The Growing Trend of Non-Alcoholic Beverages

For many, the start of the new year comes with a new challenge. From no sugar and Whole30, to the rogue YouTuber ftness challenge, consumers are leaning into the “new year, new me” mindset more and more each year. In recent years, a new challenge came onto the scene: Dry January. Dry January is a phenomenon that began in 2012 as an initiative by Alcohol Change UK, a British charity, to “ditch the hangover, reduce the waistline and save some serious money by giving up alcohol for 31 days.” Since then, Dry January has become popularized as one of the many habit-shifing challenges to hit the restart button on our lives. As we refect on the past two months, we notice this trend expanding beyond the confnes of the calendar – and not just impacting our hangover status, but altering our industry in a major way.

As part of Startup CPG’s partnership with NielsenIQ, we dove into the numbers behind the non-alcoholic trend and the potential challenges and opportunities they may present for emerging brands in the category. All of the data presented in this article was sourced from NielsenIQ.

DRY JANUARY 2022 AND ITS CONTINUED IMPACT

Tis year, Dry January continued to attract new participants – around 20% of US adults reported participating in Dry January in 2022. While January typically sees sales lower of for both total alcohol and non-alcohol afer a beverage-flled holiday season, we still see a heightened share for non-alcoholic products in January. For January 2021, non-alc was around 0.4% of total alc, while in January 2022, non-alc was 0.5% of total alc.

For non-alcoholic brands, Dry January can be seen as much more than just an opportunity for increased sales. Ryan Haggerty, Brand Manager at the non-alcoholic beer brand HOP WTR, describes Dry January as “a tent pole moment for the HOP WTR brand.” He notes that the Dry January movement is not only an opportunity to bring new consumers into the brand, but also to deepen relationships and reinvigorate enthusiasm with existing HOP WTR loyalists. “We don't see this trend slowing down as the sober-curious movement continues to gain more and more widespread adoption.”

Haggerty’s observation is demonstrated by industry-level expansion; in the past few years, the “non-alcoholic” segment has grown immensely. What once was a category reserved for the one-of non-alcoholic beer brand, now includes a breadth of beverage – from non-alcoholic wine and proxies to non-alcoholic spirits and aperitifs. Te increased variety in this segment can also be seen in the impressive degree of innovation occurring within it. In the traditional alcoholic beverage segment, innovation contributed only 4% of the total alcoholic beverage sales; comparatively, innovation accounted for over 15% of the non-alc sales of-premise. And with increased innovation came increased consumption: non-alc/low-alc of-premise sales in 2021 reached an astounding $3.3 billion.

While we may be inclined to attribute the 19% uptick in non-alc sales in January 2022 (and 6.7% drop in total alcohol sales) solely to the Dry January movement, consumer data also supports Haggerty’s observation of widespread sober-curiosity. NielsenIQ notes that 78% of non-alcoholic beer, wine and spirits buyers are simultaneously purchasing alcoholic beer, wine and spirits – indicating that general alcohol moderation may be a bigger factor at play than a confned month of full sobriety.

THE OPPORTUNITY

As consumers continue to seek out the newest non-alcoholic innovations, manufacturers are working to keep up with their pace. Manufacturers are continuously looking to successfully launch in this space, seen in a ffeen-fold increase in non-alc concepts tested by BASES from 2020 to 2021.

When it comes to investment dollars from a channel perspective, NielsenIQ points out that there are fewer barriers to entry for non-alcoholic brands, who have experienced successful launches in the ecommerce space and Amazon – avoiding the restrictions of traditional alcohol channels. Haggerty reports that HOP WTR has seen strong success in both DTC as well as retail – a statement unlikely to be professed by an alcohol brand. Retail has demonstrated interest in the category, with new shelf space dedicated to the segment: “Our product has been well-received by retailers who see it as a new and exciting innovation,” says Andreas Duess of Boreal Botanical, a brewed botanical tonic. Further retail opportunities have been presented by the emergence of segment-specifc retailers, like Boisson and Minus Moonshine in New York.

POTENTIAL CHALLENGES

While validation from manufacturers and retailers looks promising, successfully launching in this space presents unique challenges. Many customers are entering the non-alc segment for the frst time, making liquid testing especially important to ensure expectations are exceeded – so curious testers become repeat buyers. “The largest challenge for brands in this segment is, put simply, quality,” says Duess. “Alcohol is a very efficient favor carrier and creates a unique mouthfeel that is hard to recreate.” He notes that while some brands are using capsicum to simulate the alcohol “burn” and some use hops to inject favor into non-alcoholic beers, others are looking to ofer completely unique options to consumers: “At Boreal, we use tannins from grape skins to create a mouthfeel that sets us apart from others.”

This uniqueness may set them apart on the shelf, but also requires an extra dose of consumer education. It is on the brands to not only communicate the taste that can be expected (will it mimic alcohol’s sensory experience, or simply its favor?) but also successfully communicate the use case of these products. “Clearly communicating what consumers can expect via packaging is key to boosting trial in an emerging space. Consider eye-catching colors, a buzz-worthy name or a unique packaging format,” the NielsenIQ team suggests.

Another challenge comes with the rise of “functional” beverages. The line between distinct alcohol alternatives and other potential alcohol substitutes, like hemp-infused drinks (ex. Bimble and Aplos) and adaptogenics (ex. Boreal Botanical and BodyIntelligence), has begun to blur. This allows for a greater opportunity for innovation, but also comes with greater consumer and retailer expectations. Consumers and buyers look to these products to meet the needs of both the alcoholic beverage category and the traditional beverage category: low-to-no sugar, plant-based, unique favors, sustainability, and function. Meeting all of these criteria is of course a challenge at the product level, but can also present a marketing challenge. Non-alcoholic brands must work harder to determine and communicate their specifc USP (unique selling proposition) and ensure that it doesn’t get lost in a slew of callouts.

DEFINING THE CONSUMER

For emerging brands in this space, it is critical to keep an open mind when it comes to defning the target consumer. Non-alcoholic brands continue to be surprised by the consumers who end up purchasing their product. “We thought our target customer would be mostly urban, but we've been surprised by how much love we're getting from rural, and even remote communities,” says Duess of Boreal Botanicals. “Our chaga is incredibly popular in Northern Quebec, where people are familiar with the tradition of consuming this adaptogenic ingredient. Te more mainstream favors, like our Lion's Mane with sumac and juniper, do really well in urban centers like New York.”

Haggerty also reported being surprised by HOP WTR’s consumers: “We initially fgured that we would skew slightly more male and have a higher percentage of folks who abstain from drinking alcohol entirely. In reality, our current consumer base skews slightly female, and many have young kids at home,” he says. Like many non-alcoholic brands, HOP WTR discovered that consumers’ interest in health and wellness may be a larger indicator of purchase than interest in alcohol substitution. “Our consumer is extremely wellness-focused: nearly 1/3 exercise daily and the majority of them actively seek out functional supplements to support their lifestyle. We actually slightly under-index on the percentage of those who don't drink alcohol at all relative to the broader US population.”

LOOKING AHEAD

While the “dry” movement may be seen as a passing trend, segment data demonstrates otherwise. In fact, the segment is predicted to grow as the trend of continuous alcohol moderation overtakes the month-long challenge. As the segment continues to grow, peak sales are anticipated to follow the trends with that of full-proof categories and experience similar shifs in seasonality. “Brands in the space should consider aligning launch 1-2 months prior to peak distribution of the full-proof category,” says the NielsenIQ team. Te Startup CPG team is excited to watch emerging brands continue to take over this growing space.