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Anheuser-Busch InBev Wants to Be the King of Near Beer

With just 4.2% alcohol by volume, Michelob Ultra is the sort of low-alcohol beer that Anheuser-Busch InBev wants to account for one-fifth of its sales over the next decade. Image source: Michelob Ultra.

Since Anheuser-Busch InBev (NYSE: BUD) is still having troubling moving its mass-brewed beers and the craft beer boom looks like it's stalling, the King of Beers is hoping weak and zero-alcohol beer can grow to account for one-fifth of its sales in the next decade. 

The new king of near beer

As consumers adopt healthier lifestyles, AB InBev thinks they're going to want healthier beverages and non-alcoholic brews, or at least beer that's had its alcohol content watered down to next to nothing. It's similar to when it introduced Michelob Ultra in 2002 at the height of the low-carb diet craze. A 12-ounce bottle of Ultra has 2.6 grams of carbohydrates compared with 6.6 grams for Bud Light, and it's still marketed as a beer for athletes to drink. AB InBev also owns what may arguably be the best-known near-beer, O'Doul's, a non-alcoholic malt beverage (less than 0.5% alcohol by volume) that's been the choice of designated drivers since it was first introduced in 1990.

According to Forbes, Anheuser-Busch wants near beer to be responsible for 20% of its sales by 2025, up from a relative negligible base right now. However, because it is preparing to acquire SABMiller (NASDAQOTH: SBMRY) and begin brewing 30% of all the world's beer, a major marketing push into low- and no-alcohol beer seems curious. But there are some very good reasons why it wants to do so.

Beer is going flat

We've seen many brewers branching out beyond their core beer brands as sales growth weakens. Boston Beer (NYSE: SAM) had great success with its Angry Orchard brand of hard ciders, and Pabst Brewing hit pay dirt launching the hard soda fad with its Not Your Father's Root Beer, which is produced by Small Town Brewery but distributed nationally by Pabst.

Boston Beer followed suit with its own brand of hard soda from its Coney Island Brew Co. label, as did MillerCoors, which introduced Henry's brand of sodas, and distiller Saranac, that started making Jed's Hard sodas. Boston Beer has now gone so far as to launch a line of hard water.

And while AB InBev's flavored malt liquors like its Lime-a-Rita remain popular, the near beer move is different. Forbes says the industry watchers at Plato Logic peg the market share of beers containing no more than 2.8% alcohol by volume at just 2.5% in 2014, but the category's growth that year was between 4% and 6% compared to a 1% rise in beer sales generally. And beer sales have weakened sharply since.

According to the Brewers Association, which represents the craft beer industry, overall beer sales barely registered an increase in 2015, rising just 0.2%, and that was only due to craft beer sales rising more than 12% year over year, and imports rising 6%, indicating mass-brewed beer sales were sliding once more.

Reading the fine print

Moreover, the industry trade group Beer Institute just announced it will encourage its member breweries to begin being more transparent with their labels by publishing ingredients, calorie counts, and alcohol content by volume. AB InBev, Miller, Heineken, and Constellation Brands, which distributes AB's Modelo brand in the U.S., have all agreed to abide by the guidelines. Near beer should presumably benefit from the push because of its arguably cleaner label.

There's also the fact that near beer can be more profitable too. Sold at the same price, or even at a premium to regular beer, near beer can bolster AB InBev's bottom line because it would avoid the imposition of excise taxes that otherwise drain real beer's performance.

Anheuser-Busch noted last year it expanded its global portfolio of non-alcoholic beverages, launching, for example, the non-alcoholic Hoegaarden in Belgium and the non-alcoholic Brahma Brazil, where it quickly dominated the market with a 72% share of the category. Here in the U.S., billboards touting Michelob Ultra have also popped up again.

Of course, brewers have tried making a go of near beer in the past and haven't seen them contribute much to the results, so even with better brewing processes today that ought to improve the flavor profile, there's no guarantee Anheuser-Busch InBev's deep dive into near beer will make nearly the big splash it's hoping for.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool recommends Anheuser-Busch InBev NV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.