Non-Alc Brands Look to Create a Category Around Hops

When Hoplark HopTea took the stage during BevNET Live’s New Beverage Showdown 16 in December 2018, founder and CEO Dean Eberhardt said he believed he was helping to found a new category for non-alcoholic hops-infused beverages. Three years later, the industry seems to finally be catching up.

This nascent space has seen an influx of innovation within the past two years, including startups such as HOP WTR, Aurora Superior Sparkling Beverages and Oregon Hop Springs, as well as offerings from beer brewers like Urban Chestnut Brewing Company’s Hop Water and Snake River Brewing’s Snake River Seltzer. Meanwhile, Proper Beverage Co. has launched a Hop Soda as part of a broader line of soft drinks. Even non-alcoholic beer brewers have gotten on board with the trend; in January, Athletic Brewing Co. launched Daypack, a line of seltzers made with hops.

Largest of all, Heineken-owned Lagunitas Brewing Company has helped knock down barriers to entry for these smaller companies with its Hoppy Refresher, an IPA-styled beverage made without yeast or alcohol, while Molson Coors Beverage Company last year continued its non-alc portfolio expansion with the launch of Canada-exclusive hop-infused sparkling water Vyne Botanicals.

As consumers — particularly millennials and Gen Z — reduce their alcohol intake, the market for alternatives has begun to take off. In turn, the industry has seen a bevy of innovation from zero proof spirits and mocktails, as well as an uptick in non-alcoholic beer. According to market research firm IRI, non-alcoholic beer grew 37.7% year-over-year to $188.2 million in the 52 week period ending December 27. The category’s growth has been helped in particular by brands like Athletic, which have produced higher quality products than past NA beers; the company pulled in $17.5 million in a Series B funding round last year, bringing its total financing to $21 million.

Even products in traditionally non-alcoholic categories, such as canned water Liquid Death, have jumped on the trend through packaging innovations that invoke the aesthetics of beer for social consumption.

Beyond the non-alcoholic occasion, these new hop-infused beverages represent a blurring of category lines. While some brands welcome an association with beer, even targeting liquor stores and non-alc beer sets in retail, others have sought to define themselves differently. HopTea, for example, has positioned itself on shelf among other iced teas. But even the most differentiated brands still accept the traditional association between hops and beer, and recognize an opportunity to make the best of both worlds.

“The craft beer industry has done a ton of education on the flavor profile that we’re dialing in, so there’s just a massive amount of customer interest in what we’re doing,” Eberhardt said. “It’s been really fun to watch that grow over the years.”

Hops Begin Brewing

In 2014, four years before HopTea would enter the market, former Monster Energy brand manager Paul Tecker introduced his hop-infused sparkling water, called H2OPS, at a small craft beer festival in San Francisco. Tecker, an avid home brewing enthusiast, said the idea for a non-beer hops beverage came to him as a “Eureka” moment after experimenting with leftover ingredients from his garden.

H2OPS presentation is simple: The drinks are brewed with whole hops, sold in 12 oz. green glass bottles (recalling certain light beer brands) and for years were offered in only a single unflavored variety. More recently, the brand has added Mango and Grapefruit additions to its product portfolio, which retails for $1.99 per unit.

“It’s really about health and wellness,” Tecker said. “It’s not so much about prohibition or being anti-alcohol, it’s just more about being pro-health, wanting to get a better night’s sleep and being part of a healthy, active lifestyle.”

H2OPS initially launched in Southern California in natural channel retailers such as Whole Foods, as well as in on-premise accounts where Tecker said the brand encouraged bartenders to promote the brand as both an option for designated drivers (and other non-drinkers), and as an end of the night refresher for consumers who had already had their share of beer. That versatility is particularly relevant at the moment; about 20% of U.S. drinkers participated in Dry January, while roughly 60-65% of millennials say they are drinking less, he said, citing internal data.

“A lot of our customers drink alcoholic beer, but it’s an occasion play, so they can enjoy it during the week, they can drink it at lunchtime during work or other occasions when they’re not drinking beer,” Tecker said.

The space has evolved significantly in the past seven years, Tecker noted. In addition to expanding its retail presence, H2OPS has now launched direct-to-consumer and on Amazon. He noted that the entrance of Heineken and Molson Coors into the space has created a rising tide for brands like H2OPS and done a lot of work to educate consumers on the concept. He said the leadership of major breweries also confirms that hops beverages are emerging as their own category with mainstream potential.

Colorado-based HopTea has similarly seen its business boom over the past year. According to Eberhardt, the brand said its total 2020 sales were 85x its 2018 sales, and that its sales from the past 60 days were up 50 percent over the 60 days before that. The company now has 35 full-time employees, including workers in its brewery (which recently doubled its capacity to 30,000 barrels), and is expecting to double its retail footprint with an additional 2,000 doors nationwide over the next two months.

