From White Claw to Waterloo, the beverages consumers are reaching for in 2020 look a lot different than years past.
Spiked seltzer sales are skyrocketing, hard kombucha is having a moment, CBD-infused creations are capturing consumer curiosity, and zero-proof offerings are starting to infiltrate happy hour.
According to market research firm Nielsen, off-premise sales of hard seltzer are up 183%, to $3.3 billion, through the first 9.5 months of 2020. The category – which was valued at about $1.5 billion in 2019 – now makes up nearly 10% of total U.S. “beer” volume, and Credit Suisse analysts estimate that figure could grow to 25% by 2025.
Meanwhile, nine out of the top ten best-selling sparkling waters – drinks like Spindrift, Bubly and Topo Chico, among others – are also growing, according to market research firm IRI. Sales of those three brands in particular are up 95%, 70% and 42%, respectively.
Though smaller in overall size, Nielsen also reports that sales of hard kombucha and non-alcoholic beer are also on the rise in 2020, up 120% and 40%, respectively.
And sales of CBD-infused drinks distributed outside of the dispensary channel are forecasted to increase 119%, to more than $101 million this year, according to cannabis market research firm BDSA. By 2025, the segment could be worth $1.4 billion, the firm estimates.
The growth of these products is largely being driven by consumers who are reassessing their relationship with alcohol and choosing to moderate consumption while also seeking out “better-for-you” drinks that feature functional ingredients and contain fewer calories, carbohydrates and sugar.
As such, an onslaught of new brands has emerged, a phenomenon that Jeffrey Klineman, the editor-in-chief of leading beverage media outlet BevNET, believes has begun to reshape the overall beverage business.
“We’ve seen an ongoing push of products that are perceived as healthier for you,” he said. “You have all of these new brands, which have started to create categories, and all of these people with very similar ideas. It has led to an upswell of awareness among consumers.”
Dozens of innovative beverages are now proliferating the perimeters of grocery stores across America and being sold directly to consumers online. And while the beverage category welcomes new brands with regularity as trends come and go, the products hitting the market in recent years feel like they’re doing a better job of capturing the current zeitgeist.
Several of the recent non-alcoholic introductions are designed to replace occasions where someone might ordinarily reach for a boozy beverage.
Alcohol-free brews, zero-proof spirits, and canned mocktails are all being marketed to so-called sober-curious consumers, many of them in the Gen Z and Millennial cohorts, who have altered their drinking habits in a bid to become healthier.
To reach craft beer fans looking to reduce alcohol consumption without sacrificing their social lives, startups like Athletic Brewing and Partake have raised millions of dollars to expand the availability of their near beers.
Similarly, an emerging group of alcohol-free spirits makers like Saint Ivy and Ritual are targeting those drinkers who prefer liquor-based drinks but want to avoid the next day hangover that often accompanies an extended happy hour.
“We get a lot of working professionals who want to be more productive and don’t want to continue drinking alcohol if it holds them back,” said Jason Stanley, the founder of Saint Ivy, which makes a virgin Moscow mule and an alcohol-free gin & tonic.
When asked why so many people are beginning to limit their alcohol intake, Athletic Brewing founder Bill Shufelt said he believes greater access to information coupled with a desire to improve fitness and nutrition habits has caused drinkers to cut back.
“The whole world is so performance based these days, and people can very easily correlate and track all of their metrics and information,” he said. “So, if they have variables in their lives that are detracting from everything they care about, they will isolate and eliminate those.”
However, Shufelt understands that not all consumers will opt to eliminate alcohol entirely like he did back in 2013. In fact, roughly half of his own customers still drink booze, they’re just being more mindful about what they buy and how much they consume.
“You can see what’s happening in hard seltzer and hard kombucha,” he said. “Those are basically just better-for-you alcohol delivery mechanisms.”
“I personally feel better drinking hard kombucha and I see more people catching on to that every day,” she said. “My household is fully converted, and I expect to see more households making the same decision.”
