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Mimi Lam, co-founder and CEO of Superette, arranges cannabis-infused drinks at Superette Sip 'N' Smoke cannabis store in Toronto, Ontario, Canada, Monday, Oct. 25, 2021.
Della Robbins | Bloomberg | Getty Images
More and more Americans are looking for alternatives to alcohol, and beverage companies that promote the health benefits of their drinks are trying to capitalize on that.
More than 40% of Americans say they'll try to drink less alcohol in 2024, up from 34% the year before, according to a new report. numbers According to data analytics firm NCSolutions, that number rises to 61% among Gen Z, compared to 40% of that age group who said they plan to drink less in 2023.
As younger consumers become more health-conscious and older generations drink more alcohol, interest in nonalcoholic beverages has surged, says Sherry Frey, a wellness expert at Nielsen IQ. That’s helped fuel the rise of so-called functional beverages.
Functional beverages are drinks that aim to go beyond the hydration or alcohol-like aftertaste typically associated with non-alcoholic beers and soft drinks. Many include adaptogens, which are herbs marketed as having specific health and cognitive benefits, while others include substances such as THC, the psychoactive ingredient in cannabis, for its mood-altering properties.
The drink's popularity surged after the pandemic, filling grocery store aisles and then appearing on restaurant and bar menus.
This phenomenon is spreading globally, and the global functional beverages market size is expected to reach $249.5 billion by 2026, according to research conducted by Euromonitor in 2022.
Retail sales of functional beverages in the U.S. topped $9 billion in the 52 weeks ending March 30, according to the latest data from NielsenIQ, accounting for nearly 10% of total beverages. The figures do not include cannabis beverages.
“People want an experience, and once brands can create experiences that are sustainable, consistent, effective and comparable, I think the majority of market share will move away from [alcohol] Job alternatives [alcohol] “There are a lot of alternatives,” Aaron Nospeich, founder of Brez, a company that produces cannabis-infused beverages and conditioned drinks, told CNBC.
But the growth of functional drinks doesn’t signal the end of alcohol consumption. According to CNBC, about 80% of those who buy nonalcoholic beverages also buy drinks that contain alcohol. BCG ConsultingBased on research by NielsenIQ.
“Yes, there is some consumption of existing beer, wine and spirits products,” Nick Chu, managing director and partner at Boston Consulting Group, told CNBC, but not complete replacement.
People are drinking [functional beverages] “Because they want more options,” Chu said. “They want to be able to socialize, look great, feel like they’re part of a group, but not necessarily have to drink alcohol.”
Younger consumers are driving this trend.
Younger consumers are consuming functional beverages. According to the latest data from Numerator, the prevalence of alcoholic beverages among Gen Z consumers over the age of 21 was the lowest of all generations.
But Chu said it's too early to know whether this trend will continue, or whether it's a result of coming of age during the pandemic, when there were fewer opportunities to socialize in a group setting with alcohol.
The importance of the interest of older generations should not be underestimated, Fry added.
“We’re all focused on the younger generation all the time, but when you think about how much [baby boomers] “They are worth what they spend and the fact that they are reducing their alcohol consumption and looking for other alternatives, I think that is a really important element as well.”
Consumers now have more health information than ever before available on devices like Apple Watches or iPhones, said Jake Pollock, founder and CEO of the cannabis-infused beverage company. He said he believes the data “encourages people to think about the harms of alcohol in a way we wouldn’t have thought about 20 years ago.”
Consumers are looking for health benefits.
Consumer concerns about health and wellness have spiked during the pandemic, and that trend hasn’t gone away, Frey said. Nielsen IQ research, conducted every six months, found that health and wellness are top priorities for consumers, she said. But concerns have evolved from wanting to cure specific ailments to seeking to increase overall well-being in order to live longer and better, according to Nielsen data.
This shift has sparked interest in functional beverages, Fry said. Drinks that boost energy levels, enhance digestive and brain health, and improve mood are among the most popular.
Three-quarters of respondents to a 2023 Datassential survey said they believe functional foods and drinks will help them live longer and improve their health without having to radically change their diet.
“Consumers are looking for products that do more than one thing for them,” Jordan Bass, CEO and founder of alternative beer brand Hopwater, told CNBC. “So if you can deliver great taste, but also some functional benefits, you’re adding more value.”
Hop Wtr was founded by Nick Taranto, a former Marine turned competitive athlete, and Bass, who said he was training for a triathlon at the time. Bass said the duo loved “opening a cold beer” but wanted a non-alcoholic alternative that would relax them without the health risks of alcohol.
