A Deep Dive from Listen: Non-Alcoholic Market

• Drinking culture is shifting to conscious consumption – it’s not about full sobriety, it’s about moderation
• The market is red hot and while it’s largely driven by new entrants, Big Alcohol wants a piece of the pie
• The audience goes beyond the typical Gen Z / Millennial “health-focused” consumer archetype
• Mood modulating products aim to replace alcohol with another feeling, but jury is still out on whether consumers prefer them
• To win, drinks need to taste good, excite the customer, and fulfill the social occasion without sacrifice

Nearly 1 in 5 adults in the US planned to cut out alcohol as part of Dry January (source), but most did so in the spirit of cutting back not cutting out, leveraging the pause to reassess their relationship to alcohol. While January is long gone, the movement has had a lasting impact, as 52% of adults in the US say they’re trying to drink less, while 30% don’t drink at all (source).

Drinking culture is shifting to mindful consumption — consumers are drinking less and more conscious of their alcohol choices than ever before. Mark Meek, CEO of London-based IWSR Drinks Market Analysis, recently said “What we’re seeing is a moderation trend … bringing with it increased demand for reduced alcohol, or alcohol-free drinks.” It’s no longer only about full abstinence, it’s also about sober curiosity. IWSR found that 58% of those who consume low- and no-beverages switch between alcoholic and low and no drinks within the same occasion. This phenomenon, described as “zebra-striping,” a term coined by Optimist Drinks co-founders Tom and Lisa Johnstone, is becoming more popular.

Not only that, the way we socialize has transformed, fueled by pandemic lockdowns. Drunken late nights at the bar are out and intimate gatherings focused on connection are in — and with it comes less pressure to drink. While we’re not ready to declare the death of the club, we are seeing young people frequently choose a meaningful night in with friends over a wild night out surrounded by strangers.

In her book Sober Curious, author Ruby Warrington says she believes reduced alcohol intake “is the next logical step in the wellness revolution.” Ruby points out the absurdity of consumers filling their day with wellness-enriching activities such as exercise, meditation, and a green juice followed by a night of drowning our livers with alcohol.

In fact, the broader low ABV / non-alcoholic market is slated to grow 10 times more quickly than the alcoholic industry in certain markets (source), and the non-alcoholic market alone is expected to grow 31% in the next two years as more consumers adopt a new approach to drinking (source).

Accordingly, we have seen a rise in the number of non-alcoholic bars, e-commerce and non-alcoholic retail shops catering to this new modern drinker, from Spirited Away and Boisson in New York to Sans Bar in Austin and Awake in Denver.

Even more exciting: we’re also seeing culturally influential restaurants and bars embracing the sober-curious crowd, with spirit-free cocktails popping up on menus from 3-Michelin-Star Eleven Madison Park to the iconic Death & Co, which features an entire selection of NA drinks on its cocktail menu. Cheers to that!

As a flurry of new startups enter the space, it’s no surprise the alcohol giants have taken note, with companies like AB InBev announcing that it wants its portfolio to be 20% non-alcoholic by 2025, and others launching their own non-alcoholic SKUs. With more strategics actively monitoring and investing in the non-alcoholic category, the space is ripe for rich M&A over the next few years. A timeline of activity includes:

• In 2019, Diageo acquired a majority stake in Seedlip, a UK-based no-alc spirit, after a minority investment in 2016.
• In 2019, Pernod Ricard began distributing Ceder’s, a non-alcoholic gin, and Celtic Soul, a non-alcoholic “dark spirit.”
• In 2020, Constellation Brands partnered with Canopy Growth, the world’s largest cannabis company, to release a lineup of beverages containing low doses of THC and CBD.
• In 2020, Distill Ventures, backed by Diageo, invested in Ritual, a US-based spiritless whiskey and gin-maker.

