Seedlip: Alcohol-free spirits won’t ‘steal share’ from booze brands

With alcohol consumption falling as drinkers grow more health-conscious, The Spirits Business assesses whether non-alcoholic spirits could be the next breakout category.

What place do alcohol-free spirits have in the drinks industry?

Earlier this year, Diageo, the world’s largest alcoholic drinks group, confirmed its investment in Seedlip, the world’s first non-alcoholic distilled spirit, through venture capital programme Distill Ventures. Some commentators thought the move curious – could the maker of Smirnoff vodka and Johnnie Walker Scotch whisky really be supporting tee-totalist trends? Was the group’s portfolio moving in a radically different direction? Could Seedlip really sit alongside Don Julio and its brethren on the back bar? But for Diageo, the deal made perfect sense.

“We definitely see that there are occasions when people want an adult drink that’s non-alcoholic,” said the group’s CEO, Ivan Menezes during a financial presentation this summer. “In Africa we have a big business with Guinness Malta and Guinness Zero in Indonesia. We want to be at the front end of this as we do see an opportunity when consumers want a choice of beverage that doesn’t have alcohol and we want to participate in this.”

Launched in the UK last year, Seedlip is made using six individually distilled barks, spices and citrus peels, taking inspiration from the 1651 book The Art of Distillation, which details the production of non-alcoholic herbal remedies. It is the concept of British entrepreneur Ben Branson, who uses his “kitchen in the woods” to experiment with different alcohol-free formulae in a bid to combat what he believes is a shortfall in the drinks trade.

“I want to solve the problem of what to drink when you’re not drinking at a global, premium level,” says Branson. “It’s a universal fact that Coke and fizzy water are not grown-up drinks. Global sales are down and we want to make the most of this opportunity. I don’t want Seedlip to be small, because the problem we are facing is big, but to solve it quickly and at a top level, someone has to help us.”

Seedlip capital

Distill Ventures, the Diageo-backed investment scheme for start-up or rapidly growing spirits companies, made Seedlip its first alcohol-free funding recipient in July this year, allowing the brand to move closer to its goal of launching in international markets.

Seedlip had already established itself as a rapidly emerging fledgling business, launching its first portfolio extension less than a year after the brand’s market debut. Branson also reveals that he is planning to launch a third addition to the line – the variant will feature new ingredients and will be “another world first”.

The rapid growth of Seedlip and its big-name backing both mirror industry trends, according to William Grant & Sons’ UK Market Report for 2016. The document states that alcohol consumption is in long-term decline, with volumes down 19% since 2004. Nearly one-third of Londoners do not drink alcohol at all, while millennials are leading the abstinence trend among the generations. Under-30s once made up the largest alcohol-consuming demographic – now they are the smallest. Against this backdrop, Diageo’s investment is less surprising.

Distill Ventures has not disclosed how much it has invested in Seedlip, but Diageo typically takes a 20% stake in the companies its subsidiary invests in, with a view of acquiring them outright at a later date.

Going soft?

CEO Menezes has sought to mitigate conjecture that the firm sees a new future in soft drinks, claiming that despite its interest in alcohol-free offerings, Diageo will “stay in the consumer space where our brands play”. To this, Branson adds: “In very simple terms, Seedlip is made in the same way as an alcoholic spirit and it sits on the back bar like an alcoholic spirit. We sit quite comfortably in a producer’s or a distributor’s portfolio, because we are in the same space.”

However, if Seedlip can sit so comfortably within the spirits realm, is it possible that the brand could swipe market share from some of its alcoholic stablemates? Branson believes not: “Those occasions where consumers are on the fence [about whether to drink alcohol or not] are a great opportunity for us, because spirits brands are not looking here. Their heartland is Thursday to Saturday, so we are not trying to steal share here. Our real steal comes from orange juice and sugary drinks that don’t fit the occasion.”

Indeed, brands may also spot further opportunities in alcohol-free spirits as a result of the government’s war on sugary drinks and the ensuing sugar tax, set to be enforced in the UK in 2018. People’s changing attitudes towards soft drinks might mean they swap their traditional cola in a pub garden for a slimline tonic-topped Seedlip, which is sugar and sweetener-free.

For now, the brand hangs on to its title as the world’s only non-alcoholic distilled spirit. But, as with all trends and innovations, competition could be on the horizon. “It’s a double-edged sword to create a new category because there’s a lot of room for growth and a lot of brands could play here if they wanted to,” states Branson.

“I have no control over whether people will try to copy us, but we are trying to make sure we maintain the best ingredients and make the best product. It will be interesting to see if any other company launches a product in the category, and how they bring it to market.”

The rapid growth of Seedlip and its big-name backing both mirror industry trends

For Spiros Malandrakis, senior alcoholic drinks analyst at Euromonitor, while there is vast room for growth in the alcohol-free spirits sector, “it will always be niche”. He adds: “People have been drinking alcohol for 5,000 years and they have been doing this to feel the effects of it. There is room for these kind of products, but I don’t think all brands will start jumping on the bandwagon, because this will backfire immensely. There won’t be one category of spirits that will suffer because of alcohol-free products.”

Nonetheless, one need only turn to low and non-alcoholic beer to see the rapid growth potential in such niche categories – in 2015, global sales hit 3.4 billion, up from 2.7bn litres in 2010 (Euromonitor). Iran is the biggest market for low abv and alcohol-free beer, followed by Germany and Spain.

But, Malandrakis concludes: “I don’t think spirits are in the same space as low abv wine or beer. I’m not sure if there is any legislation monitoring Seedlip – it’s quite hazy around whether you can call something with no alcohol a spirit.

“Legislation is quite behind with things like this and I think there will be an open debate over the next two-to-three years. I don’t see people agreeing on what constitutes a non-alcoholic spirit.”