How the beverage category is shifting

Gen Z consumers, born between 1997 and 2012, are changing the scope of the alcoholic beverage market. Nearly one-third, 27% of the generation, claim they never drink — something the industry is quickly attempting to contend with. Traditional giants in the alcohol space are branching out and delving into creative products and nonalcoholic offerings.

“I’ve spoken to all the alcohol players for decades, and when I speak to them these days, very rarely do they want to talk about alcohol,” Spiros Malandrakis, the head alcohol industry researcher at Euromonitor International, told Food Dive. “They all have this ultimate goal of becoming total beverage companies.”

Despite this greater interest in abstaining, according to Civic Science data released in July, the generation has a range of dynamic drinking behaviors.

Moderation is taking more precedence among young consumers that do decide to indulge. According to Mintel data published in June, 40% of 16 to 24-year-old consumers reported limiting their alcohol consumption in the last year. Common reasons given for cutting back include wanting to reduce “hang-xiety”, the negative effects of a hangover on mental health.

Nearly half of adults between 21 and 24 years old reported consuming alcohol daily or weekly, the research group found. This data was actually higher than those over 25 saying they consume alcohol regularly.

The concept of “damp drinking” — making an effort to limit alcohol consumption without cutting it out entirely — has been a viral topic on social media, particularly TikTok, in recent years. A Morning Consult survey published in May found 1 in 3 young drinkers had heard of the concept, and over half of those consumers are willing to try it.

Young consumers reshape the beverage landscape

The types of alcohol Gen Z is taking an interest in is changing expectations. According to a Berenberg Research report shared by Business Insider in May, a greater majority of consumers preferred spirits like gin or vodka to beer and wine. Low- and no-alcohol beverages are continuing to grow in popularity, reaching $11 billion in sales in 2022 according to IWSR, which noted earlier this year that the category still has room to grow.

Gen Z is also seeking more unique, global tastes from their alcoholic beverages, including ones originating in Asia and South America, according to a report from flavors company T. Hasegawa.

Hard seltzer has seen its sales level out after booming in 2019 — with brands like White Claw and Boston Beer’s Truly outlasting other players in the space — but the category remains profitable, worth over $17 billion in 2023 according to Statista.

The RTD category is evolving as beverage makers seek to capture the quickly evolving tastes of younger consumers. In March 2024, Molson Coors will debut Happy Thursday, a line of non-carbonated spiked refreshers — which it created using insights from a panel of Gen Z consumers — to establish an offering that helps drinkers avoid bloating and burning.

Malandrakis said experimentation and variety are the defining characteristics of young consumers’ drinking behavior.

“Gen Z is brand and category promiscuous when it comes to alcoholic beverages, compared to consumers in the past who were wedded to specific categories and continued drinking the same whiskey or beer for decades,” Malandrakis said.

Gen Z’s different approach follows the cyclical nature of generations seeking to differ their taste and style from their predecessors. This happened before with drinks like coolers, which shot to popularity among young people in the 80’s and 90’s, according to Malandrakis.

“The whole millennial hipster community was associated with the rise of craft beer, but now these hipsters have kids, and it’s not as cool to them,” Malandrakis said.

The beverage category is ballooning with a mix of alcoholic and non-alcoholic RTD cocktails.

Molson Coors also released Roxie, a line of nonalcoholic RTD cocktails, earlier this year. Boston Beer is aiming to capitalize on cannabis as an alternative to drinking for some younger consumers, with its THC-infused iced tea brand TeaPot which debuted in 2022.

Soda giant Coca-Cola has capitalized on the desire for spirits-based drinks with an array of spiked offerings in the past two years, including Topo Chico Hard Seltzer, a Jack Daniel’s and Coke RTD cocktail and a newly announced Absolut Vodka and Sprite cocktail which will debut in 2024.

Malandrakis predicts nonalcoholic cocktails will continue to gain steam in the U.S. in the next few years, following Europe, where they are a staple of young consumers’ consumption.

“Gen Z is playing on many different chess boards, and you have to meet them where they are,” Malandrakis said. “I think this great convergence, or the blurring of category lines where alcoholic players are entering the nonalcoholic arena, will continue to be the name of the game.”

When Unilever bought electrolyte-infused beverage mix maker Liquid I.V. for an undisclosed amount in 2020, it could have amounted to a pandemic fad, as consumers sought out food and beverage items with added health benefits. But the hydration drinks category has since proven steadily lucrative — with major companies eager to capture the many thirsty consumers looking for new beverage alternatives.

