Dry January started in England before it crossed the Atlantic to the U.S. Now, non-alcoholic beer, wine, and spirits brands chasing the Dry January crowd have followed. It looks like a crowd of eager investors may be close behind.
For investors already in the NA spirits space, optimism for the category’s potential is strong. Kiva Dickinson, co-founder and managing partner of Selva Ventures, is particularly bullish, telling BevNET that he considers non-alcoholic products to be one of the most exciting opportunities currently in CPG. Selva currently has investments in de-alcoholized wine brand Surely, as well as low-alc aperitif brand Haus. Dickinson said the firm is continuing to look at other brands in different parts of the category.
Much of this optimism, he said, is from looking at the cues of non-alcoholic beer growth and the rise of NA wine and spirits in the European market, where brands like Seedlip and Lyre’s have helped build the category.
“If we believe on that metric that we’re going to follow the trajectory that they have so far, this could be very large in North America very soon,” Dickinson said.
Here are some of those usage metrics: According to NielsenIQ, low and non-alcoholic beer and spirits grew 33.2% to $331 million in U.S. retail sales through October, and low-alc and non-alc sales online were up 315%. Meanwhile, the global market for low and non-alcoholic drinks is estimated around $25 billion, with beer making up about 80% of the market. Some reports now project the market could surpass $36 billion by 2025, eventually making up 5% of total alcohol sales worldwide.
According to the IWSR Drinks Market Analysis, NA spirits volume sales grew 289% between 2016 and 2020. In the U.S., the space is expected to grow an additional 12.6% between 2021 and 2025 – off a commensurately larger base.
The strong growth and long upside of these products has now led to more investor interest in the space. In Great Britain, Diageo’s Distill Ventures famously invested in pioneering NA spirits brand Seedlip in 2019, following that with a stake in Ritual Zero Proof in 2020. The move was one of the first signals of confidence in the NA spirits space from a major alcohol conglomerate. More recently, in November, U.K.-based brand Lyre’s closed a [20 million pound] funding round, netting a $360 million valuation (up from just $134 million valuation earlier in 2021). In January, French firm Pernod Ricard acquired a majority stake in NA brand Ceder’s.
As the category has taken off over the past year, there’s been no shortage of investors – both individual and institutional – vying to get a stake in the space. David Crooch, co-founder and CEO of Ritual, said that since late 2020 he has, without fail, received a minimum of 10 requests per week from prospective investors interested in the brand (Distill is still Ritual’s sole investor).
“I’ve taken a handful of those calls, and people are always very sad when we have to say that we can’t take it and don’t need any investment capital at the moment,” Crooch said.
For Dickinson, the explosion of non-alcoholic beer is in particular one of the strongest signals of strength for other NA beverages. Beyond fast-growing startups like Athletic Brewing, the level of marketing investment from major beer companies such as Heineken shows confidence.
“Heineken, Budweiser and Corona have all launched new products or put massive advertising dollars behind the 0% versions of their products in the past few years,” he noted. “Heineken was was one of, if not the largest sponsor of the new James Bond movie, and all messaging around that film related to Heineken. 0.0 Heineken is the official beer of the UEFA Champions League…. This is tens of millions of dollars of marketing investment from some of the biggest beer companies in the world, focusing on driving adoption of their 0% drinks.”
And just like beer, some major alcohol players are already launching their own zero proof lines in the more mature overseas market. This month, Bacardi debuted a new NA spirit brand, Palette, in Europe. The company noted that in Western Europe, low and no-alc spirits are expected to surpass $500 million by 2024, a 400% increase from 2020.
Sebastian Dreher, venture manager for North America at global firm Döhler (which invested in Lyre’s), pointed to several key traits of the non-alcoholic alternatives space that make it an attractive category for investors. Dietary trends, such as intermittent fasting and pandemic-motivated health resolutions, are some of the top drivers behind consumer adoption for the space, he said, while the the novelty is also a driver, he added: it’s exciting for investors to have a chance to get in on the ground floor of a new CPG category.
From a financial perspective, Dreher also pointed to high margins for non-alc spirits as a driving force for investor and retailer interest. In the spirits space, where a $20 bottle is closer to the lower end of the category, margins can be tight, although premium products can command hundreds of dollars for a single bottle. However, non-alcoholic products are significantly cheaper to produce – depending on the product type they don’t necessarily need to be aged and there’s less regulatory red tape than for alcohol brands; which brings costs down significantly. Nevertheless, by presenting as a premium “spirit” these products can command similar price points (if not more) than their alcoholic counterparts, with vastly reduced overhead.
Indeed, Ritual Zero Proof sells for $28.99 per bottle online, Seedlip is priced around $32 and Lyre’s can go up to $35.99.
“On a high level, that is a very interesting proposition, if you’re able to establish a product in the market that is a little bit cheaper [on shelf] than the alcoholic alternative, but the product itself is much cheaper than that [to produce],” Dreher said. “So I think there’s some rationale there that you want to use that anchor that alcohol has, similar to what coffee has, of what people are willing to pay for.”
But as more NA spirits brands enter the market, Dreher said, to be an attractive investment companies will need to compete not just in multi-serve formats, but in RTD as well (Lyre’s, notably, launched its own canned line last year). Multi-serve formats, he said, have a long runway in the foodservice channel, where brands can focus on getting bars and restaurants to create zero proof cocktails for their menus. In traditional retail, however, single-serve presents the most opportunity for mass consumer adoption.
“Overall, the opportunity is in RTD,” Dreher said. “Spirit-like products [may end up] being for foodservice… But I think the opportunity, actually, is more in something ready-to-drink that delivers a standard cocktail.”
Still, the exportation of Dry January can’t be the only data point for an investor – especially given a recent study by data provider Morning Consult, which indicated that while Dry January participation is growing, the intent to purchase nonalcoholic beer, wine, and spirits products by those participants remains around 30 percent. But with the custom growing, the theory is, the customers will certainly come, and growing lifestyles of abstention might just keep them there.