23/03/2023

Factors shaping new product development for the no-alcohol category

IWSR analyses innovation within the global no-alcohol market, including the influence of the cocktail trend and the pre-dinner occasion

In 2022, no- and low-alcohol sales across ten key markets totalled over US$11bn, with no-alcohol products accounting for 70 per cent of this figure. By 2026, the value of the no/low-alcohol category across key markets is set to grow by more than a third, driven largely by no-alcohol products.

Product innovation is increasingly focusing on meeting the needs of consumers who choose to avoid alcohol on certain occasions – also known as Substituters. 41% of no/low consumers fall into this category, the largest group within the no/low space. Abstainers from alcohol are increasing across markets, particularly in younger adult generations. This pattern is driving no- over low-alcohol growth. Pair this with the rise of functionality, much of which is restricted to no-alcohol by regulations, and the result is a strong performance from no-alcohol overall.

IWSR analyses the NPD driving this market:

No-alcohol brand extensions provide familiarity and reassurance

78% of no/low consumers also drink alcohol, and this underpins why much of the new product development in the segment comes from brand extensions on existing high profile alcohol brands. Drinkers seeking a no- or low-alcohol alternative can stay within their favourite umbrella brands, diluting any perceived risk of entering the no- and low-alcohol space.

In the beer sector, the major global brewers have harnessed their flagship brands to build their no-alcohol volumes, but we are increasingly seeing more specialist, as well as more localised, brands adding no-alcohol alternatives. Heineken for instance added Desperados Virgin Mojito 0.0%, Lagunitas Hoppy Refresher sparkling water and Cruzcampo Gran Reserva 0.0 to their no-alcohol portfolio in 2022, while also introducing a 0.0 variant to its Mexican Tecate brand.

Australia, which is at the forefront of much of the development in no-alcohol wine technology, has seen many of their well-known wine export brands utilised as a vehicle for entering the no-alcohol segment. Examples would include Mcguigan Zero, Lindeman’s Alcohol Free, Jacobs Creek Unvined, and Hardy’s Zero.

The no-alcohol spirits category is still in its infancy and is driven by a number of new-to-market, dedicated no-alcohol brands. However, launches from bigger players are being rolled out more widely, such as Diageo’s rollout of Gordons 0.0% and Tanqueray 0.0% into new markets. If the momentum is maintained in no-alcohol spirits, we expect to see more of the established spirits brands offer a no-alcohol alternative.

Celebrity endorsements will expand out of the US

Celebrity-endorsed products provide a similar reassurance for consumers to brand extensions. Having proved popular in full-strength alcohol categories in the US, IWSR has seen the emergence of celebrity-backed no-alcohol products in the US as well. Musician Kylie Minogue has introduced a range of no-alcohol wines, while Katy Perry is the co-founder of De Soi, a range of no-alcohol aperitifs.

Health and wellness drivers spur functional attributes

Nearly a third of no/low alcohol drinkers state that ‘health and lifestyle choice’ is their main motivation for choosing no-alcohol and low-alcohol products. This is reflected in a number of new products that focus on functional benefits, such as added nootropics, vitamins, and adaptogens, with product messaging shifting from the absence of alcohol to flavour, occasion and other benefits. Examples include Recess, a sparkling water infused with hemp and adaptogens; Kin Euphorics which combines adaptogens, nootropics and botanicals, and is co-founded by supermodel Bella Hadid; HOP WTR, a non-alcohol hop-filled sparkling water brewed with adaptogens and nootropics; and Three Spirit, a London-based brand that sustainably sources plants, flowers, fungi, spices, roots, and aromatic herbs to produce non-alcohol alternatives.

In Germany, where health and lifestyle is the most important factor in the no/low consumer’s purchase decisions, a number of new products with functional attributes are coming to market as well. One example is Zero Percent, a Bavaria-based company which specialises in health products. The brand developed its Ayursecco no-alcohol wines in cooperation with wine producer Leitz winery. The three styles, Love, Unwind and Peace, are supplemented with different combinations of herbs used in ayurvedic medicine, including tulsi, camomile, saffron and peppermint.

A number of no-alcohol beers have also positioned themselves in the exercise occasion, claiming to provide hydration after a workout. Danish Brewer Mikkeller’s ‘Racing Beer’, for example, is promoted as a post-workout drink to replace lost fluids and states that it offers B vitamins.

Cocktail trend shaping direction of no-alcohol spirits and RTD alternatives

The wider cocktail trend driving innovation in the full-strength beverage alcohol landscape has been influencing NPD within no/low as well. Although no-alcohol gin and botanical spirit alternatives continue to be an important focus of new launches, there has been an uptick in alcohol-free aperitif, dark spirits and tequila alternatives as well. Australian brand Lyres, for example, launched their agave-based tequila substitute in the UK and Germany in 2022 to allow drinkers to still enjoy their favourite tequila-based cocktails even when they are not drinking.

Similarly, the no/low-market in in the US is tapping into the momentum of RTDs and the convenience they offer. IWSR projections show that from a small base, RTD no-alcohol products will be the most rapidly expanding no-alcohol subcategory in the market, with a volume CAGR of 18% between 2022 and 2026. Alcohol-free RTD cocktails will be driving much of this growth.

Aperitivo moment gaining importance

The pre-dinner aperitivo occasion is an important driver for the no-alcohol category, especially as daytime-oriented drinking and the broader cocktail trend shape the wider beverage alcohol market.

IWSR consumer data shows that when no/low-consumers were asked about their interest in trying new no-alcohol categories, the most popular options were aperitifs and tequila, particularly among millennials.

South African brand, The Duchess Alcohol-Free Drinks, for example, recently launched the Duchess Spritz, an alcohol-free spritzer, tapping into the popularity of the Spritz as a pre-dinner drink. German alcohol-free brand Rebels has also added a spritz product to their range.

Both consumers and drinks operators push the no-alcohol category

Consumer demand will continue to fuel new product development in the no-alcohol sector. As brand owners strengthen their investments in the space, adjacent categories are also driving momentum, such as innovation in packaging through ABV scale multipacks, and mixer brands that are broadening their range to offer products that can be enjoyed without a spirit or spirit alternative. Innovation will be driven by both dedicated no-alcohol brands, which help to raise quality perceptions, as well as larger brands investing in brand extensions as a way to provide familiarity and reassurance to new consumers.

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Moderation trend drives demand for no-alcohol products in the UK