"We already had plans to enter the zero-alcohol beer market," said Graeme Harlow, managing director of Diageo. "After the ban came in, essentially it made it even more important."
UK-based Diageo has around 15 per cent of the Indonesian beer market, which until last year was the world's fifth-biggest market for Guinness with annual sales of around 400,000 hectolitres.
Since the ban, sales of Guinness and Diageo's other alcoholic beverages have fallen 40 per cent year-on-year, said Mr Harlow, as the number of outlets across the archipelago carrying the beer has shrunk from around 70,000 to just 40,000.
The company blamed the new Indonesia restrictions as it reported a 28 per cent decline in net sales in Southeast Asia for the year that ended in June, even as Asia Pacific sales rose 64 per cent year on year to £2.2bn.
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Guinness Zero, marketed with the tagline, "bold taste, zero alcohol", is aimed at much the same consumers as the regular Guinness brew — for instance, men looking for a "masculine" drink while avoiding alcohol in a society where drinking is often taboo, said Mr Harlow.
Diageo has introduced alcohol-free drinks under other names elsewhere, as Kaliber in the UK and Malta in Nigeria, but its aim in Indonesia is to keep the Guinness label prominent in popular minimarkets.
"We wanted it to be Guinness-branded and we wanted the product to be distinctively Guinness," Mr Harlow said. He said there are no plans to roll out Guinness Zero beyond Indonesia.
Diageo's shift brings it into line with Indonesia's other major beer producer, Multi Bintang — majority-owned by Dutch brewer Heineken — which already sells two popular alcohol-free drinks.