Beyond Dry January: The Rise of the Low and Non-Alcoholic Beverage Sector
As February begins, so ends 'Dry January' - a movement initiated in 2013 by Alcohol Change UK that has since swelled in popularity. In 2023, approximately 8.8 million people embraced the alcohol-free challenge. Yet, the shift towards moderation extends beyond a month-long campaign, particularly among the younger generations. A September 2024 NHS survey revealed that 19% of UK adults now live alcohol-free, up from 16% in 2011. 64% of consumers across the top 10 global markets are now moderating their alcohol intake, with the IWSR Speakeasy video series confirming that this trend is not a fleeting response to the COVID -19 pandemic but a lasting change in lifestyle choices. Propelled by changing consumer habits, the International Wine and Spirits Record (IWSR) states that the no and low-alcohol drinks (NoLos) market is experiencing a "transformative period of growth". This begs the question: How has this shift towards moderation and choice impacted brands and M&A and investment in the sector?
Current Market and Consumer Trends
According to CGA's REACH analysis, Western Europe has seen a sharp 35% decline in alcohol consumption over the past year. While this trend is echoed to varying degrees across the Americas, Africa, and Oceania, South Asia presents a contrast, with a 28% increase in alcohol consumption. Nielsen IQ's data from 2023 highlights the global trend, with non-alcoholic beer, wine, and spirits sales in the US topping $565 million—a 35% leap from the previous year, marking the US and Brazil as the world's fastest-growing markets for alcohol-free products. The Boston Consulting Group (BCG) estimates the global market for NoLo beverages at approximately $13 billion. Dominating this space is non-alcoholic beer, with GlobalData projecting the combined global market for non-alcoholic beer and cider to hit $11.6 billion by 2027, a 16% increase from forecasts for 2024. While the market for non-alcoholic spirits is smaller, it's expected to grow by 36.7% within the same period.
On home soil, market intelligence agency Mintel estimated that the UK's NoLo market would reach £380 million by the end of 2024, with a potential to soar to £800 million by 2028. Diversification is also on the rise, with a wider array of non-alcoholic dark spirits and tequila alternatives entering the market recently. The UK's NoLo sector grew by 17% in 2023 and is expected to continue expanding at a 4% volume CAGR from 2023 to 2028.
The popular wellness industry is also exerting a significant influence on the alcoholic drinks sector. The CGA's REACH analysis revealed that a health-conscious 68% of surveyed individuals are drinking less for lifestyle and health reasons. This focus on moderation is even more pronounced among younger demographics, with 75% of Gen Z and 70% of Millennials consciously reducing their alcohol consumption. Notably, Millennials are gravitating towards NoLo options, while Gen Z tends to prefer soft drinks, often influenced by rising alcohol costs and a desire for healthier living. Richard Halstead, COO of Consumer Insights at IWSR, captures this when he stated: “Increasing moderation, especially among Gen Z, implies that brands must adapt to target the health-conscious consumer. This trend is set to continue as people increasingly embrace healthier lifestyle habits.” However, this choice to moderate does not translate into an “all or nothing” approach but can simply be a switch between alcoholic and non-alcoholic products in the same occasion (referred to as blenders) or across different occasions (substituters).
Brand Innovation
The surge in demand is not just about quantity; it's about quality too. Traditional beverage brands are actively innovating to capture the expanding NoLo market. Quality, taste, and experience are paramount as consumers seek out sophisticated non-alcoholic alternatives. Supermarkets are responding by dedicating more shelf space to these products, with brands like White Claw and Guinness gaining space for their NoLo products. The hospitality industry is also adapting, with venues such as The Lucky Saint in Marylebone offering a diverse selection of non-alcoholic drinks, redefining the pub experience.
2024 also witnessed a number of high-profile endorsements in the NoLo sector. Guinness 0% became the sponsor of the Six Nations and official beer of the Premier League, while Heineken 0.0% aligned with Formula One and the UEFA Europa League. AB InBev chose to promote Corona Cero at the 2024 Paris Olympics.
The growth of the market has not escaped the notice of celebrities either. Tom Holland launched “Bero,” a line of non-alcoholic beers, while Kylie Minogue's alcohol-free sparkling rosé became the UK's top rosé brand. Spencer Matthews introduced CleanCo, offering a range of non-alcoholic spirits, and Lewis Hamilton entered the fray with a non-alcoholic tequila. Katy Perry, Bella Hadid, and Blake Lively have also debuted non-alcoholic brands, signalling the sector's fashionable status. As an international law firm with a focus on private capital, at the intersection of personal, family and business, Charles Russell Speechlys is uniquely positioned to assist high profile individuals across the full spectrum of their business and personal needs.
