30/01/2023

Key drivers for the US no/low-alcohol market

Increasing consumer awareness, NPD, and greater product availability drive opportunities for no/low-alcohol in the US

The no/low-alcohol category in the US is poised for strong gains in the years ahead. While volumes remain concentrated in the mature sub-categories of no-alcohol beer and low-alcohol wine, smaller segments such as no-alcohol RTDs and spirits are also set for strong growth in future.

This strong performance is being driven by new-generation products with enticing brand attributes and flavours, although barriers to further growth include a perceived lack of availability through typical alcohol channels (retail stores and bars/restaurants) and perceptions of low quality.

“The no/low-alcohol category is in growth mode, outperforming the rest of the US drinks market in terms of percentage increase, albeit on a smaller overall volumetric base,” says Susie Goldspink, Head of No- and Low-Alcohol Insights, IWSR Drinks Market Analysis. “No/low is increasing in significance as the “better for you” movement in the US commands an increasing portion of consumer spending.”

IWSR expects no-alcohol – which had an estimated 70% share of the combined US no/low space in 2022 – to spearhead future category expansion. While no-alcohol is forecast to see its volumes increase by 25% between 2022 and 2026, the rise for low-alcohol is expected to be only 6% over the same timescale.

“No-alcohol wine and beer have been available in the US market for a long time,” says Goldspink. “However, new entrants have garnered increased consumer attention through exciting brand propositions and enhanced flavour – in much the same way that craft beer has in recent history. Functional attributes from recently-launched products resonate most with no- and low-alcohol consumers.”

Beer dominates no-alcohol in the US and, although other no-alcohol segments are expected to expand more quickly in the next four years, beer will register the greatest total volume growth, buoyed by its relative maturity and the entry of new brands. More dynamic growth rates are expected for the no-alcohol RTDs and no-alcohol spirits categories, although off very low volume bases.

Meanwhile, forecast trends are more mixed for low-alcohol products. Future low-alcohol gains are mainly focused on wine, which has a forecast volume CAGR of +10% between 2022 and 2026, with activity concentrated around higher price bands.

“Premium-and-above wine is the driving force within the low-alcohol segment,” notes Goldspink. “Its structure and complexity mean wine lends itself better to low-alcohol options, resulting in a comparatively more mature segment. Wine has just begun to leverage health and wellness attributes, such as lower ABVs, less sugar and fewer calories, to draw consumers into the segment.”

Low-alcohol spirits volume consumption is expected to decline at a CAGR of -3% between 2022 and 2026, but this segment could provide future opportunities. It is currently dominated by lower-proof flavoured vodkas at 20-30% ABV, which do not typically leverage their lower alcohol levels in marketing terms.

“With innovation being necessary to the advancement of flavoured vodka brands, the segment will grow with the entry of new brands and flavours,” says Goldspink. “Currently, there is little to no innovation occurring in the low-alcohol spirits/aperitifs segment below the 20-30% ABV range. This leaves room for opportunity and brand exploration.”

The most significant no/low consumers in the US are Millennials and ‘substituters’ – people who drink no/low on some occasions, and full-strength drinks on others. Abstainers – those who avoid alcohol altogether – also account for a healthy proportion of no/low consumers.

Although people largely expect to pay less for no- and low-alcohol products, this sentiment is less prevalent in no-alcohol beer – a mature sub-category that has perhaps proved its worth to a greater number of consumers. Wine and beer pricing is relatively consistent across all ABV levels, but average no-alcohol spirits prices are nearly double those of low-alcohol and full-strength products.

However, this may not hamper future growth prospects. “Producing a high-quality, no-alcohol spirit involves a costly and complex process,” says Goldspink. “Although a consumer barrier exists around the higher prices for no-alcohol spirits, growth is evident within this less mature segment as consumer awareness increases.”

Rather than price, the main barriers to increased consumption levels for no/low are a consumer preference for other drinks and a lack of availability: regular no/low consumers are put off by a lack of choice in bars or restaurants, as well as perceptions of low quality.

As the market continues to expand, however, this is beginning to change. “With both no- and low-alcohol segments growing faster than their parent categories, on-premise operators and retailers are dedicating more menu and shelf space to them,” notes Goldspink.

Ecommerce is a potentially fruitful channel for no- and low-alcohol products because of the comparatively strict regulations governing direct-to-consumer (D2C) shipping for alcohol. Dedicated no-alcohol websites are already allowing consumers easy access to products – and, increasingly, no-alcohol bars and retail stores are also springing up in major urban centres to cater for rising demand.

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