No- and low-alcohol offerings as a “potential market disruptor” for the beer category, growing retail sales to $3 billion by 2025, according to a new research report from Goldman Sachs analyst Bonnie Herzog.
“We conservatively estimate it could grow by 25% CAGR [compound annual growth rate] and reach $3 billion in total retail sales by 2025, or 3% of total beer (up from 0.7% today), which we think could prove conservative given numerous new NoLo beer launches and ongoing consumer trends,” she wrote.
Herzog’s forecast is based on the no- and low-beer segment quadrupling its share of the total U.S. beer market over the next five years.
The no- and low-alcohol market in the U.S. remains “small” at $580 million in retail sales, compared to $80 billion for total beer,” Herzog wrote. The segment accounts for less than 1% of volume in the U.S.
“Ultimately, we think the NoLo beer category could accelerate growth of the overall TBA [total beverage alcohol] market given the potential for higher consumption per capita, new beverage occasions and the introduction of new consumers to the category,” Herzog wrote.
If that happens, Herzog writes that no- and low-alcohol beer and hard seltzer could help return the beer category to volume growth in the U.S., which declined at a CAGR of around -0.5% from 2014 through 2019 and was flat in 2020.
Although Herzog acknowledges that the no- and low-beer segment is nothing new and has “mostly languished until now,” consumer trends toward health and wellness have led to renewed interest in the space.
Herzog offered four reasons for the segment’s improved trends in recent years, including:
- New brewing techniques to remove alcohol from beer “without sacrificing taste, depth/complexity, balance and mouthfeel;”
- An acceleration of consumer interest in moderation and better-for-you offerings during the pandemic;
- A low risk of cannibalizing beer occasions, as the segment sources drinkers from soft drinks and water;
- Attractive unit economics, as no- and low-beer is margin accretive with the excise tax savings more than offsetting the higher production costs.
Herzog cites the success of no- and low-alc options in Europe, where retail sales have reached $5.9 billion, as one reason for optimism.
“While early days, we see the NoLo beer market developing into a significant and potentially highly incremental growth opportunity for brewers looking to further premiumize their portfolios, drive category-expanding innovation and capitalize on growing health and wellness trends,” she wrote.
In the U.S., Anheuser-Busch InBev holds 52% share in NielsenIQ-tracked channels, followed by Heineken (30%), which also has the top-selling brand, Heineken 0.0, with 28% share of the U.S. no- and low-alc market. Molson Coors holds a 3% share in NielsenIQ-tracked channels.
Herzog wrote that Boston Beer Company’s Samuel Adams Just the Haze IPA could possibly disrupt the segment, while there is an opportunity for Constellation Brands to enter the space with “innovative, new-to-world line extensions” of its Mexican import brands Corona and Modelo.
“From our vantage point, the NoLo alcoholic space is shaping up to be one of the most contested emerging beverage segments in the U.S.,” Herzog wrote.