Like H2OPS, much of HopTea’s early brand building focused on sampling at craft beer events and taking its key design cues — from its 16 oz. tallboy cans to its ever-shifting hop variety flavor profile — from that category. But HopTea has also toed a fine line in terms of category; in retail, it competes in the iced tea set and Eberhardt has long rejected the idea that the company needs to “pick a lane.” The brand also avoids callouts to sobriety in its marketing while emphasizing a full flavor that makes it satisfying to craft beer fans who may not necessarily be seeking out a non-alcoholic beer. On paper, HopTea appears to be full of contradictory messaging, but in practice Eberhardt said the company has easily educated consumers and retailers while tapping into a clear demand for refreshing, alternative beverages.

“The magic here is not that it’s a niche brand,” Eberhardt said. “It’s a niche brand directly adjacent to a $30 billion per year craft beer market, and not directly adjacent to a $250 million per year [non-alc] beer market.”

The product also has additional functionality — several flavors are caffeinated, a trait that has pushed consumption earlier in the day, Eberhardt said.

According to Eberhardt, positioning the brand as a tea has also been key to its place in retail. At a premium price point (about $3-$4 per can), HopTea has an easier time “latching on” to the tea category by convincing both buyers and consumers that the product is worth the higher cost. Conversely, hop waters must compete with other bottled and sparkling waters, which at value can sell for under a dollar per unit.

“I suspect [the category is] going to gravitate to the NA beer set to be honest, if you watch Lagunitas with their Hoppy Refreshers they’re only in the NA set and I think that’s probably the right path,” he said. “But we’ve seen the consumer behavior and our product isn’t exactly a beer replacement. It’s way more a really, really great thing to drink when you’re not drinking beer, and that could be a coffee replacement, a Spindrift replacement, a tea replacement any time of day.”

One non-alc beer player, however, is looking to use hops-infused sparkling waters as a way to expand outside of its current shelf. Athletic Brewing Co. this year debuted its Daypack line of seltzers made with hops, available in Black Cherry, Blood Orange, Lemon Lime and Mango flavors. According to co-founder Bill Shufelt, positioning the seltzers as a product outside of beer was pivotal to the brand expanding its audience.

“Beer and alcohol fits into such specific days of the week and hours of those days,” Shufelt said. “It’s really like 5% of life. The whole alcohol world is fighting over 5% of life’s occasions.”

Even though Athletic’s core beer offerings may not be intoxicating, the beverages are still constrained by limited occasion, prompting the company to introduce Daypack as a means of providing consumers with an anytime option. Launched online, Shufelt said the product’s initial sales came from existing Athletic consumers, but have already begun drawing in new customers for the brand.

Non-alc beer, for example, is still not a product consumers want to drink in the morning, whereas HopTea has discovered its caffeinated products are a popular start-the-day beverage with their consumers. Likewise, Athletic believes the category distinctions still matter in regards to social stigma and consumer preferences.

Less than two months into its launch, Daypack is already representing 10% of Athletic’s overall sales, Shufelt said. The line also plays in tandem with its core products, he noted, adding that Daypack may be a way to bring more consumers back into the beer aisle.

“Our goal is to meet people in other aisles of the store who aren’t going to the beer aisle,” he said. “So they can then look at the cans and be like, ‘Oh, it’s from Athletic Brewing Company’ and try out our other products. All of a sudden, we’re having people from other aisles of the store shopping in the beer aisle and then new consumers coming into the beer world that way.”

Innovation and Competition

Though it did not specifically mention hops, Flavorman reported in its ‘2021 Top Flavor Trends’ this year that sensation-forward “flavors that tingle” are among the most requested and popular new products. The trend, which includes spicy flavors like cayenne, has also extended into more requests for alcohol-based flavors, such as whiskey, gin and tequila, for non-alc innovations — a development timed well to the rise of mocktails and non-alc spirit brands. As well, global flavor supplier Kerry noted hops as an emerging ingredient trend for water and cold beverages in its 2021 Taste Chart analyzing the U.S. marketplace, meaning it is among the 20 fastest growing flavors in the last year.

Many of these new hops-infused products have taken the form of sparkling waters or related products. The trend comes as sparkling water has continued to grow its presence in mainstream channels as a low-to-zero calorie alternative to sugary soft drinks. According to market research firm Nielsen, the sparkling flavored water category grew 22.8% to $3.3 billion in the 52-week period ending February 20. In that same timeframe, the market for hard seltzer has seen explosive growth, up 146.6% to $3.8 billion. Sales for hard seltzer have decelerated somewhat over the past year, the category was up 82.1% in the two-week period.

These hops-infused beverages however, even when compared to the smaller non-alcoholic beer category, are just entering the marketplace and are still working to introduce consumers to the concept. But that doesn’t mean that the founders behind these companies aren’t thinking big.

HOP WTR is the first retail CPG venture for co-founder and CEO Nick Taranto, who previously founded and exited meal kit brand Plated, which was sold to Albertsons for $200 million in 2017. According to Taranto, the idea came from his own need to do away with a nightly craft beer routine and adopt a healthier lifestyle.

