Rising demand for nonalcoholic functional beverages

According to NielsenIQ, a younger, more health-conscious consumer base and an older demographic are contributing to a growing interest in nonalcoholic drinks. This trend is part of the rise of a niche subset called “functional beverages.” Functional beverages are nonalcoholic drinks that go beyond essential hydration or the nostalgic taste factor of alcohol-free beer and mocktails. Many of these drinks are marketed as having specific health and cognitive benefits, including substances like THC for their mood-altering properties. More than 40% of Americans reported trying to drink less alcohol in 2024, up from 34% the previous year, according to data insights company NCSolutions. The number is even higher among Generation Z, with 61% indicating plans to reduce alcohol consumption in 2024, compared to 40% in 2023. Sherry Frey, a wellness expert at NielsenIQ, noted that as younger consumers grow more health-conscious and older generations reduce their alcohol intake, interest in nonalcoholic drinks has climbed. This shift has helped fuel the rise of functional beverages, which include adaptogens and herbs marketed for their health benefits and substances like THC. According to 2022 research by Euromonitor, the global functional beverages market is expected to reach $249.5 billion by 2026. In the U.S., retail sales of functional beverages topped $9 billion in the 52 weeks ending March 30, according to NielsenIQ data, accounting for almost 10% of total beverage sales, excluding cannabis drinks. “People want to have an experience, and once brands can create sustainable, consistent, effective, comparable experiences, I think the majority of the market share is going to move away from [alcohol] alternatives to functional [alcohol] alternatives,” said Aaron Nosbisch, founder of cannabis and adaptogenic drinks company Brez. However, the growth of functional beverages does not signal the end of alcohol consumption.

Consumers shift to functional beverages

Around 80% of those who buy nonalcoholic beverages also purchase drinks that contain alcohol, according to research from NielsenIQ. Younger consumers are driving this trend. Alcoholic beverage penetration among Gen Z consumers over 21 was the lowest among all generations, according to data from Numerator. However, Nic Zhou, BCG managing director and partner, said it’s still uncertain whether this trend will last or if it’s a product of coming of age during the pandemic. Frey pointed out that interest from older generations should not be discounted. “We all focus on the younger generation always,” Frey said. “But when you consider how much [baby boomers] are worth in terms of their spending and the fact that they are reducing alcohol and looking for other alternatives, it’s a really important element as well.” Jake Bullock, founder and CEO of cannabis drink company Cann, noted that consumers now have more health and wellness information available through devices like Apple Watches or iPhones. He believes this data is “encouraging people to consider the harms of alcohol in a way that we never would have 20 years ago.” According to Frey, consumer health and wellness concerns spiked during the pandemic and have continued to be a priority. NielsenIQ’s research, conducted every six months, consistently finds health and wellness to be a top concern for consumers. Functional beverages that promote higher energy levels, better digestive and brain health, and mood-enhancing benefits are among the most popular. A 2023 survey by Datassential found that three-quarters of respondents believed functional foods and beverages would help them live longer and be healthier without having to radically change their diet. As this trend continues to grow, the beverage industry is keenly watching consumer preferences and adapting to meet the increasing demand for functional, health-focused products.