Published 2nd October 2021 in Business 365 Isle of Man
The key reasons people cite for buying a zero-alcohol drinks are: health (including weight loss and disease prevention), wanting to be able to drive, and saving money. There are some great low alcohol beers (technically they are not alcohol free) but just because the beer brewers have got it right doesn’t mean the spirits market has hit the spot. Not yet. But the opportunities are there.
What’s in an alcohol-free spirit?
Most 0% beers and wines are made in much the same way as their alcoholic counterparts. Manufacturers will then typically remove the alcohol from the final product. However, alcohol is a natural preservative, helping to keep bacteria at bay, so many wine producers need to add preservatives which can be associated with negative health effects.
Zero alcohol spirits, on the other hand, are often just fancy cordials. Their main ingredient is water that has an infusion of fruit or other botanicals, with sugar and other preservatives added to kill bacteria. However, unlike beer and wine, spirits are often opened and left on a shelf for months at a time, so the quantity of preservatives needed to keep an alcohol-free drink bacteria-free is much higher.
As such, consumers’ concerns around health benefits and high costs are valid. These drinks may not contain alcohol, but they do tend to contain a lot of unhealthy preservatives and sugar, and they are usually around 99% water (with a few botanicals thrown in for flavour). So, you are buying a very expensive, not particularly healthy bottle of water for the same price as a decent bottle of spirit.
What’s more, unlike alcoholic drinks, alcohol-free spirits are required to include a list of ingredients on the label, undermining the value perception producers are trying so hard to create. Consumers are not daft – they are cottoning on to the fact these drinks don’t really contain much that justifies the price tag.
There are already quite a few players in the alcohol-free spirits sector, but the market is by no means saturated or mature. It’s still in its infancy. And for good reason. At the moment it is a novelty with too many brands jumping on the bandwagon as they see they can make small volumes with high profit margins. But, over time, 90% of these will vanish and we’ll be left with the bigger players. It always happens.
The market hasn’t yet landed on a price point that feels good value to consumers, 49% of consumers think of them as simply soft drinks, albeit perhaps more ‘premium’ soft drinks, and 11% are already sceptical about the health benefits. So, the market is wide open and has a lot of work to do if it’s to deliver something consumes really want.
What are the opportunities in this sector?
According to research by Portman Group, this sector is likely to grow by 34% by 2024. Many players are likely to disappear, leaving space for market leaders to dominate, just as happened in the coconut water and energy drinks market a few years ago.
While alcohol-free beer and wine is likely to be dominated by already-established breweries and wineries, the real opportunity for new players is in the spirits’ sector. This is wide open as none of the brands already in this space have really nailed it.
One of the biggest opportunities is to create zero-alcohol spirits that are actually healthy and that have a unique taste.
We know health is one of the main drivers, so these drinks need to be genuinely healthy, not just alcohol-free. Consumers want zero-alcohol spirits that offer something unique, tasty, low sugar and free-from artificial preservatives. They will pay a premium for these interesting new drink choices but are unlikely ever to pay the same as alcoholic spirits,
One way of achieving this will be to produce smaller bottles of craft drinks. Smaller bottles make it easier to maintain freshness as they’ll be consumed quicker. So, no need for lots of preservatives. They will also deliver a lower price point without impacting massively on margins. In addition, they are a great way to encourage people to try something new.
The other major opportunity is for new manufacturers to create a premium alcohol-free spirit alternative with a unique taste and character. Unique flavours will be hard to replicate and will give those who create them a huge first-mover advantage. You will be known as a pioneer of this new space and will set a standard to which other drinks will be compared. Standing out is always key.