2024 Wine Industry Transformation: From Spirits to Non-Alcoholic, Industry Reshaping in Progress

Editor's note:This article is part of our 2024 food and beverage industry trends series. Previously, we explored howtechnologies such as artificial intelligenceandnew product innovationare driving industry change.

Beverage brands, distributors, and investors agree that the alcohol industry is in a period of rapid transformation, where participants must evolve or die.

As health and wellness concepts continue to dominate consumer decisions, especially among younger consumer groups, many Americans are reducing their alcohol intake.

According todata released by Mintel last year, among the financially strong 21-24 age group, about half said they drink alcohol, with 40% of them limiting their intake. According to anotherreport released by NC Solutions this month, the average consumer drinks 3 alcoholic beverages per week, down from 4 per week in the same period last year.

Traditional alcohol producers are reshaping their portfolios to meet the unique and new needs and preferences of the new generation of drinkers. Consumers' pursuit of diverse choices and innovative drinks has made the industry more fluid and fast-paced than ever before.

As more consumers turn to non-alcoholic and low-alcohol products, industry giants and emerging brands—fromMolson CoorstoConstellation—are launching or investing in alcohol alternatives, broadening the beverage landscape in unprecedented ways.

Beer and wine producers are turning to ready-to-drink products to get ahead of changing consumer demand. Spirits producers are focusing on premium products and cross-industry collaborations, such as Diageo'sVita Coco Spiked with Captain Morgan ready-to-drink cocktail。

Spiros Malandrakis, head of alcoholic drinks research at Euromonitor International, says Gen Z is "playing on many different chessboards." As a result, new categories that did not exist on a large scale before this decade are emerging, especially canned ready-to-drink products—fromhard teatowhiskey and cola, toTHC-infused seltzers。

Household names turn to

Private equity firm Franchise Equity Partners was founded last year to invest in emerging innovative beverage brands. Co-founder Matt Hughes helped lead Coca-Cola North America's $250 million alcohol beverage platform, which is now driving partnerships with giants like Molson Coors and Brown-Forman to launch products such asJack Daniels and Coca-Cola, Topo Chico Spirited, and Hard Peace Tea. Hughes says consumer trends change every year, and the white space for new categories continues to expand.

"During the pandemic, hard seltzer went from nothing to truly becoming an important category, and that was the first time people saw flavor become a major reason consumers chose alcoholic beverages," Hughes says. "Traditional category boundaries have been blurred and broken, prompting alcohol companies to enter the non-alcoholic space and vice versa."

White Claw was the biggest beneficiary of the 2020 hard seltzer boom and remains the best-selling product in the category. As the seltzer market has leveled off, the brand has seen the shift in trends.This month, White Claw launched its first non-alcoholic product—White Claw 0% Alcohol, which emphasizes "taste and depth," targeting consumers who still want to drink but don't want to suffer the effects of a hangover.

"[The non-alcoholic category] is the biggest disruptor to the alcohol industry in the last 2,000 years."

Spiros Malandrakis, Head of Alcoholic Drinks Research, Euromonitor International

Other ready-to-drink canned products are also being launched to attract Gen Z consumers who want to drink but are looking for something new.

Beverage giant Molson Coors will launch itsHappy Thursday sparkling flavored alcoholic beverage linein March, available in four fruit flavors. The product has an ABV of 4.4% and is non-carbonated—focus group data revealed that consumers want to avoid bloating, so there is an unmet need for non-sparkling beverages.

Beer and wine restructure to address stagnation

After several years of high growth, the beer market has declined in recent years, mainly attributed to oversaturation in the craft beer segment—which has led tothe closure of brands like San Francisco's 127-year-old Anchor Brewing。

Last year, Bud Light, the long-time leader in the beer category under AB InBev, lost its sales crown to Constellation Brands' Modelo brand. Bud Light's decline stemmed from a boycott triggered by an advertising campaign involving transgender influencer Dylan Mulvaney. In July of last year, AB InBevannounced a $33 million investmentin technology research and development to help develop non-alcoholic beer products.

In December, Constellation CFO Garth Hankinson said the decline in beer category revenue wasdue to increased consumer interest in premium products.

The wine category is also facing major challenges, as younger consumers prefer ready-to-drink products over buying bottled or boxed wine. This month, Constellation CEO Bill Newlands told investors during arecent earnings callthat the company is restructuring its wine team to improve performance among the key Gen Z demographic. The beverage giant expects its wine and spirits categories to decline 7% to 9% year-over-year in the first quarter of 2024.

"Of course, we are not satisfied with these adjustments, and our leadership team, along with the wine and spirits teams, remain fully committed to improving the performance of this business and achieving its medium-term goals," Newlands said.

Malandrakis says many young drinkers who in previous generations might have become beer or wine consumers are now choosing non-alcoholic or cannabis-infused alternatives.

He says young people already consider cannabis far less dangerous than alcohol, and non-alcoholic products remain attractive to Gen Z consumers who only want to drink occasionally.

"These products target people who, over the past few decades, were heavy drinkers. This is entirely about the shift toward a 'sober curious' lifestyle," Malandrakis says. "They are cool, trendy products for nights when you don't want to drink, but on other days and nights, you still want to have a drink."

Athletic Brewing, a leading brand in the non-alcoholic beer space,is leveraging its health attributes like low calories and low carbs to win over consumers who still want to enjoy alcohol-free drinks at bars and breweries.

"For thousands of years, people have loved the taste of malt and hops and enjoy relaxing with friends and family," says Athletic CEO Bill Shufelt. "That's exactly the experience we really want to provide."

Shakeup in the spirits sector

Although some data supports that mixed drinks are benefiting from the decline of the wine and beer categories, the fact remains that Gen Z consumers are drinking less overall.

Spirits producers also face the challenge of rising costs, and in response to this reality, premium products are trying to fill the market gap.

Rum giant Bacardi noted in its 2024 cocktail report that consumers want small luxury experiences that last longer. Michael Esposito of Franchise Equity Partners says certain drinks, such as Latin-style products, benefit from consumers' pursuit of more diverse drinking options.

Beyond the beer space, Molson Coors isincreasing investmentin premium spirits, such as high-end whiskey—which its CEO Gavin Hattersley described in a press release as the category with the most growth potential.

However, the tough economic environment is making it difficult for investors on the distribution side, who may not be able to predict whether bets on new brands will succeed.

"Every year, a large number of new products are launched, and some brands will fail. The market is very volatile, so it's a challenging environment," Esposito says. "As brands change, diversification has value, and distributing in multiple states also provides a layer of protection for distributors."

Malandrakis says trends in Europe can provide a reference for the beverage industry on where purchasing power is heading. According toStatista data, non-alcoholic beverages are expected to grow at a compound annual growth rate of 3.2% by 2027, and such products have already seen widespread penetration among Gen Z consumers in Europe.

"America's relationship with alcohol has always been complex and interesting, and many consumers have yet to learn about the non-alcoholic beverage space," Malandrakis says. "This is the biggest disruptor to the alcohol industry in the last 2,000 years."