Non-alcoholic spirits: is the mindful drinker the new flexitarian?
by Ivan Farneti, Five Seasons Ventures
Last week I had the opportunity to co-host with Balderton’s Magda Lukaszewicz an event about an unusual subject for VCs: non-alcoholic spirits. More precisely we debated if this trend is investible to target venture type returns.
Seedlip, founded in 2015, is today the category leader and the poster child of this new category. The story goes that they sold the first 1000 bottles in 3 weeks, the next 1000 in 3 days, and the next batch after that in 30 minutes. Diageo acquired the majority of Seedlip in 2019 to consolidate the early investment by their corporate venture arm. But as 50+ new non-alcoholic products were launched in the UK alone last year, this is still a very small market, worth less than £100m in revenues, possibly half of which sold by the leading brand. Yet this was the picture you would have seen in the plant-based meat replacement market no more than 6 years ago. But whether we can debate if red meat is good or bad for you, there is no debate about the effect of alcohol on health and society.
Back to the event: the audience, 50+ strong included the who’s who from the London (and Paris) investors scene with 90% of the attendees who raised their hand to confirm that indeed they had bought non-alcoholic drinks more than once. The buzz (rather than the booze) of the evening was provided by LYRE’S range of products, professionally mixed into wonderful alcohol-free Negronis and Manhattans for everybody. The experts panel we had the honour to squeeze for knowledge included Anne Stephens, Global Vice President at AB InBev, Laura Willoughby MBE, Co-Founder of Club Soda, Mark Livings, Founder & CEO of Lyres and Dhruv Luthra, Founder of Back Bar Spirits, and ex-Director Corp Dev at Diageo. We expected some divergence of opinions from this panel, and the back an forth produced some good insights as the questions were addressed.
Some food for thoughts we took away:
Anne Stephens walked us through insightful research by AB InBev, showing that as societies develop, income grows and so do the alcohol-drinking-occasions up to a point when, in the more advanced countries, the number of occasions in which alcohol is consumed start to decline, pushed by social and health concerns.
We also learnt that these Mindful Drinkers are not just pregnant women or designated drivers, but research shows how Millennials/GenZ do not have the same sense of forced belonging to the “drinking tribe” as previous generations, while the aging women demographic is completely neglected as a segment for non-alcoholic spirits.
The panel had an interesting exchange on what may get non-alcoholic spirits over the tipping point and get widespread adoption. Part of the panel cautioned that (good enough) products are still rare and their distribution too limited, so that just a few miles outside of London there is no presence of any non-alcoholic gin brand on bars shelves. The debate warmed up as some scepticism of the ability of small companies to make this category happen on their own — unless big corporations get involved — clashed with some evidence seen in other beverage sectors (i.e. craft beers, plant-based dairy alternatives) where many small players (some very well funded) built enough momentum to erode significant market share from the incumbents and created very valuable new category leaders: think of BrewDog and Oatly using digital knowledge and social media to emerge and win. Navigating the distribution maze, very complex and with historic memory seems to be what the panel agreed to pin as the hardest barrier to overcome and possibly the reason why some start up brands opted for strategic investments or entered exclusive distribution deals with large international spirits brands.
One of the questions I was most interested in was about Mimicking vs Original as superior value creation strategy. Again, good debate here where, in theory, both options seem valid with certain differences in terms of the quality of the liquid — more challenging for mimicking popular alcoholic liquids — and the marketing challenge for user adoption, where promoting a completely new non-alcoholic liquid would be like promoting plant-based kangaroo meat. Mimicking brands (Lyres, ISH and Ritual) may be an easier entry into the existing market definitions, whereas original liquids may have a better edge if they carry functional benefits (Kin, Three Spirits), create their own drinking occasions and target the GenZ users.
A good remark was made that consumers in London are nevertheless growing more conscious about the price-parity that non-alcoholic spirits are fetching versus alcoholic bottles while they have no taxes imposed. More education is needed as well as new formats for home consumption (i.e. RTD in cans).
The ultimate question, if is this a sector for VC investment, did not get a black or white answer, obviously. Clearly though, more and more entrepreneurs are throwing their hat in this new game and more angel investors and corporate venturing teams are placing their early bets. So far, none of the European start ups managed to close a significant multi-million venture capital round, but with more awareness for the category and some early traction, it may not be too far off.
So much more would need to be debated, like the role of technology to support, directly (think or active ingredients, nootropics and CBD) or indirectly (using social media and data to drive product design and taste optimization) the growth of this category. Nor we had time to discuss the role of the Government in supporting a trend that has a clear positive ethical, social and financial aspects. For those who want to know more about these aspects and the Mindful Drinking movement, you can find a lot at Club Soda UK.
Bottoms up!