The craze originated in the mid-2010’s with the success of Pedialyte, an electrolyte-infused beverage used to treat dehydration in infants. Previously only a staple of the baby food aisle, it gained popularity in the 2010’s among college students and young consumers looking for a hangover cure. The brand appeared in tents at the Coachella Music Festival in 2018 and influencers began promoting the drink more prominently.

Erwin Henriquez, a beverage industry expert from Euromonitor International, said this was an unintended consequence for a beverage that cured dehydration.

“It wasn’t necessarily a consumption occasion that Pedialyte was actually pursuing, it was just young people figuring out that they could use the drink in a different way,” Henriquez said.

In recent years, many of the behemoths in the beverage space, along with smaller brands, have acquired or developed hydration-focused beverage brands to differentiate themselves.

PepsiCo officially launched Gatorade Water last month, as the sports drink staple seeks to keep the brand relevant amid a changing environment. Sports drink BodyArmor — purchased for $5.6 billion by Coca-Cola in 2021, its largest acquisition to date — entered the category last year with BodyArmor Flash I.V., available in bottles and in a powder format which it launched last fall. Keurig Dr Pepper reached an agreement last October to sell and distribute Electrolit, available in a variety of flavors at convenience stores alongside energy drinks. And Waterdrop sells electrolyte-infused cubes that create “microdrinks” when added to water.

The electrolyte drinks market is projected to be worth nearly $59 billion by 2032, growing at a compound annual growth rate of 5.9%, according to Precedence Research.

 

Are the drinks better-for-you?

For experts in the beverage industry, the rapid growth marks a significant change, particularly in the beverage mix category which had been in decline with brands like Crystal Light falling in popularity with consumers seeking trendier offerings.

“I’ve been getting emails from companies all around the world asking, ‘Why are powder mixes and concentrate growing so fast?’ It had been dying off in the last decade because consumers thought of them as highly sugary and not natural products,” Henriquez said. “Here I think consumers feel like they’re actually making a choice to add something to their drink that makes it better for them, and that’s a powerful connection that wasn’t there before in sweet, fruity concentrate mixes.”

But while the need for hydration is addressed with the products, their nutritional attributes and functionality may be hard to achieve at the same time.

Liquid I.V., known for its powder packets that are poured and stirred into water, launched a zero-sugar line last year, containing an amino acid allulose blend to sweeten the drinks, according to the brand. Henriquez said the offerings without sugar do not contain as many electrolytes as its offerings with sugar, which could create a conundrum for brands looking to also maintain a low or flat sugar count.

Henriquez said he wouldn’t be surprised if leading energy drink brands begin selling powdered concentrate versions of their drinks to capitalize on the shift toward hydration.

“You can see companies starting to merge the concept of hydration and energy, with companies like Celsius saying that it’s an energy drink but also a sports drink with amino acids and all this other stuff that’s adjacent to hydration,” Henriquez said.

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A quickly evolving spat between the U.S. and its trading partners in Mexico and Canada has left alcohol producers on edge, with experts warning of potential price increases and other unique challenges for beer and spirits manufacturers.

A 25% tariff on Mexico and Canada on Monday was quickly walked back by President Donald Trump after the countries negotiated a 30-day delay. Despite the pause, experts and industry insiders are bracing for a trade war as Trump looks to leverage tariffs as a negotiation tool with other countries.

The beer industry — which relies heavily on imports from Mexico — would be particularly vulnerable if tariffs go into effect. Roughly 81% of U.S. beer imports came from Mexico in 2023, according to Statista data.

Constellation, which owns Mexican beer brands such as Corona, Modelo and Pacifico, could also see a hit to its best-selling brews. Mexican imports make up roughly 85% of Constellation’s revenues, according to a note from Michael Lavery, a senior research analyst at Piper Sandler.

The challenge for Constellation would be balancing price increases without providing a boon to competitors like Anheuser-Busch and Molson Coors, which produce their beer in the U.S., Lavery said. CEO Bill Newlands told investors last month Constellation would change its approach based on how the tariffs situation plays out. Constellation did not respond to a request for comment.

While consumers have more options to switch between beer brands, there are fewer ​​​​​​choices in spirits because the industry is more tied to location. Kentucky bourbon, Mexican tequila and other iconic alcohol associated with countries or regions are among the products most at risk of tariffs.

Following Trump's tariff threats, Canadian Prime Minister Justin Trudeau responded with the prospect of retaliatory duties on spirits produced in Republican-voting states.

