Deschutes Testing No- and Low-Alcohol Products, Releasing Gluten-Reduced Beer

Count Deschutes Brewery among the list of beer companies experimenting with no- and low-alcohol offerings.

The Bend, Oregon-headquartered craft brewery — the 10th largest U.S. craft brewery, according to the Brewers Association — has begun testing prototypes of two non-alcoholic beers.

In a conversation with Brewbound, Veronica Vega, Deschutes’ director of product development, said the company is partnering with Sustainable Beverage Technologies, a Denver-based business that offers non-alcoholic beer production using a proprietary method called “BrewVo,” among other services, to create two new non-alcoholic products: a hop-forward beer and an Irish stout-style ale. Those offerings could be on tap at Deschutes’ Portland and Bend brewpubs within the next two months.

Deschutes joins several established beer makers — Heineken (Heineken 0.0), Brooklyn Brewery (Special Effects), Lagunitas (Hop Water), Flying Dog (Hop Chronic IPA infused with THC) and Pabst Brewing, among others — to enter a non-alcoholic beer segment that already includes offerings from several major manufacturers as well as upstart small brewers.

According to Vega, Sustainable Beverage Technologies will continue to produce batches of non-alcoholic beer for Deschutes’ pubs once the company settles on a finished product. Meanwhile, the Denver company will continue to test the beers to ensure they are shelf-stable for a potential release in glass or aluminum packages.

Deschutes president and CEO Michael LaLonde told Brewbound that the company wasn’t impressed with the non-alcoholic products currently available on the market, and it sees an opportunity to become a player within the N/A space as consumers grow more health conscious.

“We think we’ve really developed something that has the flavor of beer,” he said. “It doesn’t taste like a malt beverage. It has a lot of the characteristics that you’ll see in beer. Less sweet, more hop characteristics to it, but still a good body.”

LaLonde added that serving N/A beers in the Deschutes pubs is the first step toward what he hopes will be more robust distribution across the company’s 30-state footprint, if those offerings receive positive consumer feedback and are among the top 10 best selling beers in the pubs.

Nevertheless, Deschutes is also developing a low-alcohol offering called Teensy, which Vega called “a petite hazy” IPA that checks in at between 2.5 and 2.9 percent ABV.

“The hazy style lends itself to providing more body, mouthfeel and certainly more flavor,” she said.

Teensy is currently being poured at Deschutes’ tasting room at its Bend production facility and could soon be released on draft at its Portland and Bend pubs. If successful, a limited amount of the new brand could be canned and distributed throughout a Oregon and Washington, Vega said.

Teensy isn’t Deschutes’ only low-alcohol release of 2019, either. Earlier this year, the company added Da Shootz, a 4 percent ABV, 99-calorie American pilsner, to its year-round lineup.

“It really fits with the new drinker and what they’re looking for in a beer and every beverage that they have that has alcohol,” LaLonde said.

The pivot toward no- and low-alcohol offerings comes after a year in which volume sales declined more than 7 percent. Amid sluggish sales, the company also laid off 7 percent of its workforce last year.

In 2018, portfolio-wide dollar sales of Deschutes products declined 7.6 percent, to more than $68.9 million, in off-premise retailer accounts tracked by market research firm IRI. LaLonde attributed those declines to the launch of three of Deschutes’ core offerings in cans not performing as well as forecasted.

However, through the first two months of 2019, Deschutes has rebounded. LaLonde said improved trends are being driven by growing sales of Fresh Haze — a New England-style IPA that launched in late 2018 and is now the company’s fourth best-selling beer behind flagship Fresh Squeezed IPA (which accounts for 30 percent of the company’s volume) — Black Butte Porter and Mirror Pond Pale Ale.

According to IRI, off-premise dollar sales of Deschutes’ offerings are up 2.4 percent, to more than $9.5 million, through February 24. Although the company’s volume sales were nearly flat (-0.1 percent), its price per case is up $1.01 year-over-year, to $40.52. Dollar and volume sales of flagship Fresh Squeezed IPA are also up 3.3 and 3.8 percent, respectively, in the two-month period.

LaLonde said Deschutes is projecting about 3 percent growth in 2019. To help stoke growth, the company will launch two additional year-round products: Lil’ Squeezy, a gluten-reduced 5 percent ABV “juicy ale” in June, and HandUp, a 6.5 percent West Coast IPA in the fall. Deschutes is also releasing refreshed packaging for its offerings, with the full portfolio of rebranded labels rolling out this month.

As for Deschutes’ stalled East Coast brewery project, LaLonde said the company will provide a “general plan” to the city of Roanoke this year. However, he said it does not have “an exact date” for the project, which the company once expected to cost $95 million and include the construction of a large-scale manufacturing and packaging facility.

“It really depends on performance and being financially healthy to take a huge capital investment,” he said. “It would be the biggest investment that we’d ever made in our business, and we just take that seriously. So we want to make sure that we’re extremely healthy before we launch a project of that size.”

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