Demand for low and no alcohol beverages expected to continue to grow

Market Bulletin | Issue 194
24 Mar 2020
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Demand for low and no alcoholic beverages has been reported by many to have experienced large growth over recent years, albeit off a small base, and this is expected to continue.

Drinks Retailing News reported in their Buyer’s Guide to Mindful Drinking 2019 that while making up 0.7 per cent of low and no-alcohol alternatives in the United Kingdom (UK), the value of the category was £117 million – an increase of £22.4 million over the past year. The International Wine and Spirit Record (IWSR) predicts several new product entrants into the category resulting in consumption growing 18 per cent each year over the next 4 years in the United States of America (USA) from 2018. Furthermore, GlobalData noted in their Top Trends in Alcoholic Drinks 2020 report that, based on current trends, non-alcoholic spirits is expected to grow 23 per cent in value, but the absolute value growth is smaller compared to sales in other categories.

Figure 1: Global value growth of top three and bottom three tracked categories

Source: GlobalData Top trends in Alcoholic Drinks 2020

But according to the International Wine and Spirits Record (IWSR) ‘while beer and spirits companies are charging ahead in this space, wine has largely been left behind’.

So just what is driving demand and how well is wine doing in this category? Especially when retail giants in key markets like the UK, are increasing their focus on meeting the growing demand for low or no alcohol alternatives.

‘Health and wellness’ – changing how people drink alcohol

The ‘health and wellness’ global trend has certainly been shaking up the alcoholic drinks market for several years, driving consumers towards healthier product selection in indulgent commodities. This trend was reported back in one of our first Market Bulletins (Issue 8) in 2016 where Euromonitor raised it as one of the top 6 trends in alcoholic drinks. As it gains momentum, we are now observing the role it has been playing on lower global consumption volumes.

Many consumers are changing their lifestyles to improve their health and wellbeing. For the alcohol category, this means that consumers are opting to:

  • moderate how much they drink
  • avoid drinking alcohol – this could be ‘teetotalism’ or joining movements including Dry January in the UK or Dry July in Australia, which encourage abstinence from alcohol for a month at a time to improve health in the community
  • drink less but better quality – premiumisation, and/or
  • switch categories to newer products offering low calories, no sugar, organic, gluten-free and lower or no alcohol.

Opportunities exist for lower and no alcohol wine in specific markets

With these changes in drinking habits underway, including switching to lower or no alcohol options, the Global SOLA wine opportunity index 2019 produced by Wine Intelligence confirms this with a rise in the opportunity index for non-alcoholic wine and increased awareness of lower alcohol wines in the last year.

Figure 2: Global SOLA wine opportunity index 2019

Source: Wine Intelligence

They go further to mention that the strongest opportunity for lower alcohol wine was in New Zealand and Singapore, while for non-alcoholic wine it was in Sweden, Hong Kong, Finland and Singapore. For Sweden and Finland in particular, lower and non-alcoholic wines are relatively more popular as they are cheaper than conventional table wines in combination with changing legislation and the moderation trend.

In terms of consumption, data sourced from the IWSR shows that no-alcohol wines have been performing stronger than low alcohol wines (up 3 per cent and 12 per cent respectively since 2015), and will continue to do so out to 2023 (Compound Annual Growth Rate of 4 per cent and 11 per cent respectively). Despite the growth, they both represent a small proportion of total wine consumption, 0.03 per cent for low alcohol and 0.13 per cent for no-alcohol. Further to this, these categories were both showing positive growth while table wine is predicted to remain stagnant, although granted this is where the main volume is.

For lower alcohol wine, the largest consumers in 2018 were the UK at 47 per cent, followed by Japan (30 per cent), Finland, the United States of America (USA), Australia, France, Belgium and Netherlands. While the Netherlands is currently at the bottom of the list, it is expected to jump into the top five by 2023.

Australian consumption is not forecast to grow. A quarter (24 per cent) of lower alcohol wine consumed in 2018 was sourced from Germany and 22 per cent was from France, but 43 per cent was undefined.

Figure 3: Lower alcohol (wine-based beverage) consumption by market

Source: The IWSR

For no alcohol wine, the largest consumers in 2018 were from Germany at 41 per cent, followed by France (18 per cent), and the UK (14 per cent). Australian consumption made up 0.4 per cent and is forecast to grow annually at 18 per cent out to 2023. Nearly half (42 per cent) of the no-alcohol wine consumed in 2018 was from Germany, 15 per cent was from France while 22 per cent was undefined. Australian wines have not been reported by the IWSR as a country of origin for no-alcohol consumption even though there are several products available, mostly in Europe.

Figure 4: No-alcohol (wine-based beverage) consumption by market

Source: The IWSR

But it is important to be mindful of the challenges

Taking advantage of the growth in the low and no-alcohol category has proven to be a challenge for the global wine sector. As noted earlier, while strong growth is forecast for the niche low no alcoholic drinks category in the USA, growth for wine in this segment is predicted to be at a more modest rate of 4 per cent. Of course, this varies by market and at the global level, the IWSR predict 10 per cent growth over that time.

One challenge for wine is that each market has various labelling regulations when it comes to indicating what is considered as table wine, lower alcohol and no-alcohol wine products. The table below summarises these for key markets taken from our Market Export Guides. For more specific domestic labelling requirements please visit the Wine Australia website.

 

Table wine

Low alcohol

Non-alcoholic

Alcohol free

De-alcoholised)

Australia

4.5% ABV and above

0.5% - 1.15%ABV

Less than 0.5% ABV

USA

7% - 14% ABV

Below 8.5% ABV

Less than 0.5% ABV

UK

8% ABV minimum.

1.2% ABV or below

Alcohol free – no more than 0.05% ABV where alcohol has been extracted.

De-alcoholised – no more than 0.5% where alcohol has been extracted.

Non-alcoholic – should not be used in conjunction with a name commonly associated with an alcoholic drink

European Union

8.5% ABV to 15% (but can be up to 20% for wines from Australia) unless from a GI region where it may have an ABV of not less than 4.5%

1.2% ABV or below

Up to 0.5% ABV

Sweden*

Products below 3.5% ABV are allowed to be sold outside of the monopoly.

8.5% ABV and above unless from a GI region where it may have an ABV of not less than 4.5%

1.2% ABV or below

Below 0.5% ABV

 

Another challenge is in relation to ensuring that the wine quality and flavour meets consumer expectations, especially when undergoing alcohol extraction techniques for no-alcohol products.

Certainly, in key markets, while awareness is relatively good for lower alcohol and no-alcohol wines, the percentage who had sought to purchase in the last six months is still low, especially when comparing to organic wine (see Figure 5). For Australian regular wine drinkers surveyed by Wine Intelligence, lower quality (26 per cent), poor quality (24 per cent) and not liking the taste (21 per cent) made it into the top six barriers to purchase.

Figure 5: Awareness of wine types by market compared to those sought to purchase over the past six months (of those who are aware)

Source: Wine Intelligence

To address this, significant investment continues to be made within Australian-based research into the development of methods to decrease the alcohol content of wines, without significant effects on wine quality.


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