If the constitution of a drinks category is judged by the nature of deals it attracts, then alcohol-free is currently in the rudest of health.
In late August, Pernod Ricard announced the acquisition of a minority stake in Lewis Hamilton’s agave brand, Almavé; Diageo bought the US-based AF spirit Ritual Zero Proof; and LVMH took a share of non-alc sparkling brand French Bloom.
“Alcohol is in decline and the big alcoholic drinks companies need to future-proof their business,” says Emma Wykes, Founding Partner at Pollen Projects. Wykes should know. She was COO of Seedlip — seen by many as the first modern alc-free brand — when Diageo bought it in 2019.
Plenty of investment
Certainly, there’s no shortage of money flowing into the sector. Earlier in the summer, the US-based Athletic Brewing announced a $50m fund-raising round; a war chest to boost its expansion in Canada and Europe.
Sales of Guinness 0.0% doubled in Europe in the year to June, while the world’s oldest brewer, Weihenstephan, says non-alc now accounts for 10% of its volume.
Even established names in otherwise struggling categories are feeding on the riches. Eisberg, one of the oldest alcohol-free brands has seen a ten-year growth of 43% in its home market and more than 150% in the UK, against an alcoholic wine market that is flat or declining.
The big alcohol drinks producers are, essentially, jumping on the back of a trend that started a decade ago, was turbocharged during Covid and is now well established.
Older drinkers cut back alcohol to preserve physical health, while for younger ones it’s more about mental health and an active lifestyle. But the direction of travel is clear.
Market research group KAM’s annual report into the UK alcohol-free market shows that all age groups are drinking alcohol less frequently and less alcohol in total. While there are a growing number of non-drinkers (particularly among Gen Z) the big shift has been in existing drinkers of alcohol cutting down.
The rationale might vary by demographic — older drinkers cut back alcohol to preserve physical health, while for younger ones it’s more about mental health and an active lifestyle. But the direction of travel is clear, multi-generational and, broadly speaking, global.
“Moderation,” the KAM report concludes, “is now a changed behaviour, not a fad.” And it’s set to continue. Drinks market analysts the IWSR predict the non-alc category will grow at 5% a year for the next five years.
The drinks are getting better
The growing openness to alcohol-free drinks has been driven at least in part by technical improvements in the products.
“The latest AF drinks are way better than the first iteration of the modern AF era,” says Chrissie Parkinson, an alcohol-free consultant, and head of judging at the World Alcohol-Free Awards. “Earlier drinks were notorious for faults, but ongoing product developments have ironed out these problems.”
Morten Sorenson at Danish alc-free spirit producer ISH says their success lies in “closing the flavour gap between alcoholic and non-alcoholic drinks”.
Trial is often key to winning over the sceptics. In the US, Athletic Brewing has spent millions of dollars since its launch in 2018 on destigmatizing alcohol-free beer and positioning it as a brand for anyone looking to moderate their consumption, rather than non-drinkers.
“Tasting really is believing,” says Senior Communications Manager, Chris Furnari, adding that the brand will “continue to invest in sampling and consumer education.”
It’s not all smooth sailing
While it’s true that the alcohol-free industry is being lifted by an inexorably rising tide of social change, the journey is not stress-free. Alcohol-free boomed during Covid, which meant that, uniquely amongst drinks categories, it was founded on direct-to-consumer online sales, rather than hospitality or retail. Both these traditional channels are proving difficult.
Dozens of dedicated alcohol-free stores have sprung up since the pandemic, but the last 12 months have seen a number of closures. The most high-profile was Boisson in the US, which went into administration in April this year, closing six sites, six months after receiving $5m from Pernod Ricard and Connect Ventures. It has since relaunched as an importer/distributor and online retailer, with no bricks and mortar stores.
Mass-market retail — still the principal recruitment channel — is proving difficult for alcohol-free. Supermarkets have been hesitant to allocate significant shelf space to the category, and are often uncertain how to present it. Research commissioned by Diageo in 2022 found that seven in ten shoppers found it hard to locate alcohol-free drinks.
The alcohol-free industry is being lifted by an inexorably rising tide of social change, the journey is not stress-free. Mass-market retail — still the principal recruitment channel — is proving difficult for alcohol-free.
Space and signage have improved, but other problems remain. While the general public might be looking to moderate their alcohol consumption, this does not necessarily translate into buying alcohol-free. Shopper penetration is relatively low.
“It’s not just visibility at the point of purchase [that’s the problem],” says category strategy expert Kate Blake. “There’s something much bigger than that concerning an awareness of the choices people are making. Retailers shelves aren't elastic,” Blake continues. “Retailers and suppliers need to work together to drive rate of sale to secure additional future space for the category.”
If consumers’ enthusiasm for moderation does not translate into regular purchases of alcohol-free drinks, shelf space will not increase. And with hundreds of new alcohol-free brands launching every year, that creates an obvious pinch point.
Bars have problems, too
The situation in the on-trade is, if anything, even more challenging. Specialist alcohol-free bars have found the market as difficult as their retail counterparts, while general hospitality has been in survival mode since the pandemic. Few non-specialist venues are looking to put time and energy into an enhanced alcohol-free offering.
Ironically, doing so could make compelling business sense. Partly because the sub-35s who drink out the most often are also the most likely to be looking for alcohol-free options, but also because offering a strong range of alcohol-free alternatives increases dwell time for alcohol drinkers who are moderating their consumption.
The KAM report estimates that a sub-standard alcohol-free offering lost UK venues £800m of potential spend last year, though the beer offering, at least, is better developed in markets such as Spain and Germany.
“Every pub needs to have an alcohol-free beer on draught,” says Heineken’s Jo Dring. “It needs to be the norm.”
More education required
There are further issues facing the nascent alcohol-free industry. Definitions of the category itself remain confused (and confusing), though there is a gradual global coalescence around the terms ‘alcohol-free’ and ‘non-alcoholic’ for 0.5% abv and below.
Consumers are often unhappy with the price of alcohol-free alternatives. “They don’t care that it’s more expensive to make."
Buying roles in retail are also unclear, with the category often falling under the remit of both soft drinks and alcohol category buyers. The growth of functional drinks (with energising or calming properties) and adult sodas is likely to muddy the waters further.
Consumers, too, are often unhappy with the price of alcohol-free alternatives. “They don’t care that it’s more expensive to make,” sighed one exasperated producer. “They just see it as ‘less than’ alcohol’ and think it should be cheaper.”
There is, clearly, an educational job to be done, to pull in more consumers and make them category regulars, rather than occasional experimenters. Structurally, businesses set up for alcohol are not always finding it easy to accommodate a category that barely existed five years ago.
It’s also true that not all the businesses and brands set up in a wave of optimism post-Covid will survive into the 2030s.
Yet the direction of travel towards drinking less alcohol seems inexorable. The industry may be facing teething troubles, but it is guaranteed to be significantly bigger in five years than it is now — as the boards at Diageo, Pernod Ricard, and LVMH know all too.
Chris Losh is co-founder of the World Alcohol-Free Awards.
