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.”

Beverage brands, distributors, and investors agree that the alcohol industry is in a period of rapid transformation, and players will evolve or cease to exist.

As health and wellness continue to drive purchasing decisions, especially for younger consumers, many Americans are reducing their alcohol consumption.

Roughly half of the lucrative 21 to 24 age group reported drinking alcohol, while 40% limited their consumption, according to Mintel data published last year. The average consumer drinks three alcoholic beverages per week, down from four per week this same time last year, according to an NC Solutions report released this month.

Traditional producers of booze are remaking their product lineups in the hopes of meeting a new generation of drinkers who have a unique and new set of needs and preferences. There’s an increasing fluidity and fast pace in the industry stemming from consumers looking for options and embracing innovative drinks.

As more consumers turn to nonalcoholic and low-alcohol offerings, industry heavyweights and upstart brands — from Molson Coors to Constellation — are launching or investing in alternatives to booze and broadening the beverage space in ways never before seen.

Beer and wine producers are pivoting to ready-to-drink offerings in a race to get ahead of shifting consumer demands. Spirits producers are focused on premium items and collaborative products, such as Diageo’s ready-to-drink Vita Coco Spiked with Captain Morgan.

Gen Z is “playing on many different chess boards,” said Spiros Malandrakis, head alcohol industry researcher at Euromonitor International. Hence, new categories are opening that never existed on a wide scale before this decade, particularly canned RTD items — from hard tea to whiskey-infused cola to THC-infused soda.

 

Household names change course

Franchise Equity Partners, a private equity firm, launched last year with the intention to invest in new and innovative beverage brands. Matt Hughes, the firm’s co-founder, previously helped lead beverage giant Coca-Cola North America’s $250 million alcohol platform — where it is now working on collaborations between beverage giants, such as Molson Coors and Brown-Forman on offerings like Jack Daniels Coca-Cola, Topo Chico Spirited and Hard Peace Tea. Hughes said consumer trends are shifting each year, and the white space available to new categories keeps expanding.

“During the pandemic, hard seltzers really became something significant from nothing and that was the first time you saw flavor become a significant reason for consumers to consume alcoholic beverages,” Hughes said. “The traditional category boundaries are blurred and broken down and that’s led the alcohol companies to want to enter the nonalcoholic space and vice versa.”

White Claw, the foremost beneficiary of the 2020 hard seltzer boom and still the bestselling offering in the category, sees the writing on the wall as seltzer has plateaued. The brand launched a nonalcoholic offering for the first time this month, White Claw 0% Alcohol, focused on “taste and complexity” aimed at consumers who still want to drink but without the effects of a hangover.

Other ready-to-drink canned offerings are launching in the hopes of meeting Gen Z consumers who want to drink but are looking for something fresh.

Alcohol giant Molson Coors will launch Happy Thursday, a spiked refresher beverage line, in March in four fruity flavors. The cans contain 4.4% alcohol-by-volume and are non-carbonated after focus group data clued the company into an unmet desire for a drink that doesn’t contain bubbles in order to avoid bloating.

Beer and wine reshuffling to fend off stagnation

After several years of high growth, the beer market has dipped in recent years, largely attributed to an oversaturation of craft brews in the space — leading to the shuttering of brands like San Francisco’s 127-year-old Anchor Brewing.

Last year, the long-running leading brand in the beer category, AB InBev’s Bud Light, was dethroned as the top seller by Constellation Brands’ Modelo brand. Bud Light’s decline was fueled by a backlash to an advertising campaign featuring transgender influencer Dylan Mulvaney. Last July, AB InBev announced a $33 million investment in technology to help it develop nonalcoholic beer products.

In December, Constellation’s CFO Garth Hankinson said the beer category’s slumping revenues were caused by a growing interest in higher-end offerings.

The wine category also faces significant hurdles as younger consumers opt for ready-to-drink offerings, instead of purchasing a bottle or box of wine. This month Constellation’s CEO Bill Newlands told investors in the most recent earnings call that the company is reshaping its wine team to improve its performance among the pivotal Gen Z demographic. The alcohol giant projected 7% to 9% year-over-year losses in its wine and spirits category in the first quarter of 2024.

“Of course, we are not pleased with these revisions and both our leadership team and our wine and spirits teams remain fully committed to improving the performance of this business and to achieving its medium-term targets,” Newlands said.

Malandrakis said many younger drinkers who would have become beer or wine consumers in previous generations are opting for alternatives that either eschew alcohol or contain cannabis.

Younger people already perceive cannabis to be much less dangerous than alcohol, he said, and nonalcoholic products still hold appeal with Gen Z consumers who only want to imbibe occasionally.

“These products target the demographic that used to be binge drinkers in previous decades. It’s all about the sober curious lifestyle shift,” Malandrakis said. “They’re cool, trendy products for the nights that you don’t want to drink, but some other days and nights you still will want to drink alcohol.”

Athletic Brewing, the leading brand in the nonalcoholic beer space, is leaning into its better-for-you attributes, such as low calorie and carb counts, to win over consumers who are still looking for a booze-free beverage to drink at bars and breweries.

