The rising trend in non-alcoholic beverages is functional

Superette co-founder and CEO Mimi Lam arranges a cannabis drink at the Superette Sip ‘N’ Smoke cannabis dispensary in Toronto, Ontario, Canada on Monday, October 25, 2021.

Della Robbins | Bloomberg | Getty Images

More and more Americans are looking for alternatives to alcohol, and beverage manufacturers that tout the health benefits of their drinks are trying to capitalize on that.

According to recent surveys, more than 40% of Americans say they will try to drink less alcohol in 2024, up from 34% a year ago. Digits From data insights company NCSolutions. The figure for Gen Z is as high as 61%, while 40% of this age group plan to drink less alcohol in 2023.

Nielsen IQ health expert Sherry Frey said interest in non-alcoholic beverages is rising as younger consumers become more health-conscious and as a generation that typically drinks more drinks ages. This has fueled the rise of so-called functional drinks.

Functional drinks are beverages that aim to go beyond the usual goals of mocktails and mocktails with a hydrating or nostalgic alcohol taste. Many of these include adaptogens, herbs marketed as having specific health and cognitive benefits, while others include substances like THC (the psychoactive component in cannabis) because of their mood-altering properties.

The drinks’ popularity exploded after the pandemic, filling grocery store aisles and then appearing on restaurant and bar menus.

This phenomenon is worldwide. According to Euromonitor’s 2022 research, the global functional drinks market is expected to reach $249.5 billion by 2026.

According to the latest data from NielsenIQ, in the 52 weeks ended March 30, US functional beverage retail sales exceeded US$9 billion, accounting for almost 10% of the total beverage volume. These figures do not include cannabis-infused beverages.

“People want to have an experience, and once brands can create sustainable, consistent, effective, comparable experiences, I think the majority of the market share will shift from (alcohol) alternatives to functional (alcohol) alternatives,” Cannabis and Adaptation Aaron Nosbisch, founder of sex drink company Brez, told CNBC.

But the growth of functional drinks does not mean the end of alcohol consumption. According to surveys, about 80% of people who purchase non-alcoholic beverages also purchase alcoholic beverages Consulting firm BCGbased on NielsenIQ research.

Nic Zhou, managing director and partner at BCG, told CNBC that “yes, there is some cannibalization” of existing beer, wine and spirits products, but not completely replacing them.

“People drink (functional drinks) because they want more choices,” Zhou said. “They want to be able to socialize, look cool, feel like they’re part of a group, but they don’t necessarily have to drink.”

Young consumers lead the trend

Young consumers are driving the development of functional beverages. According to the latest data from Numerator, alcoholic beverage penetration among Gen Z consumers over the age of 21 is the lowest among all generations.

But Zhou said it’s too early to tell whether the trend will continue or if it’s a product of maturation during the pandemic, when there were fewer opportunities to drink and socialize in group settings.

Frey added that the interest of older generations should not be underestimated.

“We always focus on the younger generation,” Frey said. “But when you take into account what (baby boomers) are spending and the fact that they’re drinking less and looking for other alternatives, I think that’s a very important factor as well.”

Jake Bullock, founder and CEO of cannabis beverage company Cann, said consumers can now access more health and wellness information than ever before through devices such as Apple Watch or iPhone. He said he believed the data “encourages people to think about the harms of alcohol in ways they never would have 20 years ago.”

Consumers are seeking health benefits

Frey said consumer concerns about health and wellness have surged during the pandemic, and that trend isn’t going away. She added that research conducted every six months by Nielsen IQ found that health and wellness is a top priority for consumers. But according to Nielsen data, concerns have shifted from wanting to cure specific diseases to aiming to improve overall well-being in order to live longer and better lives.

Frey said the shift has fueled interest in functional drinks. Beverages that promote higher energy levels, better digestion and brain health, and enhance mood are among the most popular.

Three-quarters of respondents to a 2023 Datassential survey said they believe functional foods and beverages can help them live longer and become healthier without fundamentally changing their eating habits.

“Consumers are looking for products that can do more than one thing for them,” said Jordan Bass, CEO and founder of adaptogenic beer alternative brand Hop. “So if you can not only achieve great taste, but also get some functional benefits , then you add more value.