"It's a very clear implication that the iconic American brands like spirits, like a bourbon from Kentucky, are going to be targeted and singled out because of their American iconic status," said Tom Madrecki, vice president of supply chain resiliency at the Consumer Brands Association.

The geographical factor

While the U.S. sees tariffs as a way to spur domestic manufacturing, many producers can't simply move their base of operations. In many cases, their location is paramount to why they are successful products in the first place, according to Spiros Malandrakis, the head alcohol researcher at Euromonitor.

Regulatory constraints also add more complications. Under Mexican law, tequila can only be produced in the state of Jalisco from the region’s agave. In the U.S., Kentucky bourbon is tied to the state because of its unique weather conditions that give the drink its flavor.

“Consumers on both sides are … wanting both of those products because they are different, and so it just ends up driving up the cost for everyone,” Madrecki said.

Alcohol producers could attempt to recreate some region-specific products, Malandrakis said, but this risks alienating consumers in the process.

“You lose part of the brand identity and the reasons why consumers buy alcohol if you are forced to produce it in an entirely different place," Malandrakis said.

Still, due to the chaotic and unpredictable nature of trade wars, Malandrakis warned domestic producers of alcohol against seeing the tariffs as a benefit to their businesses. Broad tariffs, he said, could also depress alcohol spending altogether if inflation leads to lower cash flow overall.

“I don’t see producers of craft domestic beer or California wines capitalizing when people have less money in their pockets,” Malandrakis added.

While consumers may be drinking less beer, the head of a trade group representing the space says alcohol-free products provide an opportunity for expansion.

Justin Kissinger, the CEO of the World Brewing Alliance, said beer makers are leaning into the nonalcoholic movement to grow their consumer base.

“What that tells me is that brands remain an important part of the consumer aspect of the category,” Kissinger said. “Companies are leveraging these brands to bring growth to the sector and introduce consumers to new styles and varieties.”

He added that the production of nonalcoholic beer could reach 56 to 58 million liters in the next five years. Alcohol-free brews are projected to be worth $5.5 billion by 2034, increasing at a compound annual growth rate of 7.1%, according to Future Market Insights.

Kissinger pointed to the success of nonalcoholic brews such as Heineken 0.0% and Athletic Brewing’s offerings as a gateway toward getting more people to consume the beverages. Athletic, which was valued at $800 million last year, raised $50 million from investors in its most recent funding round.

“Athletic has been great about bringing a variety of craft styles into the zero alcohol space, which I think creates a permission slip for the broader craft brew movement to start putting out those products,” Kissinger said. “It brings people into occasions where maybe before they would have been excluded.”

The World Brewing Alliance’s member companies include AB InBev, Molson Coors, Heineken and Carlsberg. Kissinger said executives at these and other companies are focused on expanding the occasions they serve.

“That comes from a place of providing consumers with options that keep them in the beer category and don’t force them to make choices one way or another based on the time or place that they’re in,” he said.

 

Looking beyond traditional beer

Major brewers are also diversifying their product portfolios in non-beer categories.

In recent months, Molson Coors bought a minority stake in Fever Tree cocktail mixers and acquired a majority of Zoa energy drinks. AB InBev also is leaning into energy drinks, with a product line scheduled to launch this summer in collaboration with sports and entertainment mogul Dana White.

Kissinger said while consumers are returning to the beer category at levels comparable to 2019, their consumption habits are changing as they drink less outside of their homes.

Following its recent growth, the nonalcoholic space is hoping to avoid the pitfalls plaguing the once-red-hot craft beer industry.

Craft beer, which saw tremendous growth in the early 2010s amid the rise of IPAs, has seen its success plateau due to an oversaturation of brewers, according to analysts. Kissinger noted that local breweries continue to drive the craft scene, with 86% of their economic value captured in the geographic area where they are produced.

The World Brewing Alliance CEO said the success of America’s craft beer industry has inspired other countries such as Mexico, Brazil, the UK and Germany to create their own respective local brewery scenes.

“We may hit a moment of macro growth slow down [for craft] in terms of the total beer segment, but I don’t think that diminishes the role of the sector or its opportunities in the future.”

When the first alcohol-free spirits hit the market a few years ago, they needed serious zhuzhing to taste even remotely palatable.

Previously, using nonalcoholic spirits often meant adding layers of extra ingredients — not to mention sugars and calories — to build even a halfway decent cocktail, and they weren’t designed for neat sipping. However, as the zero-alcohol market continues its upward trajectory, the products are improving in standalone quality and variety.

