Alcohol-free World #4: Market Insights
What's happening in Japan and what could work on the Japanese market?
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Three factors behind the non-alcoholic beer market growth: consumption, manufacturers, and taste.
Globally, the non-alcoholic beverage category was limited to a few significant key markets, such as Germany, where the share of non-alcoholic beer is historically high. But in Japan, if you had a few brands available on the market for quite a long time, the entry into daily consumption is relatively recent. The expansion of non-alcoholic beverage drinking occasions is a significant driver behind this trend.
Typically, people choose a non-alcoholic beer as a substitute for when they cannot drink alcohol—before driving, for example. Over time, the consumption spread to other circumstances, including some expected consumer categories such as pregnant and breastfeeding women. What’s interesting is how non-alcoholic beverage drinking occasions widened to mimic the consumption of conventional alcoholic beverages, including some specific circumstances related to Japanese culture—at drinking parties, after the regular evening bath, on the train. That last example is telling. People started enjoying a non-alcoholic beer when taking the bullet train because they feel the travel is the right time to drink a beer, but they don’t want to drink alcohol.
Manufacturers stand as a second driver behind the trends, investing in their brands and communicating more on drinking occasions to educate the consumers. The non-alcoholic category is a profitable business—contrary to alcoholic beverages, it isn’t taxed.
Japanese manufacturers are playing this very seriously. First, they started building their brands, beginning with Suntory, followed by Kirin and Asahi. Asahi’s Dry Zero is a compelling case to analyze because they played with the alcoholic Super Dry brand image, which was unexpected. Typically, Japanese companies want to avoid miscommunication between their alcoholic beer brands and non-alcoholic ones. But here, Asahi is saying, “we’ve put the best of our brand into a non-alcoholic version.”
Like in overseas markets, the non-alcoholic beverage category’s primary challenge is providing a convincing taste to consumers. People weren’t naturally turning to non-alcoholic options for their qualities, but they had to compromise between their safety (driving, for example) and taste.
With major manufacturers becoming serious, they invested a lot in R&D to bring better propositions to the market. For example, Asahi playing with its leading brand Super Dry for the Dry Zero, cannot take any chance to deceive its consumers—it has to bring a product as good as the alcoholic one. The increased competition on taste certainly pushed Japanese manufacturers to become the best in the world in this category.
The beer category expansion opened the door to convincing Japanese consumers with non-alcoholic beverages propositions. However, the other categories remain largely niche by comparison. Next to beer, you can perhaps count the growing RTDs led by the historic Suntory brand Non Aru Banshaku Lemon Sour. Non-alcoholic spirits are almost negligible, even if a handful of Japanese brands and foreign brands are available on the market. The non-alcoholic wine category is nascent, and while some brands are coming in, the market is tiny. There’s almost no alternative in the Japanese traditional drink market. So far, the non-alcoholic beverage market in Japan is mostly a ‘beer’ market.
What’s going to happen across the RTD category?
The RTD market follows the footsteps of the non-alcoholic beer market. Manufacturers first tested the water by building the low-alcohol category. Suntory was successful with its brand Horoyoi (3% ABV, launched in 2011), but other manufacturers weren’t so lucky. In 2015, Kirin launched Butterfly 1% but retreated within six months. Aside from the historical brand Horoyoi (ABV 3%), the low-alcoholic RTDs disappeared rather quickly.
Then manufacturers Suntory and Asahi launched and built up the historical brands’ Non Aru Kibun and Style Balance, still at the top of the market today. But, unfortunately, while these RTDs are available in supermarkets, they’re not present in convenience store channels. The sole exception is Choya’s non-alcoholic sparkling plum wine (2011), perhaps the only success in this category. This product differs from a typical RTD but fits the drinking occasion—it’s precisely what they were trying to achieve across the RTDs.
Choya’s strategy with its non-alcoholic brand matches what manufacturers are trying to achieve across the RTDs to the letter. Their consumer target was women and the occasion, daytime drinking, alone at home. They built the whole advertising around the image of a relaxing time for yourself, and it was a success reinforced by the sweet flavor and the proximity with a plum soda.
So, Choya built this daytime drinking occasion with plum wine and came up with this non-alcoholic drink proposition. But at that time, the other RTD brands were niche, and consumers mostly turned to them when they couldn’t drink alcohol—as a substitute.