Hop Wtr was co-founded by former Marine Nick Taranto and Bass. Si said he was training for a triathlon. Bass said the pair enjoyed “cracking open a cold beer” but wanted a non-alcoholic alternative that would allow them to relax without the health concerns associated with alcohol.

Hop Wtr was originally marketed as a beer alternative for its hoppy flavor. But Bass said the company’s marketing approach shifted after seeing data showing widespread consumer interest in functional drinks.

The drink contains a variety of adaptogens and nootropics. Adaptogens are herbs such as ashwagandha that advocates claim help the body’s response to stress, anxiety and fatigue. Nootropics are common substances, such as L-theanine and caffeine, that are said to improve mood and provide focus and energy.

“Adaptogens and functional medicines are marketing terms that mean medicines for sober people,” joked bartender Elliott Edge.

Edge is the bartender and manager of Hekate, a witchcraft-themed sober bar in New York City’s East Village neighborhood. Opening in January 2022, Hekate is the city’s first sober bar.

Owner Abby Ehmann initially thought she would have to make everything from scratch, but she said she was pleasantly surprised that over time, new alcohol-alternative products started appearing “like every week.”

The bar is always busy, especially during sober October and dry January, Edge said, and “if you smile here, your cheek is going to touch someone else’s cheek.” Edge adds that patrons range from 80 Year-old locals to NYU undergrads, and not all of them are sober.

Alcohol is the earliest functional drink. People used it to alter their mood or act as a social lubricant, and centuries ago they drank it for its purported health benefits, from aiding digestion to fending off plague. But as more consumers become concerned about the negative health effects of alcohol, Edge is finding that people are willing to try many alternatives.

“People are curious. They seem tired of relying solely on things like alcohol to get the mood and feel they want, to be calm and social,” Edge said.

As consumers become increasingly wary of sugar, functional drinks can serve as potentially healthier alternatives not only to alcohol but also to soda.

But like health benefit claims about vitamins and supplements, many of the claims made by beverage manufacturers are not subject to FDA scrutiny.

“This is certainly not a simple space that can be taken at face value,” Zhou said.

This uncertainty has led to legal distress. Poppi, a functional soda that touts digestive benefits, is facing a lawsuit challenging its claims of prebiotic benefits.

A Poppi spokesperson said in a statement to CNBC that the company stands behind the product.

“We believe this lawsuit is without merit and we will vigorously defend against these allegations,” Poppy told CNBC.

The rise of cannabis beverages

Brez founder Nosbisch said one problem with most non-alcoholic beers and spirits is that you only get the flavor, but “no fun.” People who want to get healthier and eliminate hangovers don’t necessarily want to give up the “social buzz” of alcohol.

“So I think a lot of our success comes from people really looking for a real alternative to alcohol: something that not only tastes like alcohol but actually gives them a kick,” Nosbish said.

Cann’s Bullock agreed, saying the company’s largest customer base is “healthy hedonists.”

“These people are shutting down dance floors, but they’re also shutting down morning fitness classes,” Bullock told CNBC.

Another survey by Numerator revealed that Gen Z is also leading the adoption trend of THC beverages.

Cannabis beverages offer a way to consume THC and CBD in microdoses, similar to how consumers often drink alcohol or coffee. This allows the drinker to pace themselves, with the effects starting and disappearing faster than eating food.

The company says this makes the experience more appealing to non-cannabis users. Eighty percent of Brez’s customers are non-cannabis users looking for a real alternative to alcohol, Nosbisch said, adding that he sees the real opportunity in gaining market share from alcohol.

“We’re at the intersection of sober curiosity and cannabis curiosity,” Block said.

Cann launched in cannabis dispensaries in 2019. But as legalization spreads, the company now sells to more than 3,000 distribution points, including liquor stores and convenience stores, in addition to 60% of sales going directly to consumers through its website. Since its launch, the company’s sales have increased 60% year over year, with more than 9 million cans sold, a number it expects to reach this year alone.

Zhou said support from large beverage manufacturers will determine whether consumer behavior changes forever. This will depend on the extent to which cannabis is legalized.

Cannabis market revenue is forecast It will reach US$42.98 billion by 2024.

Marijuana remains illegal at the federal level, so cannabis drinks use THC extracted from marijuana. While there are limits on the amount of THC in pre-harvest hemp, there are no limits on products made from the plant.