NielsenIQ reports that both a younger, health-aware consumer demographic and an aging population are driving increased interest in nonalcoholic beverages. This phenomenon is part of the burgeoning niche referred to as “functional beverages.”
Functional beverages are nonalcoholic options that offer more than just basic hydration or the familiar flavors of alcohol-free beer and mocktails. Numerous brands promote these drinks as providing specific health and cognitive advantages, often incorporating ingredients like THC known for their mood-enhancing effects.
In a 2024 survey, over 40% of Americans indicated they are trying to reduce their alcohol consumption, a rise from 34% in the prior year, according to insights from NCSolutions. The trend is even more pronounced among Generation Z, where 61% plan to cut back on alcohol in 2024, up from 40% in 2023. Sherry Frey, a wellness specialist at NielsenIQ, highlighted that the growing health awareness in younger consumers and the decreasing alcohol intake in older generations have fueled this interest in nonalcoholic options.
This movement has contributed to the growth of functional beverages, which include adaptogens and health-promoting herbs alongside substances like THC. Euromonitor’s 2022 research anticipates that the global market for functional drinks will reach $249.5 billion by 2026. In the United States, retail sales of functional beverages surpassed $9 billion in the 52 weeks leading up to March 30, as per NielsenIQ data, representing nearly 10% of total beverage sales, not counting cannabis beverages.
“Consumers desire an engaging experience, and once brands manage to deliver sustainable, consistent, effective, and comparable offerings, I believe the majority of market share will shift away from traditional [alcohol] options to functional [alcohol] alternatives,” stated Aaron Nosbisch, the founder of Brez, a company focused on cannabis and adaptogenic beverages. Nevertheless, the expansion of functional beverages does not indicate a decline in alcohol consumption.
Shifting Consumer Preferences Towards Functional Beverages
Approximately 80% of consumers who purchase nonalcoholic beverages also buy alcoholic ones, as indicated by research from NielsenIQ. Younger demographics are particularly pivotal in this change. Among Gen Z individuals over 21, the proportion consuming alcoholic beverages is the lowest across all generations, based on data from Numerator.
Despite this, Nic Zhou, managing director and partner at BCG, expressed uncertainty about the longevity of this trend, questioning if it is a result of coming of age during the pandemic. Frey emphasized that the interest from older generations should not be overlooked. “It’s easy to focus on younger consumers,” she remarked.
“However, when you evaluate the considerable financial power of baby boomers, who are actively reducing their alcohol consumption and seeking alternatives, it’s a crucial factor to consider.”
Jake Bullock, CEO and founder of the cannabis beverage company Cann, noted the increased access to health and wellness knowledge via devices like Apple Watches and iPhones. He believes this information is “prompting individuals to reflect on the negative impacts of alcohol in ways we wouldn’t have considered two decades ago.”
Frey further mentioned that health and wellness became a significant priority during the pandemic and have remained so. NielsenIQ’s biannual research consistently identifies health and wellness as a primary concern among consumers.
Functional beverages promoting enhanced energy, improved digestive and brain health, as well as mood-lifting advantages, rank among the most sought-after options. A 2023 survey by Datassential revealed that three-quarters of participants believed functional foods and beverages could contribute to a longer, healthier life without necessitating drastic changes to their diet. As this trend persists, the beverage industry remains vigilant, adapting to the rising consumer demand for functional and health-oriented products.