For non-alcoholic RTDs, the challenge was—still is today, to find its way to people’s shopping carts. Compared to non-alcoholic beer, the market size is entirely different. The non-alcoholic RTDs mostly fits the need of consumers who skip alcohol for health reasons or by choice, but who like RTDs. While the numbers vary from age group, there’s always a proportion of people who skip alcohol, either for health reasons or by choice—they don’t need alcohol.
The typical drinking occasion is at-home drinking parties with friends and family, where you’ll find alcoholic and low-alcoholic RTDs. Consumers who do not drink alcohol will then bring non-alcoholic substitutes to join the fun sober. But it’s had to envision the benefits of drinking a non-alcoholic RTD in their daily lives when they can turn to conventional soft drinks, like tea, soda, and juices. So, there’s this gap between the beer and the RTD. Many consumers, not only the ‘sober committed,’ drink non-alcoholic beer.
The taste is another factor differentiating the massive success of non-alcoholic beer compared to the late-blooming RTD category. Non-alcoholic beer brands manage to taste just like beer. So, the drinking experience is similar and enjoyable for consumers: they do not hesitate to pick the option because it tastes good. But RTDs taste, or at least are perceived as tasting just like a regular soda, limited to special occasions.
The soaring success of Suntory’s Non Aru Banshaku Lemon Sour changed the game, however. For once, the brand is targeting RTD drinkers and offers an alcoholic beverage feel, relating to what happened in the beer category. The Lemon Sour grew big and is available everywhere as an RTD but also widely at restaurants. People who drink alcohol will like the dry taste. Before the Lemon Sour came to the market, RTDs were all about sweetness, like carbonated sodas.
Beyond its seemingly alcoholic taste, Suntory’s Non Aru Banshaku Lemon Sour also owes its success to consumer health awareness. The product doesn’t contact much sugar compared to its competitors. So while it will make the category more robust, there might not be space for many brands.
More than health claims, brand concepts could play in favor of more non-alcoholic beverages recognition.
As we discovered with our Shelf Sweep, many non-alcoholic beverages in Japan add an extra ‘health’ value to their proposition. On top of keeping you sober, they can help with reducing the absorption of fat, keeping your gut or your skin healthy. But how far can brands play with the health effect to convince consumers to ditch their favorite drink once in a while?
Manufacturers can try to position their non-alcoholic beverages as healthy products by adding some extra benefits on top of being alcohol-free. But ultimately, consumers can turn to conventional products—drinks or else, already playing with health claims. So if that’s something you add to compete within the non-alcoholic consumption segment, it wouldn’t be a great advantage to expand beyond this limited market.
But what brands can play with are the benefits perceived by consumers from offering a traditional production process. Breweries are at a definite advantage here, with people favorably appreciating the brewing process as natural.
A brand concept is a more exciting approach, with the non-alcoholic element of the brand becoming secondary—the value proposition changes to include relevant ‘natural’ know-how. There will always be a market for this type of product in Japan and abroad. In Japan, it could be amazake, for instance, which isn’t de-alcoholized and naturally healthy, and something to explore for the sake industry. In a culture with strong ties to alcoholic traditions, it would work even better.
What’s sure is that depending on the image and the benefits, drinking occasions can vary from social gatherings, drinking alone, to after sports. The non-alcoholic category can have a broader range of opportunities. After a meal, a drink helping with digestion would be a perfect choice, while a nutritious non-alcoholic beer such as So-Beer is a good reward after a physical effort. In the future, non-alcoholic beverages could even have relaxing benefits—a trend we can foresee with the popularity of CBD.
A regular non-alcoholic beverage fits within the parameters of alcoholic drinking occasions. But add something to the mix to bring a strong value proposition that isn’t solely based on its non-alcoholic property, and you’ll reach a broader market.
The non-alcoholic category’s strength is to be more inclusive, so if you have more consumers ditching alcohol, the category will capture their attention. Today, society, at least in Japan, progressed quite a lot when it comes to sobriety. The peer pressure in social gatherings, soft forcing people to toast with a glass of beer or mocking others into drinking, isn’t the same as 20 years ago.
The improvement is fantastic and today people feel free to make their own choices. But while people aren’t shaming sober people as much as before, the inclusivity isn’t changing the larger picture of consumption.
Are consumers changing their drinking habits with the recognition of the non-alcoholic categories? Perhaps not so fast. The majority still drink the regular beer, and whenever the occasion pops up to switch to an alternative, before driving or on the train, they have the optional non-alcoholic beer. But so far, the non-alcoholic beer spread didn’t create ‘new’ drinking habits—or at least not visibly enough to tilt the market.