A few examples of the products launched by Big Alcohol include:

• Guinness 0.0
• Heineken 0.0
• Lagunitas IPNA
• Samuel Adams Just the Haze

“As part of our strategy, we’re stepping further into the low- and no-alcohol category, which we believe is ripe for innovation as more drinkers globally look to moderate their consumption. We also believe it’s our responsibility to help reduce harmful drinking and support moderation.”

Kandy Anand, Molson Coors’ Chief Growth Officer

The non-alcoholic beverage market is a category the Listen team has actively researched, closely aligning within Listen’s “Better You” Thesis, which has driven investments such as Dame, Rise Gardens, and Factor. Our team recently conducted audience research to unpack our initial hypothesis on the no-alc market and develop consumer-driven insights. Broadly speaking, we knew that Gen Zs and Millennials were driving the category with their increased focus on wellness. Hannah Anokye from our Listener team recently conducted audience research to unpack our initial hypotheses on the no-alc market and develop consumer-driven insights.

However, her research revealed three unique personas to represent those who have incorporated NA drinks into their lifestyle:

• Socially Conscious Sushma: Sushma often finds herself in social or professional settings that call for drinking alcohol and likes to hide in plain sight. This individual doesn’t drink, but wants to feel included in the drinking experience without feeling any different from others.
• Mature Matthew: Growing up, having kids and other life changes have lowered his tolerance and amplified his hangovers. Most of his friends are in similar life stages so he’s looking for ways to cut back and take control of his health.
• Hostess Heather: With several friends who don’t drink due to religious and personal reasons, Heather, ever the host, likes to stock up on non-alc spirits to get creative with mocktails. For her, not having alcohol around is a much better approach to life.

To better illustrate the flurry of activity in the space, we created a market map of key players in the industry segmented into four key categories: Non-Alcoholic Spirits, Beer, Wine and RTD Mocktails.

Included in this map are brands that offer product lines across several categories; we’ve categorized them below based on the product line they are most known for. Examples include: Ghia, CleanCo and Kin Euphorics.

Within the broader non-alcoholic beverage category, there are two key trends in product strategy. One is products that aim to be alcohol’s better looking twin: all of the fun without any of the downside by replicating the same experience and taste. The other strategy, which is increasingly popular, is swapping alcohol for functional ingredients to deliver a new experience outside of the framework of alcohol but within the same occasion. These beverages aim to reduce stress/anxiety, improve sleep and enhance mood through the use of key ingredients.

Examples of ingredients with benefits include:

• Cannabis, including CBD and THC
• Adaptogens, such as Ashwagandha and Reishi
• Nootropics, such as GABA, 5-HTP, Caffeine and L Theanine
• Vitamins, such as Vitamin D (found in Corona’s Sunbrew)

Most functional ingredients, such as ashwagandha or CBD, are what we lovingly refer to as “mood modulators,” at Listen — functional ingredients that offer alternative feelings to alcohol, while other ingredients are designed to support aspects of health like immunity or gut health.

One key learning of Listen’s audience research was that function was less important to consumers than flavor when selecting a non-alcoholic beverage. While the verdict is still out on whether a “feeling” is preferred, our research (and the market) has shown that consumers are at least interested in exploring an alcohol alternative with functional ingredients.

1) Non-Alcoholic Spirits

Consumers are bored with basic mocktails; they want all the intrigue and flavor of a quality cocktail minus the alcohol. Fortunately, this new wave of non-alcoholic spirits offers bartenders the flexibility and creativity to craft playful and inventive mocktails beyond virgin versions of classic serves. We see that shift reflected in the category’s massive growth — despite limited distribution opportunities in bars and restaurants due to the pandemic, non-alcoholic spirits grew a whopping 113.4% YoY from 2020 to 2021 (source).

A few companies to watch in this category include: Amass, Ghia, Optimist Drinks, Tenneyson and Three Spirit.

