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As Americans Drink Less Alcohol, Booze Makers Look

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As Americans Drink Less Alcohol, Booze Makers Look Beyond the Barrel -- Update

Source: Dow Jones News
By Saabira Chaudhuri and Jennifer Maloney
Americans are increasingly laying off the booze, prompting the world's biggest brewers and liquor companies to push beyond their traditional fare and roll out teas, energy drinks and nonalcoholic spirits.

New data show that U.S. alcohol volumes dropped 0.8% last year, slightly steeper than the 0.7% decline in 2017. Beer was worst hit, with volumes down 1.5% in 2018, compared with a 1.1% decline in 2017, while growth in wine and spirits slowed, according to data compiled for The Wall Street Journal by industry tracker IWSR.

The fall in alcohol volumes reflects "a growing trend toward mindful drinking or complete abstinence, particularly among the millennial cohort," says IWSR's U.S. head Brandy Rand. Wine grew by 0.4%, down from 1% the year before, while spirits climbed 1.9%, compared with 2.2% in 2017. IWSR's sales figures are based on products shipped.

In response to the slowdown, alcohol makers are trying to diversify. Molson Coors Brewing Co. has turned to kombucha, Budweiser brewer Anheuser-Busch InBev SA sells a spiked coconut water, and Smirnoff maker Diageo PLC wants teetotalers to start mixing cocktails with a pricey, alcohol-free gin alternative.

IWSR forecasts low- and no-alcohol products in the U.S. -- still a small slice of the market -- to grow 32.1% between 2018 and 2022, triple the category's growth over the past five years.

Molson Coors, grappling with weak sales of Coors Light, wants to build out a broad portfolio of "brewed beverages," Chief Executive Mark Hunter said in an interview. That means beer, tea and perhaps even coffee, he said. The company has invested in Boulder, Co.-based Bhakti Chai Tea Co. and bought a California-based maker of kombucha -- a fizzy, fermented tea.

"We're certainly not sitting on our hands," Mr. Hunter said.

Industry executives say drinkers are increasingly concerned about health and that younger generations socialize differently from their parents, drinking less.

"Twenty years ago we didn't have coffee shops open late, and pubs and bars open for coffee," said Ben Branson, chief executive of nonalcoholic distilled spirit maker Seedlip Ltd., which is part owned by Diageo. "People are favoring experiences over 'lets go drink on a night out.'"

Americans' consumption of ethanol, or pure alcohol, has declined sharply over the past couple of decades. Alcohol consumption stood at 8.65 liters per person in 2017 -- the most recent year for which data is available -- compared with 10.34 liters in 1980, according to research firm Bernstein.

Some in the industry worry that alcohol volumes could take a further hit as marijuana is increasingly legalized.

While booze makers are partly responding by pushing pricier tipples -- helping sales by value grow despite lower volumes -- they are also scrambling to offer a wider selection of drinks. Brewers, in particular, are under pressure as consumers abandon mainstream beer.

AB InBev last year created a new global position, head of nonalcoholic beverages, to lead its efforts to diversify. Nonalcoholic drinks -- including energy drinks and nonalcoholic beers -- already make up more than 10% of the Bud brewer's volumes. In 2017, it acquired Hiball Inc., a maker of organic energy drinks. AB InBev recently began selling Budweiser Prohibition brew -- a nonalcoholic version of its flagship beer -- in Columbus and Detroit. Nonalcoholic beer volumes in the U.S. are expected to climb 9.3% over the next five years, according to research firm Euromonitor.

The beer company also has stepped up its efforts to woo consumers defecting to wine and cocktails. Its craft-style breweries in Oregon, California and New York have served as incubators for new, boozy versions of coconut water, matcha tea and agua fresca, a Mexican fruit-juice drink.

The brewer plans to later this month launch a seltzer brand, Bon & Viv, which it will advertise alongside its beers at the Super Bowl.

"People are looking for something that tastes good but also allows them to live well," Chelsea Phillips, head of marketing for AB InBev's Beyond Beer division in the U.S., said in an interview.

Volumes of ready-to-drink alcoholic beverages jumped 6.1% last year, according to IWSR, driven by hard seltzers, which executives say appeal to consumers because of their low calories and sugar.

Distillers also are embracing the popularity of lower-alcohol drinks.

Late last year, Diageo launched a lower-alcohol, botanical version of Ketel One, which it said has 25% fewer calories than the regular vodka. Alcohol content is 30% compared with 40% in regular Ketel One.

Diageo Chief Executive Ivan Menezes said last year that adults opting for lower alcohol options was "an important trend over the next many years" and that the company was "putting a lot of focus behind it."

Diageo has been working to help expand Seedlip, in which it took a minority stake in 2016. The London-based brand, which can be drunk with tonic or used in cocktails, markets itself as solving the dilemma of "what to drink when you're not drinking."

Seedlip is available in 6,000 locations, including 500 in the U.S., where it recently opened its first office. The upscale brand sells three variants, which cost about $30 a bottle upward.

This spring, Seedlip plans to launch a new nonalcoholic brand called Æcorn Aperitifs, designed to be drunk before dinner. The liquid will be made from English grapes, herbs, roots and bitter botanicals, and is aimed at consumers who want a nonalcoholic option to drink with food.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Jennifer Maloney at jennifer.maloney@wsj.com


(END) Dow Jones Newswires

January 17, 2019 13:29 ET (18:29 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.



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