Take the fear, in Japan and elsewhere, that minors would start drinking non-alcoholic beverages, and the habit would lead them to drink alcohol. The assumption, which triggered severe talks in the industry, wasn’t correct in the end. Instead, the opposite might be true.
The non-alcoholic wine category could grow a lot.
Like with the beer category, innovation in production and taste can support the extension of the non-alcoholic wine market. Today’s products taste better and are more authentic. With the first few products launched on the market, consumers felt they had to compromise for something somewhat waterish, close to a juice. Then like beer, it will be all about the occasions.
When you think about it, non-alcoholic wine is more inclusive than a conventional one. For social gatherings, especially celebrations where you typically drink sparkling wine, everyone can share a non-alcoholic option. Whenever you wish to bring a bottle when you’re invited, you might think about choosing a non-alcoholic option. In a way, it shows care for the people you see.
A lot of social reasons motivate people to make a purchase. They often pick a choice, not for themselves, but to please people or at least to be seen as caring for people. Along with premium options, the pandemic in Japan changed the game, too. As hotels, restaurants, and bars were deprived of serving alcohol to their clients, they had to find a way not to lose their sales.
People have the opportunity to try non-alcoholic wine for the very first time and to realize it can be as good as a conventional wine. If the taste convinces them, they might purchase the product for their consumption later on. Of course, at the moment, consumers eating out don’t have a choice, so the consumption jumped up. When the situation reverts, the trend could be at a tipping point. Nonetheless, an increase, if even by 10 or 20% annually, would be massive enough.
Consumers who picked up the habit are likely to keep the option on the table because non-alcoholic wines became good. They now know they can enjoy a glass while avoiding the harmful effects of alcohol.
Consumers end to enjoy the atmosphere and the glass of wine experience more than the alcohol component of the wine itself. So more people are bound to embrace an alternative if it works just as well in a restaurant setting. The majority is likely to go with a conventional bottle, but you’ll have a minority who will enjoy the option.
If the market appears profitable, with enough volume sales, the industry will be more motivated to invest and promote their brands. Like with the beer, they will build new occasions. The story is always a balance between the offer and the demand. They fuel each other.
Is there a market for non-alcoholic spirits in Japan?
If there is room to grow, the market is bound to be niche—which is fine for many brands, providing the opportunity to take leadership. In Japan, consumers mostly drink shochu or whisky. However, the spirit connoisseurs are unlikely to settle for an alternative to their favorite drink. As for other spirits, the consumption in Japan is nowhere near what it is in other markets.
There’s a strong demand in some countries, like the United Kingdom or the United States, because there’s a cocktail culture, from classics such as Gin Tonic to sophisticated new types. So companies and start-ups developed alternative brands to meet this demand. But in Japan, the at-home cocktail culture is absent. The bartending culture, however, is famous for its craft quality.
If a few entrepreneurs may take up the challenge of developing non-alcoholic spirits, the market is unlikely to grow. As for bartenders familiar with the sober-curiosity trends, they’ve opened a small number of mocktail dedicated bars.
While they’re great and exciting, Japan has space for a few of them only. There’s room in Tokyo for such concept bars, but ten of those in Japan would most likely be enough. Additionally, for mocktails themselves, you don’t need non-alcoholic spirits. Juice, syrup, sodas are already there, and plenty enough to work with, so no one is turning to non-alcoholic spirits specifically.
Maybe there will be a non-alcoholic proposition in premium bars and international hotel bars—they’ll get the famous brands. However, the cost is likely to prevent any further growth. So in the future, we may perhaps see two or three leading brands—most likely provided by the same companies.
For retailers and bars, offering one or only a few choices will be plenty enough. They won’t invest time in screening ten brands. In the end, the competition will be minimal.
If the categories grow, major players will start pushing their brands.
Most manufacturers are currently not fighting very hard for their brands. However, if a volume increase shows there’s profit to be made, they will go full steam ahead.
If you take a major company like Suntory, they typically support their strongest brands. They will not look twice at minor brands they have on the market. But show them growth opportunities, and overnight, they’ll invest more than their marketing budget. They’ll place their best talents to support a brand, showing profit potential. Horoyoi, Lemon Sour, Lemon Do, they’re all pushed by skilled professionals. For small players and foreign operators, now is the time to grab market share.
See you next Tuesday!
Next week, we sit down with Eriko Suzuki, Brand Manager at Pacific Yoko, the sole distributor of Opia, a French non-alcoholic wine, on the Japanese market.
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