Bar Convent Brooklyn is one of the largest beverage industry conventions in the U.S., and while the event mainly caters to the hospitality side of alcohol, some of the busiest booths and seminars at BCB 2025 in June featured low proof (50 proof or 25% ABV and under) and zero proof drinks. Big-name talent helped draw crowds, but the real driver was demand: Bars are now expected to offer non-alc options while keeping costs low.

In recent years, the failure of zero proof-only venues showed that these products work best alongside alcoholic ones — especially since they are similarly priced. Early options, often made from tea, botanicals, and/or flavored distilled water, tasted more like herbal soda or sugary water with synthetic enhancements than true spirit alternatives. The most successful new offerings are dealcoholized distillates, designed for slower sipping and made using processes, such as reverse osmosis or vacuum distillation to retain authentic flavor.

“The cost of quality ingredients, production, packaging, and flavor development is very real — excise tax aside, non-alc doesn’t necessarily mean cheap to make,” said Mehmet Ünlü, Co-Founder, CEO, Undone, which produces premium nonalcoholic spirits and recently launched in the U.S. “We preserve the spirit’s original flavor profile through careful dealcoholization and flavor layering, which means we don't have to fake it — we just elevate it.”

Now, nonalcoholic options have something for everyone. The convivial zero-proof aperitivo and non-alcoholic amaro subcategory, for example, are key drivers in this market, with even the biggest traditional cocktail snobs taking a sober break for these flavorful, satisfying but less sugary amaro alternatives, such as Pathfinder Hemp and Root, Figlia, and Kin Euphorics.

“I’ve always loved the ritual of aperitivo that moment of pause before a meal when you’re winding down with friends or preparing to enjoy good food,” said Paul Mathew, founder of Everleaf nonalcoholic aperitifs. Everleaf’s three core expressions — Forest, Mountain and Marine — are all created to consume as one would the components of a spritz or other bitter cocktail.

“We pay close attention to how flavors evolve on the palate, with a bitter component to all three for that long finish,” Mathew said. “As a bartender, I’ve always enjoyed working with them for that intensity and balance of flavor that’s bitter, aromatic and layered—characterful. They’re designed to open up the palate and spark conversation.”

One of the key components of a proper cocktail are the bitters — the ones that are dashed or dropped into drinks to add depth of flavor — but they are produced from a base that is high in alcohol to carry the intense pop of botanical extract.

To fully go sober means giving up on bitters too, even if just a couple of drops in soda don’t amount to much ABV. Now there are nonalcoholic bitters brands, such as Seasn and the women-owned El Guapo, that offer a range of flavor possibilities to meet that necessary call.

The zero-proof RTD segment has been getting an upgrade too, and brands, such as Lyre’s, St. Agrestis, Free Spirits, Mockly, Bar Diver, Edna’s, and Ghia, offer products that sip like their alcoholic cocktail counterparts with depth of flavor and heavier viscosity. Most of them are low on sugar too, with 80 calories or less per serving, and they don’t drink like a soda but a real crafted cocktail.

No matter the category, innovation is moving the needle. Producers are dialing in complexity, balance, and texture in ways that now more closely mirror their alcoholic counterparts and can sometimes even offer new sensory experiences that stand on their own.

As the category matures, it’s becoming clear that these drinks aren’t just substitutes — they should be considered as part of the team. But there is an expectation that nonalcoholic spirits should come with a close to zero-proof price tag.

“There’s a common assumption that because a drink doesn’t contain alcohol, it should be cheaper,” said Mathew. “But alcohol itself is often one of the least expensive parts of a drink to produce. What really drives cost in the non-alc space is everything else: the quality of ingredients, the complexity of flavor development, and the production techniques we use to replicate the depth and texture that alcohol naturally brings.”

Soda and juice giant Coca-Cola is using one of its best-known brands to test the potential of a strategic pivot into the complex alcohol category.

This month, the company debuted canned vodka-infused varieties of its Minute Maid drinks, including pink lemonade and fruit punch, which have 5% alcohol-by-volume. The line joins existing Minute Maid canned cocktails, including wine-based Strawberry Daiquiri and Lime Margarita.

Coca-Cola has pushed deeper into alcohol in recent years, such as its collaboration withJack Daniel’s and the Europe-exclusive launch of Absolut Vodka with Sprite alongside Pernod Ricard. The soda company introduced a subsidiary called Red Tree Beverages in 2023 in order to more easily get its products to market and past regulation.

