To your health! The growth in zero-alcohol beverages

These days, a spectacular change in social trends sees more people drinking less alcohol – and still having an enjoyable but sober night.

"For many beverage companies, a reduction in alcohol consumption could present a challenge. But, as the saying goes, every challenge is an opportunity for growth.”

While many have embraced the move to alcohol-free, they still enjoy the taste of a traditional alcoholic beverage.

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To fill this demand, non-alcoholic beverage production has surged in recent years – particularly non-alcoholic beer, wine and spirits. It’s clear these new products are not just a passing fad.

Something brewing

When examining this trend, it’s important to look at the reasons behind the growth in demand, the nature of competition and also the challenges facing the market.

Globally, the growth in recent years has been remarkable. In 2022, the market was valued at about US$22 billion, with growth forecast at 8 per cent a year to reach US$43 billion by 2027.

So what’s driving the growth in non-alcoholic beverages? For many older Australians, including my own generation, the concept of non-alcoholic wine or beer seemed inconceivable.

One catalyst for the change was the introduction of drink driving laws and random breath tests by police. These led to both a decline in overall alcohol consumption and a growth in low-alcohol beers.

Another shift which contributed to the trend was the gradual change by consumers towards healthier lifestyles. Likewise, governments and other institutions – such as schools – have promoted better health outcomes.

The shift to lower alcohol consumption also coincided with the growing use of social media for disseminating community health messages to a broader group of the population. Social media also allowed those messages to be more targeted.

As a result, campaigns such as “Dry July”, “Feb Fast” or “Sober Curious” began to reach a broader audiences sending different marketing to younger audiences.

Importantly, it was the younger generations which saw a major shift in drinking habits. Gen-Zs and Millennials increasingly prefer beverages which align to their health-conscious and performance-oriented lifestyles.

No vs Low Alcohol Beverage Volume Share by Market - 2022

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Shaken, not stirred

Increasing consumption of low-alcohol drinks has been seen in many countries.

The CEO of Asahi, Japan’s biggest brewer and owner of CUB Beverages in Australia, recently forecast zero and low-alcohol drinks would generate half of the company’s sales by as early as 2040.

Many of Asahi’s rivals including Heineken, AB-Inbev and Carlsberg have boosted output of low-alcohol products.

Notably, non-alcoholic beers can have higher margins than soft drinks as consumers pay a premium for particular brands. They can also be more profitable than regular beer as they don’t incur alcohol taxes.

Even in the most famous wine producing country, France, alcohol consumption is down markedly. According to one study in 2022, around 10 per cent of French people drank wine every day, down from 50 per cent in 1980.

Even more staggering, in 1960 the French drank an average of 116 litres of wine per person annually. By 2018, that had shrunk to just 17 litres. Some surveys have shown a quarter of French 18-34 year olds never drink alcohol, while almost 40 percent say that that they do not drink wine.

Into the mix

For many beverage companies, a reduction in alcohol consumption could present a challenge. But, as the saying goes, every challenge is an opportunity for growth, especially as tastes change globally.

While consumers in advanced markets are often first to embrace these changes, “aspirational” markets catch up quickly as they also to pursue new lifestyles and products.

The production process for non-alcoholic wine, beer and spirits can differ significantly. Non-alcoholic wine and beer typically involve fermentation followed by alcohol removal, while non-alcoholic spirits often use botanicals and other natural ingredients to mimic the flavours of traditional spirits.

Non-alcoholic beer is the largest market segment. Popular brands such as Heineken 0.0, Carlton Zero and Budweiser Zero have captured a significant market share.

In 2023, non-alcoholic beer accounted for 45 percent of all non-alcoholic beverage sales in Australia. It also accounted for about 10 percent of all beer sales.

One in ten customers have purchased a low or no alcohol production in past twelve months, according to major hotel operator Endeavour Group.

Asahi Beverages which accounts for nearly half of the Australian beer market, reported non-alcoholic beer sales tripled in last three years, with low and zero alcohol drinks accounting for 30 percent of their total beer sales.

Global Sales of No-Alcohol and Low-Alcohol Wines

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Non-alcoholic wine has seen a significant rise in popularity with brands like McGuigan Zero and Edenvale. In 2023, non-alcoholic wine sales in Australia increased 15 percent, according to Wine Australia.

Despite the growth, the majority of beer, wine and spirits drinkers still opt for full alcohol varieties, seeking to enjoy these products in moderation.

Also, zero alcohol beverages can be expensive to produce compared to their alcoholic counterparts. The higher cost is often due to the additional processing required to remove alcohol. This can deter price-sensitive consumers.

But even if the number of consumers looking for a non-alcoholic alternative is relatively small, it is still a large enough to have significant market impact.

And the growth of non-alcoholic products presents new export opportunities, including predominantly non-drinking Muslim markets and aspirational populations seeking a boutique non-alcoholic product.

To your health!

Increasing customer acceptance of non-alcoholic drinks is driving further innovation and the future looks promising.

However, challenges remain as producers deal with issues around taste perception, price and regulatory hurdles. As consumers continue to seek alternatives, the non-alcoholic market is poised to play a significant role in the global beverage industry.

Sara McCluskey is Head of Diversified Industries with ANZ Institutional

This is a version of work that appeared in Winter 2024 Food For Thought publication.