Why Alcohol Companies Are Betting on Non-Alcoholic ‘Booze’

It’s a Wednesday evening in Brooklyn, NY, and bars are dead. Tea-candle-dotted tables sit empty, waiting for a happy hour rush that isn’t. But tucked away on a side street, hours before its midnight closing time, a bar called Getaway hums with activity. Metal straws clink against ice and cocktail shakers rattle as patrons belly up to the marble bar. A woman fresh out of work reads and nurses a drink at a corner table. An early-thirties couple chats over a pre-dinner beverage, holding hands in the flattering dim lighting. This is New York City’s first permanent booze-free bar, and no one is drinking alcohol.

Sam Thonis, 31, quit his career in video production to open Getaway in April. Thonis isn’t sober, but his brother quit drinking—and once he did, Thonis noticed it was a struggle to find places to hang out.

At a bar, “you can sit there, chat with the bartender, chat with the person next to you. It’s a social place; the alcohol almost seems secondary,” Thonis says. “We are just offering something that I think people want: a social experience without the alcohol.” Thonis declined to share revenue numbers, but said the bar is consistently crowded enough that patrons can’t find a seat.

The trend of millennials cutting back on alcohol has been well documented. “Millennials Are Sick of Drinking,” The Atlantic proclaimed in April, just a few days after Vox predicted that we’d all be hearing a lot more about the “sober curious” movement. And it’s not only a generational fad: About half of U.S. adults (and two-thirds of those ages 21 to 34) say they’re trying to drink less, according to data from market-research firm Nielsen. Now beverage companies are clamoring to provide what Getaway does—fun without the booze—and major alcohol producers are some of the first in line. The U.S. market for ready-to-drink low- or no-alcohol beverages is set to grow by about 39% by 2022, according to data from the beverage market-research firm IWSR. With Budweiser and Bud Light sales faltering, parent company Anheuser-Busch InBev (AB InBev) has invested in everything from fruit juice to probiotic drinks, and has committed to making 20% of its beer volume no- or low-alcohol by 2025. In 2018, the same year it saw a 2% dip in sales, Molson Coors acquired a company selling kombucha, the fermented darling of the wellness world. Heineken and Budweiser recently rolled out no-alcohol beers, and a number of craft breweries are experimenting with low-ABV options. If the marketing for Keel, a new lower-alcohol vodka, is to be believed, these products are all part of a “moderation movement.”

Ben Branson was ahead of the curve in 2013 when he got the idea for Seedlip, his botanical spirit replacement, after a particularly scarring experience with a “disgusting, pink, fruity, sweet, childish mocktail.” He wasn’t sure anyone would share his vision for a grown-up, complex alcohol alternative, but after rapidly selling out of the first few thousand bottles he made in 2015, he reached out to Distill Ventures (DV), a venture capital accelerator funded by liquor giant Diageo, for help scaling up.

DV co-founder Shilen Patel was waiting for a product like Seedlip. The group had noticed the “big macro trend of people wanting to live healthier lifestyles” and moderating their drinking, and Patel had met with “tens” of entrepreneurs claiming they could fit that niche. But he wasn’t sold until he met Branson.

“Ben and I bonded over the idea that we didn’t think anyone needed to be apologizing [for not drinking,]” Patel remembers. “We refused to compromise.”

The pair perfected Seedlip’s formula and brand together before bringing the idea to DV’s investor board. The product “was not a hard sell,” Patel says. (It likely didn’t hurt that sole DV investor Diageo’s sales had been stagnant in 2015 after years of growth, according to its annual report; sales have risen every year since.) Three years, more than a million bottles sold and a just-announced alcohol-free aperitif line later, their gamble is paying off. DV says about a quarter of the companies it now funds are booze-free, and Seedlip leads its non-alcoholic category.

Alcohol companies like Diageo appear to have realized they’ll need to invest in a drier future if they want a seat at the bar — especially since signs point toward the trend continuing. Teen drinking is at record-low levels, according to 2019 federal data, and Dr. Nora Volkow, director of the National Institute on Drug Abuse, says that likely means alcohol consumption will be lower in the future, since most heavy drinkers start when they’re young. To keep up, alcohol makers are taking a page out of tobacco giant Altria’s book. In the face of plummeting smoking rates, Altria last year made a $12.8 billion investment in vaping company Juul, which has dominated the market by selling e-cigarettes that many smokers use to ditch the real thing.

Still, big alcohol isn’t exactly diluting its customer base by promoting non-alcoholic drinks. Lots of Americans still drink, and many drink too much. Roughly 56% of U.S. adults are regular drinkers, according to the latest federal data, and more than that imbibe at least occasionally. Drinking rates among young adults have declined only modestly over the past decade, and rates have held steady among those 26 and older. But the way people are drinking is changing, even if federal data doesn’t quite reflect it yet.

“For us, it’s not so much about abstaining or changing. It’s more that people are demanding choices in everything they do,” says DV’s North American portfolio director Heidi Dillon Otto. “[The future] is going to be, ‘I bought my $50 bottle of gin and my $40 aperitif that doesn’t have alcohol in it.’ It will be very normalized in that way.”

