Approximately 1% of Americans have celiac disease, a condition that causes the body to attack itself when gluten is consumed. This means that there are approximately 3.2 million consumers who can't drink traditional beer. In addition, some people choose not to consume the substance for health reasons, leading to a lucrative gluten-free market. Several brewers, including Craft Brew Alliance (CBA) (NASDAQ:BREW), Boston Beer Company (NYSE:SAM), and Anheuser-Busch (NYSE:BUD) have developed alternatives that can be sold to people who can't or choose not to consume gluten.
Gluten be gone
Brewers have found a challenge in creating tasty beer without gluten. CBA has Omission, a beer with the gluten removed, and Busch has Redbridge, a beer made from sorghum.
Because Omission is still made with barley, Omission isn't technically "gluten free." Still, the beer meets the FDA standards for gluten-free beverages. The beer has also been awarded the Celiac Sprue Association's recognition seal after passing a stringent gluten detection test. Omission has made a large impact in CBA's business with shipments to retailers growing 155% in 2013. It also has 31% of the gluten free beer market, where it drove 91% of the categories growth.
Redbridge is the first nationally available gluten-free beer made from sorghum, a safe grain for those allergic to wheat or gluten. Between the two brands, Redbridge has the lowest score on Beer Advocate with a 64 compared to Omission's three beers that score from 79 to 74. While Redbridge is truly gluten free, it doesn't seem to taste as good to beer drinkers.
Brewers have also found success in beer alternatives like Boston Beer's Angry Orchard Cider. Angry Orchard was launched in 2011, achieved national distribution in 2012, and became the largest-selling cider in the U.S. in 2013. While hard cider only makes up an estimated 1% of the beer drinking market, it grew 100% during 2013 and is increasing in popularity among women and young drinkers. Angry Orchard sales helped drive Boston Beer's 23% depletion increase for 2013.
Busch and ABI also have respective ciders. Busch has plans to launch Johnny Appleseed Cider in 2014 and currently produces Stella Artois "Cidre" and Michelob Ultra Cider brands. ABI has taken a more conservative approach to launching its cider brand, Square Mile Cider. Square Mile is available in ten states and comes in a six pack of 12-ounce bottles.
When asked about Square Mile's expansion plans for 2014, CEO Andy Thomas said, "We see explosive growth in cider just like you guys do. But what we are also mindful of is right now it's becoming a very crowded category rapidly and is becoming a little bit of a battle of the titans again where you've got Boston with Angry coming out, A-B is adding Johnny Appleseed already to the fight with Stella Cidre." CBI is a small company compared to Busch and Boston Beer and has decided to let the cider waters calm before hopping in full force.
2014 is shaping up to be a big year for hard cider, and I expect Angry Orchard to continue its strong growth.
The rise of alternatives
Gluten-free lifestyles have become more prevalent in the U.S. and brewers have begun taking advantage of the new market. The hard cider and gluten-free beer segments are growing rapidly, and they will become more influential in companies' bottom lines in the years to come. In a time when traditional beer markets are shrinking, specialty and alternative brews are what brewers need to further growth in the future.
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Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Boston Beer. The Motley Fool owns shares of Boston Beer. 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.