Rachael Waddell, the senior director of Red Tree Beverages, said the company is working to strike while the iron is hot on the quickly evolving ready-to-drink alcohol space.

“Alcohol ready-to-drink is our first category, it’s all we do and all we participate in,” Waddell said. “We really tap into the existing behaviors and rituals that consumers are already doing with our non-alcoholic products.”

Red Tree’s internal testing identified an opportunity for juice products mixed with spirits, as consumers frequently mix lemonade with liquor at home. While the subsidiary develops and markets the products, it does not distribute alcoholic beverages, according to a report from Brewbound.

According to Waddell, Minute Maid provided a dynamic opportunity as a mixed alcoholic drink because of its “100% brand awareness.” She said the brand’s Vodka Pink Lemonade is the first alcoholic pink lemonade product in the RTD category. Given Minute Maid’s popularity with children, she said the brand made clear on its packaging labels and cans that the drink is only for consumers over 21.

“There’s no fizz and it’s perfect for so many occasions consumers celebrate, particularly in the summer, whether it’s at the ballpark, a tailgate or a barbecue,” Waddell said.

Non-carbonated, juice-based drinks have become a new frontier in the ready-to-drink alcohol space. Coke’s Red Tree is bringing its Minute Maid Spiked drinks to stores amid the rise of several noteworthy competitors in RTD cocktails.

Vodka-infused tea and lemonade brand Surfside rapidly became the second best-selling spirits RTD brand in the U.S. last year after its launch in 2022. Other players in the canned vodka cocktail space include Sprinter vodka sodas, co-founded by reality star Kylie Jenner, and Boston Beer’s Sun Cruise vodka iced teas.

The overall RTD cocktail space is projected to be worth $3.6 billion by 2033, with vodka offerings making up over 19% of those drinks in 2023, according to Future Market Insights.

During the second half of the twentieth century, the unofficial drink of Philadelphia's Fishtown neighborhood came in a milk carton. But it wasn’t the popular dairy offering. It was iced tea.

The admiration for iced tea in the city caught the attention of Matt Quigley and his brother Bryan, who ran a regional craft spirits business. They spotted an untapped market for an alcoholic version of iced tea.

“People in the area are drinking a heck of a lot of tea,” Matt Quigley said in an interview with Food Dive. “We found [hard tea] is a massive category, and only a few players had been in it.”

The result was Surfside Iced Tea, a vodka-infused tea and lemonade brand that debuted in 2022. It didn’t take long for the beverage to catch on with consumers beyond the City of Brotherly Love. Surfside was the second best-selling spirits-based RTD brand in the U.S. last year after High Noon, according to an analysis by Impact Databank.

As more consumers look for canned cocktails with high-quality spirits, Surfside believes it can build a brand that competes with more established players. While White Claw has stabilized its position as the top malt-based seltzer, Surfside thinks it can occupy a similar space for vodka-based cocktails.

“We want to be the White Claw of this category,” said Clement Pappas, Surfside’s CEO. “When the dust settles and the music stops, we want to be the brand that is synonymous with [vodka cocktails].”

Surfside is owned by Stateside Brands, which itself is an extension of the Quigley brothers’ craft vodka business. In addition to Surfside, the company sells Stateside vodka and a line of vodka sodas.

But Surfside, which is planning to expand beyond the Northeast this year, has proven to be the most successful. The brand sold 4.9 million cases to retailers in 2024, experiencing 378% growth compared to the previous year.

For years, Boston Beer-owned Twisted Tea was one of the only dominant players in hard iced tea. Quigley, who is president of Surfside, said there was an opening for a better-for-you offering with lower sugar that uses vodka instead of malt liquor.

Pappas said the stratospheric growth of malt-based beer alternatives in the late 2010s “went boom-bust pretty quick,” because consumers began craving higher quality spirits in the drinks.

But beyond the use of spirits, the Surfside team believes its success comes down to its simplicity and packaging.

The brand learned from others in the RTD category in recent years, including Bud Light Seltzer which was “highly confusing to the consumer,” Quigley said. Surfside plans to stay in vodka and is not planning to introduce drinks infused with other spirits such as gin or tequila.

“Our whole mindset is to keep the message really, really simple so people know who we are,” Quigley said.

Spirits-based RTDs are gaining traction with consumers looking for bar-quality drinks they can drink at home or parties. Sales in the category are projected to increase by 6% annually through 2028, according to IWSR.