Non-alcoholic ‘spirits’ to play ‘key role’ in on-trade

16th May, 2019 by Nicola Carruthers

Consumers are “underserved” when it comes to non-alcoholic drinks options despite “strong demand”, according to a new report by Diageo’s Distill Ventures.

61% of Brits reported they want better choice when it comes to non-alcoholic drinks

Diageo’s start-up investment unit, Distill Ventures, has released its Non-Alcoholic Drinks: A Growth Story white paper following eight months of research in collaboration with data analysts CGA and IWSR. The report looks at the potential of the non-alcoholic category, with a focus on the UK and US markets.

As of October 2018, there were 42 non-alcoholic ‘spirits’ available in the UK, up from just four products in April. The white paper also noted that there have been 271 premium soft drink launches in the UK in the last 12 months.

In the UK, 61% of consumers want better choices when it comes to non-alcoholic drinks, while 58% are drinking more no- and low-abv drinks than in 2018, the report stated.

When it comes to the UK on-trade, 55% of venues are either dedicating parts of their menus to non-alcoholic drinks, or creating separate menus for them. The London on-trade (42%) is expecting non-alcoholic ‘spirits’ to play a “key role” in their overall sales mix over the next 12 months.

With the addition of “sophisticated” non-alcoholic drinks, 23% of the most influential venues in London reported better sales of no-alcohol drinks in the last year than ever before.

In the UK, 59% of drinkers are ordering non-alcoholic drinks on nights out while also drinking alcohol, compared with only 29% who are only consuming alcoholic drinks.

Distill Ventures said that London seems to be leading the way when it comes to trends, ahead of the US, which is in the “earlier stages of development”. More than 70% of people in the US have never considered drinking low- or no-alcoholic drinks.

In the US market, Los Angeles (LA) is said to be parallel with London, with 83% of bar managers in the city believing that non-alcoholic cocktails are part of a wider trend.

In LA, around a third of cocktail bars and 40% of restaurants have their own non-alcoholic drinks menu. Venues that don’t have non-alcoholic drinks claim they are planning to launch some.

However, New York “hasn’t caught on at the same pace” with 71% of bar managers interviewed saying they don’t see non-alcoholic cocktails and drinks as part of a wider trend. Distill Ventures believes the fast-paced nightlife scene in the city is a “significant obstacle” for the growth of the category.

In New York, less than one in five influential bars and restaurants give non-alcoholic drinks any visibility, dropping to one in 10 among leading cocktail bars.

‘Growing interest’ 

Distill Ventures also said there is evidence of “growing interest” in the sector online, with searches for the word ‘mocktail’ up 42%. Global consumers mention ‘non-alcoholic’ 81% more often than a year ago, with 17% of conversations around the category coming from people aged 35-44.

The study also noted that growth is occurring around the world. The US growth is predicted to “happen more aggressively and quickly over the next 12-18 months” as the market takes advantage of ideas and products from elsewhere.

The growth of the “world’s first” non-alcoholic ‘spirit’, Seedlip, has established “wider interest” among influential bartenders and high-end accounts in Hong Kong, Australia and western Europe.

However, Distill Ventures claims that the category is facing a “common misconception” in that non-alcoholic drinks are “easy to produce”.

Retaining the taste that comes from using alcohol can be challenging in creating non-alcoholic drinks, the group said, with bartenders using ingredients such as cold brew coffee, ambient-brewed teas, kombuchas and ferments, shrubs, homemade cordials, syrups and bitters, as well as branded non-alcoholic ‘spirits’ and apéritifs.

For the non-alcoholic category to grow, Distill Ventures says the range of ingredients needed to make the drinks “easily needs to expand” with more availability in bars and in stores.

Shilen Patel, co-founder and non-alcohol lead at Distill Ventures, said: “It’s incredibly exciting to see these non-alcoholic drinks develop and it’s something that we at Distill Ventures fully believe in. Over the last three years, we’ve rapidly grown our dedicated non-alcohol practice within the core business to help founder-led brands grow.”

Currently, Distill Ventures’ range of non-alcoholic brands, which includes Seedlip, accounts for a quarter of the company’s 15+ portfolio. The firm is “actively investing in brands which fulfil this need, and is always seeking new investment opportunities in this area”.

As the category grows, The Spirits Business explored whether the non-alcoholic ‘spirit’ sector needs more transparency.

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