Hop Wtr was initially marketed as a beer alternative because of its refreshing flavor. But Bass said the company’s marketing shifted after it saw data showing widespread consumer interest in functional beverages.
The drink contains several adaptogens and nootropics. Adaptogens are herbs like ashwagandha that advocates claim help the body respond to stress, anxiety, and fatigue. Nootropics are common substances like L-theanine and caffeine that are claimed to improve mood, focus, and energy.
“Conditioners and functions are marketing terms invented to refer to drugs intended for sober people,” bartender Elliot Edge joked.
Edge is the bartender and manager at Hekate, a witch-inspired sober bar in New York City’s East Village. Hekate was the city’s first sober bar when it opened in January 2022.
Company owner Abby Ehman initially thought she would have to make everything from scratch, but she said she was pleasantly surprised to find that over time, alcohol-alternative products started appearing “like every week.”
The bar stays busy—especially during Sober October and Dry January, when, Edge says, “If you smile here, you’ll touch someone else’s cheek.” The clientele ranges from 80-something locals to NYU students, Edge adds, and not all of them are sober.
Alcohol is the original functional beverage. People use it to alter their mood or act as a social stimulant, and for centuries it has been drunk for purported health benefits, from aiding digestion to warding off the plague. But as consumers grow increasingly concerned about the negative health effects of alcohol, Edge has found that people are open to trying a variety of alternatives.
“People are curious. They seem to be tired of relying exclusively on something like alcohol for the moods and feelings they want, which are calmness but also the ability to socialize,” Edge said.
Functional beverages not only serve as a potentially healthy alternative to alcohol, but also as an alternative to soft drinks, as consumers become more cautious about sugar.
But as with claims of health benefits made by vitamins and supplements, many of the claims made by beverage manufacturers are not subject to FDA review.
“It's definitely not a straightforward space where you can take everything so seriously,” Chu said.
This ambiguity is already leading to legal problems. Poppi, a functional soft drink company that touts digestive benefits, is now facing a lawsuit challenging its claims about its probiotic benefits.
In a statement to CNBC, a Poppi spokesperson said the company stands behind the product.
“We believe the lawsuit is without merit and will vigorously defend against these allegations,” Bobby told CNBC.
Demand for cannabis drinks is on the rise.
The problem with most beers and non-alcoholic spirits is that you get the taste but you don’t get the enjoyment, says Breeze founder Nospeich. People who want to be healthier and get rid of a hangover don’t necessarily want to give up the “social atmosphere” that alcohol provides.
“So I think a lot of our success comes from people who are really looking for a real alternative to alcohol: something that doesn't just taste like alcohol, but actually gives them a boost of excitement,” Nospeich said.
Pollock, CEO of Can, agreed, saying the company's largest customer group is “healthy pleasure seekers.”
“These are people who are shutting down the dance floor but also their morning workout classes,” Bullock told CNBC.
Generation Z is also leading the trend of adopting THC-infused drinks, according to another survey by Numerator.
Cannabis drinks provide a way to consume THC and CBD in small doses, similar to how consumers regularly drink alcohol or coffee. This allows the drinker to control the frequency of their intake, with effects that start and wear off faster than those experienced with edibles.
The companies say this makes the experience more appealing to non-cannabis users. Eighty percent of Breeze’s customers are non-cannabis users looking for a real alternative to alcohol, said Nospeich, adding that he believes the real business opportunity lies in capturing market share from alcohol.
“We sit at the intersection of sober curiosity and cannabis curiosity,” Bullock said.
Cann launched in 2019 in cannabis dispensaries. But with the licensing boom, it now sells to more than 3,000 points of distribution including liquor stores and retail stores, with 60% of its sales coming directly to consumers via its website. The company has seen 60% year-over-year growth and has sold more than 9 million cans since its launch, a number it expects to match this year alone.
Chu said the big companies buying into the beverage will determine whether consumer behavior changes forever. That will depend on how legalized cannabis is.
Cannabis market revenue is climate forecast The marijuana business is expected to reach $42.98 billion in 2024. The growth potential is growing as President Joe Biden’s administration moves to ease federal restrictions on marijuana and reclassify it alongside drugs like Tylenol, codeine, and testosterone.
Marijuana is still illegal at the federal level, so hemp drinks use hemp-derived THC. While there are limits on the amount of THC in hemp before harvest, there are no limits on products made from the plant.
This is just one of the safety questions that the functional beverage industry will have to address as it grows.
“If we're going to offer all these functional alternatives, how are we going to ensure safety in the process? That's what will be revealed in the next chapter,” Nossbisch said.
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