“People for thousands of years have fallen in love with the taste of malt and hops, and like to relax with friends and family,” said Athletic’s CEO Bill Shufelt. “That’s the experience we’re really trying to deliver on.”

Shaking up the spirits space

While some data supports the idea that mixed drinks are benefiting from the collapse in wine and beer offerings, there’s still the fact that Gen Z consumers are just drinking less alcohol.

Spirits producers also face the challenge of higher costs and to counter this reality, premium offerings are trying to fill a niche.

Rum giant Bacardi detailed in its 2024 cocktails report that consumers want offerings that provide a small amount of luxury that last longer. Michael Esposito of Franchise Equity Partners said certain beverages, such as Latin-influenced offerings, benefit from consumers seeking more variety in what they drink.

Moving beyond beer, Molson Coors is investing more heavily in premium spirits. such as upscale whiskey, which CEO Gavin Hattersley described in a press release as the category with the biggest growth-driving potential.

However, the challenging economic environment presents difficulties for investors on the distribution side who may not know whether their bet on a new brand will pan out.

“There are so many new products that come out every year and some brands fail. There’s a lot of churn so it’s a challenging environment,” Esposito said. “Diversity has value as brands cycle through, along with distributing in a lot of states that provide a layer of protection to the distributor.”

Malandrakis said trends in Europe can inform the beverage industry about where purchasing power is headed. Nonalcoholic beverages, which are expected to grow at a compound annual growth rate of 3.2% through 2027 according to Statista data, have widely permeated Gen Z consumers across the pond.

“The U.S. has had a very fraught and interesting relationship with alcohol through the ages, and many consumers are not aware of the nonalcoholic beverage space yet,” Malandrakis said. “It’s the biggest disruptor of the alcohol industry of the last 2000 years.”

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By BlueGrace Logistics

Understanding and adapting to the ever-changing retail demand is essential for shippers looking to succeed in their industry. Whether it's the seasonal spikes or sudden increases due to events, being able to predict and adjust to these fluctuations is key. In this blog, we'll explore practical strategies tailored specifically for food and bev shippers, focusing on forecasting methods and inventory management practices that can effectively address retail demand shifts.

Grasping demand dynamics

In food and beverage shipping, demand can vary significantly based on factors like seasons and events. For instance, as we approach the spring, there might be a rise in demand for refreshing beverages like iced tea or lemonade, and as Major League Baseball (MLB) ramps up, there's a noticeable surge for beverages like beer or bottled sodas. Additionally, with outdoor gatherings becoming more prevalent, there could be an increased need for snacks suitable for picnics and barbecues, like chips, salsa, and charcuterie platters. This highlights the importance of staying attuned to current events and seasonal trends to anticipate and respond to fluctuations in retail demand in real time.

Forecasting with precision

Accurate forecasting is fundamental for managing demand effectively. Food and beverage shippers can achieve this by analyzing historical data and market insights. Utilizing advanced analytics and forecasting models can help identify patterns, seasonality, and emerging trends. Working closely with retailers and distributors to gather real-time data can further enhance the accuracy of forecasts.

Optimizing inventory management

Once forecasts are available, the focus shifts to managing inventory efficiently to meet anticipated demand. Proactive strategies involve strategically positioning and replenishing inventory. For perishable items like food and beverages, adopting just-in-time (JIT) inventory practices can reduce costs while ensuring freshness. Leveraging technology like RFID tags and IoT sensors enables real-time inventory tracking, allowing for quick adjustments in response to demand fluctuations.

Embracing flexibility

Flexibility is vital in the volatile retail landscape. Food and beverage shippers must be prepared to scale their operations up or down rapidly to meet shifts in demand. This may involve establishing strategic partnerships with a third-party logistics (3PL) provider or investing in scalable infrastructure. A 3PL not only offers scalable solutions but provides the expertise to streamline your logistics operations and reduce overhead costs, all while allowing your team to focus on their core business activities. Maintaining agility in supply chains enables shippers to adapt swiftly to changing market conditions, seizing opportunities and minimizing risks.

Fostering collaboration

Effective collaboration across your supply chain is essential for navigating retail demand fluctuations successfully. Maintaining open communication with retailers, distributors, and suppliers enables proactive planning and coordination. By sharing insights and data transparently, all stakeholders can work together to optimize inventory levels, minimize stockouts, and capitalize on emerging opportunities.

Striving for continuous improvement

Demand forecasting and inventory management are ongoing processes that require continuous refinement. Food and bev shippers should regularly review and adjust their forecasting models based on performance feedback and market dynamics. Embracing a culture of continuous improvement ensures adaptability and responsiveness to evolving consumer preferences and market trends.

In sum, food and beverage shippers can effectively meet retail demand fluctuations by understanding demand dynamics, employing precise forecasting methods, optimizing inventory management practices, embracing flexibility, fostering collaboration, and striving for continuous improvement. By implementing these strategies, your business can navigate the challenges of the retail landscape with confidence and success.

Bacardi, known primarily for its namesake rum, is leveraging its expertise in the alcohol space to satisfy growing desire for premium offerings across different spirits categories.

