Japan & USA: Suntory to enter the US beer market with non-alcoholic products

Japanese beverage maker Suntory Holdings will enter the U.S. beer market with non-alcoholic products, as it tries to gain ground on top brewers Anheuser-Busch InBev and Heineken, the Nikkei Asian Review reported on July 17.

The push into the U.S., which will begin in late July, is the latest attempt by a Japanese drinks company to expand overseas in response to shrinking demand for beer at home.

The market for non-alcoholic beer has grown more than fourfold in Japan over the past decade, while demand for regular brews shrank in 2019 for the 15th straight year.

In U.S. as well, more people are drinking alcohol-free beer, with demand rising 14.5% in 2019 on the year in volume terms, according to data from Euromonitor International. The market researcher predicts consumption will expand 63% between 2019 and 2024 to 172.5 million litres.

Suntory, the world's third-largest spirits maker, made a brief foray New York and California in 1987 with its beer but the latest move will be its first full-scale entry into the U.S. market.

Suntory will aim its All-Free non-alcoholic beer at health-conscious millennials, who are generally open to trying new products. The brew will mainly be sold through e-commerce channels such as Amazon at first, but the company plans to sell at brick-and-mortar stores later. The Japanese beverage maker hopes to reach U.S. sales of 15,000 cases per month by the end of the year. Over the next three to five years, it aims to raise its annual sales to 1.5 million cases.

"The number of consumers unwilling to drink alcohol, or who are becoming more health-conscious, is increasing," the Japanese beverage maker said in a statement on Friday. Suntory chose the U.S. market for its expansion drive because it "expects positive ripple effects on markets in other countries," it said.

Suntory will be competing with Anheuser-Busch InBev, which controls 56.1 % of the U.S. non-alcoholic beer market by sales, with Heineken holding 7.2% in 2019, according to Euromonitor. Heineken's non-alcoholic brew, Heineken 0.0, came out early last year and is one of the few imported, fast-growing brands in the U.S. There are no big Asian brands in the alcohol-free segment, the research company's data shows.

Apart from the two leading brewers, Suntory will be fighting for market share with U.S. craft brands that have been leading growth in the market. Aga Jarzabek, a research associate at Euromonitor, told the Nikkei Asian Review that "small craft brewers, such as Athletic Brewing and Wellbeing Brewing, are advertising their drinks as a responsible, health-conscious alternative to alcoholic drinks aimed at younger consumers, a part of the 'mindful drinking' trend."

The coronavirus pandemic, which has led to "fewer opportunities for human contact, and the introduction of telework," has also affected the growth of the non-alcoholic beer market, said Tatsuya Hiramoto, a partner at consultancy EY Japan.

"People started drinking non-alcoholic beer out of concern for their health, rather than being in high spirits. That is not necessary at home," Hiramoto said.

The growth of non-alcoholic beer drinking in the U.S. will also be driven by rising home consumption, Hiroaki Ando, a senior manager at EY, told Nikkei. The company expects growth in home consumption of 56.3% by 2024, compared with 2019.

Last year Suntory's revenue rose 2% to 2.3 trillion yen ($21 billion), thanks to strong sales of its coffee drinks and spirits.

But despite that growth, the beverage company is worried by the aging of drinkers in its home market. That is putting pressure on its bottom line, in addition to COVID-19, which has shut down bars and restaurants worldwide.

In the past decade, Suntory's share of overseas sales doubled to 42% of the total, thanks to its purchase of U.S. whiskey maker Beam in 2014. It hopes to nearly double its global sales to 4 trillion yen over the medium to long term.

Rivals such as Asahi Group Holdings, Japan's largest brewer, are also concerned about domestic consumption trends in Japan. Asahi bought Anheuser-Busch InBev's European business for over $10 billion in 2016 and 2017. In 2019, the brewer paid $11 billion for Australia's Carlton & United Breweries, also from InBev.

Japan's second-largest brewer, Kirin Holdings, meanwhile, is diversifying into the health care business, resisting pressure from a U.K.-based activist investor to focus on its core beer business.

Kirin bought a 30.3% stake in cosmetics and health food maker Fancl, and took over Kyowa Hakko Bio's biochemical business in 2019, seeing opportunities for growth in the health sector as Japan grays.

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