Diageo, the world's largest spirits maker, has scaled up it's investment in non-alcoholic spirit brand Seedlip, taking a majority stake in what it deems as a "game-changing" drinks category targeting the growing number of consumer teetotallers.
The transaction, which was announced on Wednesday 7th August 2019, emphasises how spirits makers are increasingly looking to capture a share of the burgeoning market of consumers looking to drink less alcohol which according to research firm Nielsen saw sales growth of 25% in the UK last year to top £115m.
While the total value of low and non-alcoholic beverages sold in the UK remains relatively small, the opportunity to tap into such a high growth and potentially lucrative market remains attractive to global brewers and private equity firms alike.
"The market opportunity for non-alcoholic spirits is very large and growing rapidly and it is a consumer led revolution" said Tom Tuke-Hastings, founder of non-alcoholic spirits brand Borrago in an interview with Woozle Research.
"This is a global mega-trend and while we are right at the beginning, it is a phenomenon that is not going away. In five to ten years, it will be the norm."
In the 12 months to June 2019, Seedlip's saw a 270% increase in year-on-year sales volumes while Borrago saw more than 400% increase over roughly the same period driven by an increasing number of consumers that are looking for high-quality food and drink experiences but just don't want alcohol. Of the 5 experts we interviewed, all expected to see accelerating sales trajectories this year and next.
"More than 30% of millennials are going teetotal or sober curious" explained Tom as one of the factors driving the strong demand trends Borrago is seeing. "There's also strong tailwinds from pregnant mothers, baby boomers cutting back on their alcohol intake, religious non-drinkers, and teetotallers or those swapping out alcohol during dry January or sober October" he added.
For the brands we interviewed most of the sales volumes are predominately by off-trade channels such as retail and online - particularly in supermarkets where non-alcoholic beverages are among the fastest growing categories.
Despite this nearly all stressed the importance of on-trade for brand building which acts as an important touch-point for consumers to trial the product and for bartenders to act as trusted advisers when it comes to the options available in this fairly new market.
Although the potential for start-ups and investors is huge, so is the competition. Big brands such as Diageo, Pernod Ricard, and William Grant and Sons have already made significantly plays. For the entrepreneurs interviewed for this article, most saw the the huge investments being made as a boon to the industry.
"As the market gets more mature, I think it will normalise in the same way as the alcoholic spirits market with large well backed brands servicing the mass market through acquisitions of smaller independent firms where they can leverage the brand as part of a global portfolio" said Tom about his view on the future competitive landscape. "There's room in the market for a variety of flavours and styles, with headroom for multiple brands. It's not a winner takes all scenario".
This article summarises choice quotes and insights from 5 interviews with experts in the non-alcoholic spirits sector completed on 8th August 2019.
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