In the press release, the spirits giant said the deal will help it capitalize on growing interest in alcohol containing agave, which includes mezcal and tequila. This category is projected to become the sixth-largest globally, and the U.S. has 86% market share of the super-premium mezcal category, IWSR data cited by Bacardi said.

While a beverage must contain at least 51% of blue agave to be called a tequila, mezcal can contain over 40 different strains of agave. The two liquors are also produced differently, with mezcal requiring the charring of the agave plant used.

Ilegal touts itself as an artisanal and sustainably produced mezcal, created using ripe agave in pit ovens and tahona mills in the Oaxaca region of Mexico, without any artificial flavors or additives. It was founded in 2006 by John Rexer, who said he aims to protect the environment and improve the local culture of the town it is produced in.

“We will always be committed to artisanal production, the Oaxacan community, and our core values,” Rexer said in the press release. “Being a part of Bacardi will bring ILEGAL to a larger audience while maintaining our commitment to sustainability and growing the business responsibly.”

Ilegal is available in three varieties — Joven, which contains a lightly smoky flavor; Reposado, which is aged six-months in medium-charred American oak barrels; and Añejo, aged for 13 months in new and used charred oak barrels.

Bacardi, which owns brands like Patrón tequila and Grey Goose vodka, has made other strategic investments in recent years as it aims to secure market share in the premium liquor space. Earlier this year, the company resolved a legal battle with rapper Jay-Z by buying a majority stake in his super-premium cognac D’Ussé, which Bacardi developed with the entertainer.

Despite being known best for mainstream beers such as Miller Lite and Blue Moon, Molson Coors is leaning heavily into the premium alcohol space as it diversifies its portfolio.

Since Hattersley took the reins in 2019, the company has grown its market share outside of the stagnant beer space. The CEO told Food Dive the company’s portfolio was “pretty challenged” during that period because consumers were looking for other options like hard seltzers and energy drinks. He made the decision to overhaul its corporate structure and prioritized branching out to the wider beverage industry.

“Getting to growth was the focus of our 2019 Revitalization Plan, and as a result of three plus years of work we are on track to deliver our second straight year of top and bottom-line growth,” Hattersley said in a statement. “We turned around Molson Coors over the past few years, and our focus now is on accelerating the growth we created in the years ahead.”

Over the past three years, this plan has included the launch of canned products in trendy categories, like Vizzy Hard Seltzer, and three collaborative products with beverage giant Coca-Cola: Simply Spiked lemonades, Topo Chico Hard Seltzer and Peace Hard Tea. The company noted the success of Simply Spiked and Arnold Palmer Spiked helped increase sales revenue in its “Beyond Beer” product line.

Molson Coors has recently turned to M&A to bolster its presence in spirits.

In August, the company made its first acquisition of a spirits brand when it bought Blue Run Spirits, a Kentucky-based premium craft whiskey producer, for an undisclosed amount. In a statement, Molson Coors’ chief commercial officer Michelle St. Jacques said the purchase of the whiskey maker marked the beginning of an effort to build a strong lineup of spirits.

As many consumers begin drinking less, Hattersley’s new approach for Molson Coors has also brought it into the nonalcoholic beverages category.

Last month, Molson Coors expanded its partnership with Zoa Energy, a premium zero-sugar energy drink co-created by actor Dwayne “The Rock” Johnson, increasing its marketing and distribution. The beverage saw a 138% increase in sales in 2022, netting $100 million, according to the company. And earlier this year, the Miller High Life maker debuted Roxie, a line of nonalcoholic ready-to-drink cocktails aimed at millennials and Gen Z.

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.

As Liquid Death sees demand for its products surge, investors are, not surprisingly, interested in owning a piece of the company. 

The $1.4 billion valuation is a “strong increase over prior funding rounds,” the Los Angeles company said. The last funding round for Liquid Death occurred in October 2022 when it raised $70 million, valuing the brand at $700 million.

Liquid Death said its financial needs have been “accelerated by higher than anticipated retailer demand” for its new sparkling water and iced tea flavors expected to launch this spring.

“Liquid Death has become the fastest growing and leading brand across the water, flavored sparkling water, and iced tea categories,” Mike Cessario, founder and CEO of Liquid Death, said. “We continue to see extremely strong consumer and retailer demand and are proud to have raised a strategic, oversubscribed, ‘up’ round to fuel our growth.”

The funding round continues what has been an active period at Liquid Death. 

Once known just for its water and eye-catching name, Liquid Death has moved aggressively to expand its presence in the beverage category. It has entered flavored sparkling water, iced tea, and earlier this year a new category with the introduction of Death Dust — an electrolyte drink mix available in three flavors: Severed Lime, Mango Chainsaw, and Convicted Melon.

Liquid Death, known for its tagline of “Murder your thirst,” reportedly hired Goldman Sachs last summer to help it with an IPO later this year. It also appointed former White Claw executive Stephen Ballard as its first chief commercial officer last October where he will oversee field sales, distribution, national accounts, and international expansion.