The non-alcoholic beverage market has come a long way from O’Doul’s, the iconic non-alcoholic beer (which, by the way, still exists and is seeing “steady growth,” according to a company rep). For some people, going sober is now more about a curated lifestyle, rather than out of medical necessity or in response to substance abuse. Millennials, the generation driving the $4.2 trillion global wellness market, are heeding increasing warnings about the health issues tied to alcohol, like higher risks of cancer and cognitive decline. (Because of such risks, one 2018 research review even concluded that there’s no safe amount to drink.) Among regular beer drinkers who said they were consuming less, for example, 40% attributed the switch to “opting for a healthier lifestyle” in a 2019 Nielsen survey; another 17% pointed to “health-related reasons.” Young people are also reporting record-high rates of anxiety and depression, and many are choosing to ditch or cut back on alcohol, itself a depressant, as an act of self-care.

That’s why Thonis and his Getaway co-founder Regina Dellea, 29, didn’t target their business to the recovery community. “We didn’t want it to be just one type of people, because there’s a bunch of reasons for people to not want to drink,” Dellea says. Exhibit A: On just one night at Getaway, one couple was experimenting with a month of sobriety, while a woman a couple tables over said she was burned out by her boozy consulting job.

Social campaigns are helping the trend snowball. Dry January, the annual month of alcohol abstinence, now attracts millions of followers. Loosid, an app aiming to be the “sober Facebook” — i.e., a booze-free dating, events and networking platform — has attracted almost 20,000 members since it started accepting users in late February. Daybreaker, a sober, early-morning rave that raised eyebrows when it launched six years ago, is now in 25 cities around the globe.

These wellness warriors are looking for beverages that are generally healthier than typical bar fare, either because of what they do contain (probiotics, adaptogens, tinctures) or what they don’t (alcohol, sugar, artificial ingredients). “Low-alcohol is part of something broader,” says Danny Brager, senior vice president of Nielsen’s U.S. beverage alcohol practice. “It’s calories, it’s carbs, it’s gluten-free, it’s organic, it’s probiotics. It all relates to this healthier lifestyle.”

Some wellness-minded consumers are also getting high instead of drunk, since almost 90% of millennials consider marijuana to be safer than alcohol, according to millennial-focused polling group the Tylt. (The science shows the comparison is more complicated: alcohol is addictive and strongly linked to cancer, but marijuana may affect cognitive development and mental health, and can damage the lungs when smoked.) Many pot users also drink, but a report from IWSR called cannabis “a long-term risk to all beverage alcohol categories in the U.S.,” given its ability to draw dollars away from boozy drinks.

Even if drinking never fades away entirely—after all, it’s deeply entrenched in nearly every culture’s traditions—there are signs that future generations will imbibe in ways their parents could only have imagined. Some advances on the horizon are far more dramatic than mocktails and seltzer water.

In the U.K., researchers are hard at work on a synthetic alcohol alternative that they say could revolutionize social drinking. Alcarelle, which has not yet gone through safety testing and is years away from hitting the market, is a drink designed to light up the same parts of the brain that make drinking alcohol fun, relaxing and sociable—in theory without causing hangovers, loss of control or health issues such as addiction and chronic disease.

“This is potentially a tectonic plate,” says David Orren, Alcarelle’s managing director. “We think that over time, the whole landscape for recreational drinking will change. We’ll have choices, and people will be able to make more intelligent and more informed choices.”

About three years ago, when Orren first teamed up with David Nutt, the neuropharmacologist behind Alcarelle, the duo dreamed of competing with the alcohol industry. But Orren says they’ve tempered that vision over time, and are now focused on partnering with the very companies their product is meant to rival.

“The only way we can win is if the alcohol industry wants this to happen,” Orren says. Their plan is to charge alcohol companies for licensing Alcarelle’s product, allowing them to use it as an alcohol alternative in some of their products. Early talks with beverage makers in Europe and the U.S. are already underway, but Orren declined to name specific companies.

Branson, of Seedlip, is glad big beverage is starting to pay attention. Alcohol companies were quick to get on board with cocktail culture, and soda companies astutely noticed that consumers wanted healthier options—but for a long time, Branson says, neither seemed to realize how much people wanted good replacements for booze.

“Now we have so many more different choices of where we can socialize and how we spend our time. We don’t just have to go for a drink. This hole [in the market] was starting to appear,” Branson says. “I don’t know that all the alcohol companies spotted this, or otherwise maybe they would have done more about it themselves, faster.”

Now that they’re on board, though, investments appear to be paying off. AB InBev says it’s about halfway to it’s goal of making a fifth of its beer volume low- or no-alcohol, and its revenue has risen from about $43.6 billion in 2015 to $54.6 billion, with nearly 5% growth reported in 2018 alone, according to annual reports. It’s hard to say exactly how much elective sobriety is driving that growth, but alcohol companies seem dedicated to the cause. And, following the success of Getaway, another alcohol-free bar recently blew past it’s crowdfunding goal to open a permanent location in New York City. Listen Bar plans to serve non-alcoholic beer and kombucha on tap. Later this year, it’ll even be joined by a first for the city: a sober karaoke bar, called Juicebox Heroes.