athletic; there’s the triple-digit growth statistic; there’s an explanation of how Brits, Spaniards, and Germans switch back and forth from alcoholic to nonalcoholic beers while they're out with friends; there’s usually a mention of fewer calories. Bryan and I were two seconds away from making a physical bingo card for nonalcoholic beer stories, because they all have the same structure! And look, it does add up to a compelling package. When you put all the little anecdotes together, you walk away thinking this is huge, but they all miss that 0.5% data point.
So, you can say something is growing triple digits, but if it's growing from a base of absolutely nothing to a little bit more, you're not wrong—you're not factually incorrect, you're not lying or making something up—but the context is missing. I don't think anyone's doing anything nefarious; it's just how you're choosing to frame the story.
Bainbridge: Kate, via email, you mentioned that brands like Athletic and Heineken are taking share from the older nonalcoholic brands. Why should that be taken into account, exactly?
Bernot: So, as we've mentioned, the nonalcoholic beer industry is roughly steady in recent years (0.3% to 0.5%), and growth for brands like Athletic and Heineken 0.0 is cannibalizing other brands' sales. A slide from the National Beer Wholesalers Association/Fintech Q2 presentation shows that the "all others" share of the nonalcoholic beer market was greater in 2017 than it is now. So, it would appear brands like Athletic and Heineken are just eating share from brands like O'Douls or Becks, not necessarily drawing in a ton of new drinkers.
Bainbridge: Something else you pointed out before this conversation is that nonalcoholic beer companies have struggled with communicating where they belong in consumers’ lives.
Bernot: When nonalcoholic beer talks about occasions, they are the most insanely specific! It's not just backyard barbecues; it's for, like, when you are the designated driver and it's your kid's soccer game and you went out with the parents afterwards and.... I just think they've had a hard time articulating to average Americans in a compelling way how nonalcoholic beer is going to fit into their lives. Of course, there are consumers who love nonalcoholic beer and will buy it, but why should the average Joe spend beer money on a nonalcoholic beverage over having a delicious kombucha or ice tea? What is the beer bringing to the table that you're not just getting from some other already inherently nonalcoholic product that costs less?
Bainbridge: Yeah. Honestly, many people in my life who are already interested in nonalcoholic beer still don’t buy it on a regular basis.
Bernot: Something else that’s interesting, here, is that higher-ABV beers, like above 7% ABV, have been outpacing overall craft growth as a category. So, some consumers are interested in this wellness, better-for-you, mindful drinking thing, while many beer drinkers are going higher with their alcohol content also.
Roth: This story is focused on the UK, where there’s a developed and accepting no-alcohol category, and even they're talking about low- and no-alcohol being a confusing category that people don't understand.
There is a cultural side of all of this that really matters. The American psyche for food and beverage is unique in the world, and that’s part of the challenge when it comes to the nonalcoholic beer category. We’re talking about the growth of a better-for-you category in the same breath as talking about 9% IPAs being the driving force behind craft beer growth. So, that 1% really feels a far way away.
Bainbridge: So where do you realistically see this going in the next year or so?
Bernot: Not to 1%! New entrants may do well, but that's also because older brands are declining. I think it all just swaps the volume around within the category and stays comfortably around half a percent, give or take some tens of a percent.
Bainbridge: Is there anything else you want to share?
Bernot: We think it's great that nonalcoholic beer exists! There should be options for people who are sober at tap rooms and bars. But if we could all live in the same reality, that'd be nice.
Check out my piece on third-wave kombucha in last weekend's Off-Duty section of The Wall Street Journal. And speaking of weekends, enjoy this one, and I’ll see you back here soon.