Key Takeaways

• The ongoing trend of mindful drinking and the inclination of youngsters towards healthy drinking habits are expected to drive the growth of the low alcoholic beverage market.
• Currently, the market for no/low alcoholic beverages is small at less than 5% household penetration. However, opportunities are available as the industry now represents $3.1 billion in sales.
• According to Igor Parshin of Givaudan, the low alcohol industry caters to a wide audience, occasion, and desires and innovations should be targeted towards sub-groups accordingly.

Introduction

The low alcohol beverage industry

• Low-alcohol beverages are becoming popular as an increasing number of consumers lean towards a more moderate, sober-conscious approach to drinking.
• Currently, no/low beer accounts for "over 80% of the total global no-low beverage market and is projected to continue to lead the segment’s strong volume growth over the next few years."
• According to the Institute of Food Technologists, 40% of over-40s are taking low alcohol beverages because they want to be healthier. The industry could witness a 35% growth in volume consumption by 2024 as key markets like the US, Spain, and Germany experience significant growth.
• Interest in no alcohol or low alcohol ready-to-drink beer and beverages is low in the US, with just 21% of American adults who consumed alcohol in the three months before July 2020 choosing low alcohol beverage options. However, consumption went up 29% among Americans aged 22–34 and 30% among those aged 35–44.

 

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Identified Opportunities

• The market for no/low alcoholic beverages is still growing. It is at "less than 5% household penetration." However, opportunities are available as the "industry now represents $3.1 billion in sales and a 3.5% total alcohol market share. The total volume is projected to grow 31% by 2024."
• Research on 6,000 European consumers conducted by Givaudan, a flavor and fragrance company, showed that consumers sought low alcohol drinks during low key moments of the day, moments of casual conversation, and upbeat times shared with others.
• Despite the demand and size of the opportunity, just a third of the survey respondents said they were satisfied with current products on the market. It indicates that opportunities are available in the market for improved products.
• Specific areas for improvement as mentioned in the survey included lack of depth (29%), 35% identified taste of product as an area for improvement, while 24% felt that products were not easily available.
• One size fits all in the low alcohol industry doesn't work for all the consumers and occasions, and this creates opportunities for drink manufacturers to develop new products targeting special consumer groups or moments.
• According to Jenny Zegler, associate director for Mintel Food & Drink, since younger adults are more likely to choose low alcohol beverage options, the trend indicates that the low alcohol sector has long-term potential because those aged 22–44 in the United States are likely to continue with their moderate alcohol consumption habits as they get older.

Drivers of Growth

• The ongoing trend of mindful drinking and the inclination of youngsters towards healthy drinking habits are expected to drive the growth of the low alcoholic beverage market.

• According to Nikulás Hannigan, global brand educator at the alcohol-free brand Fluère, the craft cocktail sector has indirectly helped the low alcohol sector by driving consumer interest in what ingredients are added to their drink.
• Kim Cox, senior vice president of account development for NielsenIQ, says online low-alcohol and non-alcohol beverage dollar sales in the previous 12 months rose 315%, compared with the 26% increase in online sales of beverage alcohol.
• Another driver is that new innovations are better meeting health and wellness desires for consumers looking for lower ABV, lower sugar, and lower calories.
• Demand for low alcohol products has increased despite the devastating impact of COVID-19 on the hospitality sector because of evolving consumer behavior during COVID-19 lockdowns. People are more aware of their health and wellness. According to Paul Mathew, founder of alcohol-free Everleaf Drinks, due to the pandemic, many people have put a lot more importance on their health and wellness, especially during lockdown. Individuals have also felt a need to indulge by mixing and enjoying a drink to relax. The low alcohol trend allows consumers to be conscious, but still enjoy a complex, satisfying drink.
• Sophia Shaw‐Brown, IWSR’s senior insights manager, adds that another driver for the increase in demand for low alcohol drinks is that low goes well with home drinking, which has become common during lockdown.
• Additionally, consumer awareness and understanding of the low alcohol sector is increasing as large players increase their involvement in the category. For example, Diageo acquired first mover Seedlip in 2019, while Pernod Ricard recently became the majority shareholder of Ceder’s.
• The low alcohol category has been further enhanced by established brands launching lower-ABV line extensions, such as Pernod Ricard’s 20% Beefeater Light and Ballantine’s Light, which are being trialed in Spain.
• The biggest factor supporting growth in the sector are the improvements low alcohol beverage manufacturers have made to the organoleptic profile of their products, says Katy Askew, Senior Editor of FoodNavigator. She adds that the dynamic growth witnessed in the low alcohol sector is linked to the leaps and bounds made in improving the drinking experience, including improved aroma, depth of flavor, and mouthfeel, which have been essential in attracting consumers into the category.

 

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Innovation

• Per the Spirits Business, heavily innovation‐driven markets like the UK, where consumers are curious and embrace new things, are seeing more innovations in the low alcohol industry to meet demand. For example, Ceder’s launched its Pink Rose expression last summer to cater to the flavor innovation. Stakeholders believe further innovation will play a key role in category development.
• Future innovation will be needed to ‘carve out’ an identity between soft and alcoholic drinks, as per BeverageDaily editor Rachel Arthur. This can be achieved by highlighting artisanal ingredients, production processes, or segment’s health and wellness credentials, she suggested.
• According to Igor Parshin of Givaudan, the low alcohol industry caters to a wide audience, occasion, and desires and innovations should be targeted towards sub-groups accordingly.
• Beer is among the top segments in the global low alcohol beverage category and witnesses a lot of new product development. The Mintel Global New Product Database shows that global nonalcoholic beers grew in number by 166% from 2016 to 2020. However, "nonalcoholic beer accounts for only 6% of global beer launches in 2020.”
• Craft beer sees a considerable amount of low alcohol beer innovation, especially when it comes to flavor and variety. According to Julie Olson, industry manager, Alcohol, at FONA, “No- low-alcohol beer has expanded to craft beer categories, such as stouts, IPAs, and ales as well as nonalcoholic hop water.”
• The COVID-19 pandemic has accelerated new product development in the low alcohol beverage industry. Currently, the sector is spearheaded by innovation within the kombucha or CBD-infused low or no alcohol beverages.
• Another trend in innovation in the industry is that some companies are reformulating products that flopped in the initial launch. For example, several Japanese low alcohol beverage launches introduced fruitier flavors, but reformulated releases of products like Suntory All-Free beer changed to ensure better taste so consumers experienced a crisp mouthfeel and a better aftertaste.
• Low alcohol beverage manufacturers need to target specific groups with their products. This includes offering low alcohol products to groups like Gen Zs, and crafting beverages of interest to younger people with a great taste at the forefront, such as yuzu, chili peppers, and hibiscus.

Research Strategy