Investing in the World of Low-to-No Alcoholic Beverages

Bottles of wine on a wooden table
Credit: aleks p / stock.adobe.com

For many people, much of 2020 into at least part of 2021 was a time of exceptionally high stress levels and unique work dynamics. That is, if you were one of the lucky ones to keep your job. For many of us, the team here at Tematica Research included, that stress resulted in coping behaviors that weren’t exactly the healthiest. Waistlines expanded, and liver workloads increased. As the weather warmed in the spring and hope grew that life may get back to normal, many of us realized that those pandemic-coping behaviors needed to be addressed – enter the low-to-no alcohol world of wine, beer, cocktails, and spirits.

The New World of Adult(ish) Beverages

To be clear, we are not talking about those overly sweet mocktail concoctions that are more dessert than a drink, better suited for the little ones at the table, and typically served in a manner that calls to mind the movie, Failure to Launch. We are talking about legitimately unique flavors that can be sipped on their own or used to create a genuine cocktail experience that is only lacking the intoxication potential. According to a survey by Kisaco Research, the reasons cited by respondents to consume these types of beverages include, “To avoid the effects of drinking alcohol” at 41%, followed by “I like the taste” (39%), “To reduce my alcohol intake” (37%), and “As a healthy lifestyle choice” (30%). This isn’t just a U.S. thing, either. This page gives a list of over 100 different non-alcoholic spirit companies from around the world, including the UK, Sweden, Italy, Denmark, Ireland, South Africa, Canada, Australia, Slovenia, Estonia, and France.

Similar to the way companies are repositioning their businesses to tap into Tematica Research’s Cleaner Living investment theme, big booze is paying attention. Diageo PLC (DEO), the global beverage behemoth, was the sole investor when Distill Ventures launched in 2013. The company bills itself as the “world’s first independent drinks accelerator… We look for ambitious founders with great alcoholic and non-alcoholic drinks brands who want to take their business to the next level and become successful in both their home market and on a global scale.”

The company’s portfolio includes Ritual Zero Proof, whose gin alternative we can attest does not disappoint. One of its first investments was Balthazar vermouth, which was acquired by Diageo out of the program. Diageo also acquired a majority shareholding in Seedlip, which was its first acquisition of a non-alcoholic brand.

Non-Alcoholic Beer

The dominant global beer brewers are striking back after losing market share to hard seltzers (which have doubled U.S. sales annually since 2016) and craft beers (which account now for 12% of the market), as companies like Anheuser-Busch InBev SA (BUD) and Heineken NV (HEINY) invested heavily in better tasting non-alcoholic beers. Heineken’s 0.0, which was launched in 2019, we can confirm, really does taste like a Heineken, and last year Anheuser-Busch launched a zero-alcohol version of Budweiser. The Italian beer brand Peroni Nastro Azzurro, owned by Asahi Group Holdings LTD (ASBRF), just added their latest offering to the market with Nastro Azzurro Zero, which with zero alcohol is to intended taste just like Peroni Nastro Azzuro. We dare you to try to read that sentence aloud quickly. This is the second in the company’s lineup after its Libera line, which includes options such as Bella Bionda and Daisy Duke, an American pale ale, obviously.

While non-alcohol beer sales fell 4.6% in 2020 to a total of $11.6 billion after averaging 9% annual growth during the prior four years (according to Euromonitor International data), it is expected to be back on track in 2021. The U.S. domestic market remains a relatively untapped opportunity with zero alcohol market share sitting at a tiny 0.5% versus Europe, which is responsible for nearly 75% of all non-alcoholic beer consumed, according to data from insightSLICE. In Japan, almost 5% of beer sold is non-alcoholic, and in Spain, that number is up to 13%. IWSR Drinks Market Analysis predicts that U.S. non-alcohol beer volumes will nearly triple during the five years to 2025, outpacing the expected 60% growth in volume worldwide. Heineken’s CEO, Dolf van den Brink, believes that non-alcoholic beer could grow from 2% of the global beer market to 5% in the coming years.

Non-Alcoholic Spirits

A Google (GOOG) search of the term “non-alcoholic spirits” results in nearly 200 million results. We were pretty stunned by that as well, but it is indicative of the growing “sober curious” trend. It turns out that much of what we’ve seen in the dairy alternatives sector is also happening with respect to adult beverages. Unofficially the no-to-low spirit industry began in 2014 when Ben Branson (not related to Richard Branson of Virgin fame) launched Seedlip. The NA spirits sector, according to the IWSR Drinks Market Analysis, has seen sales volume in the U.S. grow at a compound annual growth rate (CAGR) of 289% between 2016 and 2020, with 2020 alone seeing volume jump 79%. IWSR is forecasting a 12.6% CAGR from 2021 to 2025. For those that are still not convinced that this is a growing sector, perhaps attend either the annual Lo & No Beverage Summit or the annual Non-Alcoholic Beverage Strategy Conference and go for the taste tests.

Final Thoughts

Unlike their forefathers, the new generation of low-to-no alcohol adult beverages is not geared towards those that are begrudgingly avoiding the impact of a boozy night but are rather beverages that offer a complexity of taste, and many of the psychological pleasures associated with a traditional cocktail and some are even aiming to offer health benefits as well – what’s not to like? One of our team, Lenore Hawkins, claims that the Spirit of Bourbon from the Free Spirits company offers a spectacular upfront taste and a throat warming spicy finish reminiscent of the lovely burn one would get from her much-loved Irish whiskey on the rocks.

As a new post-Covid world takes shape, there is a growing appreciation for and focus on both physical and mental health. That focus is fostering the creation of a wide range of new products and services that can provide many of the pleasures associated with the less-than-good-for-you in a way that at the very least is not harmful and at best can even be beneficial. Now that is a world reimagined.

PS – For those who would like to try an alternative cocktail, our team mixologist Lenore Hawkins suggests the following:

Put the cucumber slices in the bottom of your favorite tall drink cocktail glass. Muddle them just a tad. Add ice. Add the lemon juice, gin(ish), and the bitters, then add the tonic water slowly and give it a gentle stir. If you feel particularly ambitious, add a spring of mint. Now enjoy as many of them as you want, utterly guilt-free, and have a great weekend.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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