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Will the big bet pay off for Deschutes Brewery? Can craft beer compete in that space?

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Just Tapped

Things are tough out there. We get it. Everyone in the craft beer biz is looking for a way to increase sales and/or fatten the margin. Will history look back on this week's news as a cautionary tale or a success story? Time will tell. Let's get to it.

Deschutes is Betting Big on NA Beer

The News: This week, Deschutes Brewery, a top-15 producer of craft beer in the U.S. by volume, announced that it is betting big on the future of non-alcoholic (NA) craft beer. Literally, the press release's headline said, “Bets Big on Non-Alcoholic Beer.”

The brewery in Bend, Oregon will integrate a state-of-the-art system from Sustainable Beverage Technologies (SBT) to advance its NA initiatives. Financial terms were not disclosed, but it seems safe to assume that Deschutes Brewery is making a substantial investment—a big bet that is beyond the means of most craft breweries. Deschutes expects on-site production of non-alcoholic beer to start by the end of the year.

Deschutes has already enjoyed some success with its non-alcoholic beers: Black Butte Porter NA and NA Irish-Style Dark. Those beers were produced by SBT at its facility in Colorado. This new, major investment will bring the production of those and other Deschutes’ NA beers in-house using SBT’s BrewVo technology.

“We weren’t prepared for the level of consumer excitement for the Black Butte Non-Alcoholic launch which quickly became the highest-velocity product in our portfolio. Bringing the production capability in-house is a game changer.”

Peter Skrbek, CEO of Deschutes Brewery.

Deschutes told Beer Martketer’s INSIGHTS that this is just one part of a “fundamental shift” for the company as it moves from a “historically product-focused category” to building a “consumer-centric brand.” Here at The Taster Tray, we aren’t really sure what that means, but it must mean something.

The Gist: A lot of craft breweries are jumping into the NA game these days. There’s nothing wrong with a brewery responding to consumer attitudes and trends, as long as it doesn’t abandon its core ethos. It’s good business. Some breweries are dipping a toe in the water, but Deschutes is betting big and jumping straight into the NA swimming pool. Will the big bet pay off? Time will tell.

Non-alcoholic beer is basically a soft drink. If the market continues to expand, the NA beer industry could see an influx of very large players, including some of the largest companies on earth (think, Coca-Cola). In a previous issue, we discussed how Keurig Dr. Pepper made a $50 million investment into Athletic Brewing. So it begins.

Also, because it is not an alcoholic beverage, it will not be regulated like alcohol. The largest players will have the opportunity to buy shelf space and otherwise influence retailers just as they do for their soft drinks. Can craft breweries ever hope to compete in that space? It's hard enough to compete with the big guys in the tightly regulated alcohol realm.

Globally, the non-alcoholic beer market is valued at more than $22 billion. The overall global beer market is valued at more than $750 billion. If you’re looking to get a piece of the pie, recognize that NA beer is a pretty small pie in the bigger picture.

Non-alcoholic beer is marketed as a healthy choice, but how healthy is it? Athletic Brewing’s Run Wild IPA has 65 calories and 16 grams of carbs per can. That is significantly less than most craft beers, but there are plenty of non-alcoholic options that have zero calories and zero carbs. Consumers may learn to drink beer when they want beer and opt to drink something healthy when they want something healthy. Time will tell.

To us, the non-alcoholic beer surge feels vaguely familiar. A few years back, some craft breweries were jumping into the hard seltzer game with varying degrees of success, and then the trend leveled out and the momentum shifted to the big, non-craft producers. Is NA beer on a similar path?

What do you think? Is the NA bubble about to burst, or is this just the beginning? Leave a comment via the poll below or shoot us an email. We’d love to hear your thoughts.

Around the Web

  • Bell's Brewery adds five more states to its distro footprint. Now in 49 states in large part thanks to its relationship with New Belgium. Story by Brewbound (paywalled).

  • For the next year at least, Heineken will stop shipping its draft products to five states (Vermont, Wyoming, Montana, North Dakota, and South Dakota). Lagunitas, the Heineken-acquired craft brand, is not included in the draft cuts. Story by Brewbound (paywalled).

Say What?

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This week's Taster Tray was composed by Kendall Jones.