Investment and M&A Highlights
The current nature of the market is stimulating the creation of startups and new brands, with ample room for innovation and fresh concepts that resonate with health-conscious consumers. The startup side of the NoLo sector is currently thriving, with significant funding rounds highlighting growth, including the recent $22.98 million venture funding round by Lyre’s Spirit Co., a leading independent non-alcoholic spirits brand located in Rickmansworth. We also recently advised Puma Growth Partners on its investment into Lucky Saint, the B-Corp certified company dedicated to producing alcohol-free beer. Puma Private Equity is a long-standing client of Charles Russell Speechlys and offers growth capital and expertise to best-in-class, ambitious businesses across the UK, and works in partnership with management to help businesses scale and create long-term value. Ben Leslie, Investment Director at Puma Private Equity commented on the investment: “The NA beer sector in the UK continues to grow year on year with consumers now actively seeking non alcoholic alternatives and more familiar with the range on offer. The opportunity for growth remains enormous, non alcoholic beer accounts for only 2% of total beer sales in the UK and lags behind other countries in Europe where the proportion can be 10%+. We’re really excited to be backing Lucky Saint, they’ve been a trailblazer in their approach to marketing and been a major component to the overall category growth in the last five years.”
Big players in the industry are also leveraging these opportunities by actively expanding their non-alcoholic offerings through strategic acquisitions, brand development, and product launches. M&A in the NoLo sector is therefore booming. It commanded a significant 8% of North America's food and beverage M&A activity in the final quarter of 2024, according to a Kroll. One very active market participant is Asahi Group Holdings, with its ambitious 'Legacy 2030' vision that aims for NoLo products to comprise 20% of its portfolio by 2030. This vision was evidenced by its investment in The Zero Proof, a US non-alcoholic drinks retailer, and its internal launch of Peroni and Asahi Super Dry 0%. Asahi CEO Atsushi Katsuki stated to Just Drinks that “the company was in discussions with “a few hundred” startups though its US investment unit” and that “the company wanted to “continue to be proactive” in investing in start-ups in the beer-adjacent space”. High-end brand LVMH (Moët Hennessy Louis Vuitton) also embraced the trend by acquiring a minority stake in the alcohol-free sparkling wine brand French Bloom, which enjoys a presence in 32 global markets.
Diageo, a global leader in premium spirits, has not only invested in developing non-alcoholic variants of established brands like Captain Morgan, Tanqueray, and Guinness but has also been active in the M&A arena. The acquisition of Seedlip, a prominent London-based non-alcoholic spirit brand, and the expansion of Guinness 0.0 production, align with Diageo's strategy to embrace high-growth brands in emerging categories. Further consolidating its position, Diageo's Indian arm acquired New Delhi's V9 Beverages and the company also acquired Ritual Zero Proof.
The sector is also seeing a significant influence from the need for innovation, with Oetlinger's acquisition of JoyBräu, who develop protein-enriched non-alcoholic beer, demonstrating the strategic value placed on innovative manufacturing and process technology within the sector.
Future Outlook
The trajectory of the NoLo market suggests that the upward trend in demand is likely to lead to further investment and M&A activity. Larger entities may leverage acquisitions to secure a stronger market position. Javier Chiquero, Vice President in the Consumer Group at Houlihan Lokey, stated, “if the non-alcoholic trend accelerates beyond its current pace, we can expect to see an uptick in M&A activity across the board.” Diageo recently posted their Foresight Report in which they state that moderation and “zebra striping” (where consumers alternate between alcoholic and non-alcoholic beverages) is set to continue in 2025. With KAM reporting that 78% of 18-24 year olds are combining alcoholic and non-alcoholic drinks, it is clear that demand for these products will continue.
In the UK, impending duty charges are poised to potentially boost the NoLo sector. With preferential tax rates for beverages under 3.5% ABV, producers have an opportunity to offset potential declines in the alcoholic sector by expanding their non-alcoholic offerings. Paul Schaafsma, Managing Director of Benchmark Drinks, predicts, “The revised UK duty laws will undoubtedly spur growth in the no-and-low category, spurring innovation within mid-strength and low-alcohol ranges.”
Laura Willoughby, founder of Club Soda, suggests that the sector's growth could be further propelled by "more investment in rapidly expanding brands and a governmental review of alcohol-free descriptors." Emerging trends, such as the inclusion of active ingredients like CBD and adaptogens are resonating with the health-conscious, younger demographic. Further developments also include sparkling teas and non-alcoholic beers on draught. The NoLo space is innovating, with brands vying for consumer attention through unique ingredients, flavours, marketing strategies and global market expansion.
Consumer interest in NoLo beverages is expected to remain strong into 2025, likely driving more M&A and investment in the sector and also in supporting sectors such as technology. Despite some uncertainties in the broader UK M&A landscape, the NoLo market appears to be a sector of growth and opportunity.
