Booze or bust: How 2024 will reshape alcohol

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 for the last 2000 years.”