“Two years ago, I was out here in Southern California, where I live, and I found myself, quite honestly, just drinking way too much beer,” Taranto said. “I was having two to three IPAs a day, and I’m in my mid 30s. I put on 20 pounds in a matter of months and I’ve got two young kids at home and was just not setting a very good example for them. So I realized I had to make a change and that I had built a pretty bad habit.”

HOP WTR is available in Classic (IPA style), Blood Orange and Mango flavors. Each 12 oz. cans contains zero calories and includes added adaptogens and nootropics. As Taranto explains, the decision to include nootropics was made to give the beverage an extra functional benefit that could mirror the “functionality” of alcohol by offering the consumer a heightened mental state.

The company ran an internal survey last year of about 2,000 adults of drinking age and found that over the past year, due to the added stress of COVID-19 and the move to a work from home culture, over half of the respondents said they stopped work early on some days to have an alcoholic beverage. Taranto said HOP WTR is now targeting those very consumers by emphasizing the drink’s health benefits.

HOP WTR co-founder and chief sales officer David Vartanian said the brand made over $400,000 in dollar sales through ecommerce in January. Vartanian, formerly the senior director of category management covering convenience, liquor and military channels for Anheuser-Busch InBev, noted that HOP WTR is aiming to lean into the blurring of category lines that is happening throughout the beverage industry.

Outside of hops, alcohol giants have been working to expand their non-alc beverage portfolios from AB InBev’s Beyond Beer division to the rebranding of MillerCoors to Molson Coors Beverage Company and its slate of new innovations and brand partnerships that have quickly given it a stake in the broader beverage industry. Inversely, Vartanian noted, non-alc conglomerates have begun embracing alcohol, such as The Coca-Cola Company’s recent announcement of a Topo Chico branded hard seltzer and Bang Energy’s intentions to release a similar product in the coming months.

“Alc wants to be non-alc, and non-alc wants to be alc,” Vartanian said. “I truly believe the one that wins, and is able to do it the best and is able to get significant shelf space in the other person’s section of the store, will really win. And what I mean by that is if I’m a major strategic, that’s an alcohol company, and I’m able to come to the come to a retailer with a full non-alc portfolio or a significant ones that sizeable, I now potentially could be drawing the planogram for the entire cold vault.”

HOP WTR, he said, is happy to place itself right in the middle of this shift. The brand is focused on finding placement in the non-alcoholic beer set in both the conventional and liquor channels, though it is still technically categorized as sparkling water. Taranto said he sees HOP WTR as a potentially “multi-billion dollar brand” that he hopes will be the ultimate leader in the hops space.

For HopTea and H2OPS, they see the fresh competition as a good thing.

“The most exciting thing is that we have a legitimate competitor in the HOP WTR brand. I’m stoked about having a reasonably fast follower that’s going to push us to be better,” Eberhardt said.

While HOP WTR is gunning directly for the beer occasion, another new functional, hop-infused drink brand is aiming to tap into the market for mocktails with its own botanical drink. Oregon-based Aurora Superior Sparkling Beverages launched in 2019 with a line of CBD-infused drinks, but its latest offering, Aurora Hops, removes the hemp in order to have a product line that operates under a clearer set of regulations than those covering CBD.

Aurora Hops features Pomelo Sage (containing citra hops) and Yuzu Orange Blossom (mosaic and citra hops) flavors and retails for $12 per 4-pack of 11.2 oz. bottles. Though the drinks use hops primarily for its flavor profile, the company is leaning into the ingredients’ health benefits by calling out hops as a ‘nervine adaptogen’ and promoting their ability to reduce anxiety and promote a sense of calm.

Aurora founder and CEO Victoria Pustynsky said the drink was inspired by spritzes and noted her own background in wine and spirits (including roles at Suntory, Moet Hennessy USA and Winebow) helped drive the new line’s positioning. Launched last month, Aurora Hops currently competes in the functional beverage set in natural and specialty channel retailers and is sold online.

“[Hops are] something that’s familiar enough so people know it and this is an opportunity to showcase its versatility in a way that it hasn’t necessarily been shown before,” Pustynsky said. “People know it as an IPA bittering agent and I just think there’s room to express it differently.”

Like other non-alc hop players, Pustynsky sees the category emerging in real time, but for Aurora she said the brand will continue to compete in a separate part of the store. Even as retailers build out NA beer sets that include products like HOP WTR, Aurora will continue to carve out space among functional beverages, both with its CBD and its hops line. As well, the company eventually aims to launch a THC-infused product which will give the company three pillars to work from.

“Is Athletic Brewing within our set? For me, I don’t think so,” she said. “I don’t think that our consumer is going for that.”

For Shufelt, playing in multiple parts of the store will likely be an important part of Athletic’s strategy going forward, even as retailers build out the NA sets. While hop-infused brands that hew closer to beer may ultimately live in the beer aisle, he believes products like Daypack and HopTea are differentiated enough that they should stay outside of the space.

But as this category emerges, led in tandem by startups and conglomerates, definitions will become a necessity, both for buyers and consumers. While some companies feel it best to play in different areas of the store, for brands like HOP WTR the association with beer could be the category’s biggest asset.

“Wherever beer is sold, we should be right there,” Taranto said.