2) RTDs / Canned Mocktails

RTD mocktails are an easy swap for sober-curious drinkers, they have all of the sociability of their alcoholic counterparts — they’re convenient, travel-friendly and made for celebrations and moments with others — without any of the downside. Given the rise in popularity of RTD cocktails, with the market slated to reach $13.4B by 2028 (source), it’s no surprise then that the demand for canned mocktails has also increased.

Some brands to highlight in this category include Cann, De Soi, Happi, Hiyo, ISH Spirits, Kin Euphorics, and Marz Brewing.

3) Non-Alcoholic Beer

Non-alcoholic beer was an early winner in the non-alcoholic beverage market. This makes sense: beer is naturally low ABV and the key values driving consumption, i.e. flavor and sociability, are not lost via non-alcoholic beers. Our research showed that while consumers had an affinity towards standalone NA beverages like beer, it is also held to higher standards that can be hard to deliver against. Looking to the future, while we expect NA beer options to expand further, the category’s growth is low relative to other categories with 31.7% sales growth YoY vs. 113.4% YoY in spirits. (source)

Examples of non-alcoholic beers in the market include Athletic Brewing Company, Al’s Beer, Partake Brewing, Heaps Normal and Lucky Saint.

4) Non-Alcoholic Wine

Wine is ceremonial, made to enhance social and food moments and often enjoyed at a celebration, around the dinner table with friends or paired with a delicious meal at a restaurant. By honoring ritual over ABV, non-alcoholic wine can capture the feelings consumers crave. While many NA wine alternatives aim to replicate the taste and sensation of wine, others craft novel flavors designed to fulfill wine occasions and please even the pickiest palates. The NA wine category is growing rapidly, with a 39.4% sales lift (source) YoY, and will continue to expand as both incumbent wineries and new entrants try to capture the market.

A few companies in this category include Acid League, Proteau, Surely Wine, TÖST, and Noughty.

To find the winners in the space, we’re looking for brands that deliver on:

On-Premise Relationships: Consider this analogy: Coffee shops already offered alternative milks (i.e. soy milk) on the menu when Oatly entered the US scene but oat milk took over because 1) it was a superior product to other alt milks 2) the mass consumer finally chose alt milks over cow’s milk. Oatly’s strategy to drive demand? Targeting modern coffee shops and making baristas their biggest brand advocates. We’re excited to see beverage brands take a similar approach, securing inclusion on cocktail menus at culturally influential restaurants/bars and making bartenders their brand evangelists.

In fact, over the last year, there was a 315% increase in online non-alcoholic and low-alcoholic beverage sales (source). While ecommerce can drive purchase behavior, shipping liquid is expensive and driving trial can be challenging. Retail is still an exciting unlock to growth — product discovery is more organic and more fun in an in-person shopping experience. It’s also never been a more exciting time for NA beverages in physical retail – there are several new non-alcoholic stores popping up and the category is finally getting much-deserved shelf space in grocery.

Innovative Product Platform: Beyond the success of an initial product line, the brand’s product roadmap should include innovative beverages that enable it to develop into a platform brand ⁠— enabling broader appeal to consumers seeking no-alc options to fulfill taste and form preferences, such as RTDs, aperitifs, no-alc wines/beers, and more.

Fulfilling Occasion and Experience: Consuming non-alcoholic beverages doesn’t have to be about full abstinence, it can be about pleasure and feeling good. Drinks need to excite the customer, fulfill the social occasion and promote good feelings — without sacrifice. A key to that? Offering spirit-free cocktails and NA beverages at price parity to alcohol, reinforcing that nothing is lost to the consumer experience sans alcohol. Our research also showed that packaging and brand assets are crucial for first impressions. NA brands need to strike a balance with perception: clarity that the product is non-alcoholic while still resembling alcoholic beverages in form and presentation.

If you are building a brand in the non-alcoholic beverage category or within the broader better-for-you food and beverage landscape, let’s chat! You can reach me @amirakkhatib on Twitter.

And if you want to hear more about the ethnographic research that supported this analysis, you can reach Hannah here on LinkedIn.