Still, it’s important to remember that more than half of Americans are not drinking much alcohol, if at all. According to research from author Philip Cook, who penned a book on the “costs and benefits of alcohol control,” 30% of Americans abstain from drinking all together while another 30% consume less than one drink per week.
When Shufelt quit drinking to keep up with the demands of his previous career in finance, he said there was a stigma attached to his decision.
“It was sort of a penalty box situation,” he said.
“I think people are scared to say that they just like to have a beer with friends, but they are not necessarily in it for the alcohol,” he added. “That’s why we’re trying to make an easier and more exciting choice for people at bars than there ever has been.”
CBD products have earned a reputation of being a quasi-panacea for anything ailing the modern-day consumer. Many drinks claim to regulate mood, calm the mind, improve focus, boost immunity, reduce inflammation and aid sleep.
For its part, Recess aims to replace occasions where a consumer might otherwise reach for an alcoholic beverage or a caffeinated drink.
“As many people drink Recess now in the evenings as a substitute for alcohol, as do those who drink it in the afternoon as a substitute for their two-o’clock coffee,” said founder Ben Witte.
Witte views CBD, short for cannabidiol, the non-psychoactive part of the cannabis plant, as the base ingredient in an emerging set of products that are formulated to help optimize a person’s mental state.
“There’s a big new category forming that includes offerings which are intended to engage with your mind in some way,” he said. “Nootropics are an example of that. Adaptogens are an example of that. Magnesium is an example of that.”
Witte’s wager is that a beverage containing CBD and other functional ingredients will become a “daily habit” for many consumers – like coffee or alcohol — which in turn will enable him to build a brand that extends beyond drinks.
He also believes a product like Recess can help beer distributors offset future alcohol sales declines, and that major chain retailers will soon be building dedicated “relaxation” sections in their stores once the Food and Drug Administration clarifies its rules around ingestible CBD products.
Currently, CBD cannot technically be included in food and beverage products, advertised as a dietary supplement, or marketed and sold as a drug.
Nevertheless, Witte and others have plowed ahead, asserting that the passage of the 2018 Farm Bill — which removed hemp (cannabis sativa plants containing less than 0.3 percent THC) from the legal definition of marijuana – gives them the right to infuse their drinks with CBD and sell them in markets like Colorado that allow hemp to be used as a food additive.
They’re betting that the FDA will eventually form guidelines and regulate the market, which will open up massive retail opportunities at chain stores Walmart, 7-Eleven, CVS and Target, among others.
Another one of those bettors is Grammy winning singer-songwriter and OneRepublic frontman Ryan Tedder, who last year launched his own line of CBD-infused drinks called Mad Tasty.
Tedder began using CBD at the end of 2017 after fighting a severe case of anxiety that caused him to pull the plug on a new album and cancel a global tour.
“I threw millions of dollars down the drain because I was losing my mind, I was not sleeping, I was stressed out and I ended up on Xanax,” he said.
After getting on CBD and getting off Xanax in 2018, Tedder said he began to wonder if there was a “more obvious and delicious way” to get the compound into his system while also hydrating.
Over the next several months, Tedder got to work developing a brand, partnering with an emulsion technology company and soliciting investment from private equity fund First Beverage Group.
The result was a portfolio consisting of three flavors – Watermelon Kiwi, Unicorn Tears and Grapefruit – that each contain 20mg of broad-spectrum hemp extract.
In addition to online sales, which Mad Tasty said have quadrupled during the COVID-19 pandemic, the CBD drinks are currently distributed in Colorado, Texas, Los Angeles, Nashville and soon Chicago.
But while non-alcoholic beers and hard kombuchas have identified their niche and built a core set of purchasers, Klineman believes CBD beverage manufacturers still need to articulate a “primary use case.”
“The standardization and baseline of dosage isn’t there yet, and so it is really hard to get a consistent signal on what these products do and when,” he said.
Consumption of all these emerging products is on the rise and a transformation of the beverage sector is underway. How big these emerging sectors get will ultimately depend on the ability for companies to expand distribution, broaden awareness and cultivate consumer audiences.