Why Are Non-Alcoholic Drinks So Damn Expensive?

Nobody has a problem dropping $40 for a good bottle of bourbon, or $17 for a cocktail at a New York City bar. You may complain about the prices, but you pay it.

Decades of marketing by the world's largest booze brands have conditioned us to believe that paying up for premium alcohol is the norm. And the associated buzz is the first step on the way to adventure, romance... or whatever you're looking for in life.

Diageo, the world's largest booze company, spent nearly $2.5 billion on marketing in 2018. ABInBev, the world's largest brewer, spent $1.53 billion just in the US that same year.

While there's clearly expertise and some premium ingredients involved in making these products, those marketing numbers show there's also plenty of margin built into each sale.

But today, there are a growing number of premium, non-alcoholic drinks hitting the market. Many of them follow the same, stringent production processes and use the same, premium ingredients. Many of them also charge the same, premium price.

But once you remove booze from the equation, consumers balk at premium pricing.

Will People Pay Up Without the Booze?

What goes into a bottle of Seedlip, a non-alcoholic, distilled spirit that costs $30 a bottle? Or a six-pack of Athletic Brewing craft, non-alcoholic beer for $13?

And is it worth paying up for, even without the buzz?

Well, we asked the makers of these zero-proof products to explain the pricing. But before sharing what they have to say, let me explain one big reason the market isn't used to paying top dollar for premium, zero-proof products - the market is young.

Alcohol consumption is slowing. It's dropped nearly 1% a year for the past three years in the US (a huge number). And alcohol companies, restaurants/bars and independent makers are stepping in to fill the void with more non-alcoholic options - including NA beers and spirits, shrubs and craft sodas.

Today, for example, only 8% of AB InBev's global beer volumes come from no and low alcohol beers. But the company wants that number to be 20% by 2025. And it's going to take a tremendous amount of product to fill that gap.

The market for premium, zero-proof beverages is still in its infancy. And certain sectors, namely "non-alcoholic distilled spirits," didn't even exist a few years ago. So while premium prices for these products are justified, the market needs to be educated as to why.

And that education is going to take some time...

"Changing hearts and minds is an expensive marathon," Drink Monday CEO (maker of booze-free gin MONDAY) Chris Boyd told us.

Drink Monday founder Chris Boyd marveling at his own creation

The Zero Proof also spoke with Bill Shufelt, co-founder of Athletic Brewing, Paul Mathew of Everleaf a UK-based alcohol-free aperitif and Sam Thonis, co-founder of the booze-free bar Getaway Bar in Brooklyn, New York.

Each shared their thoughts on the pricing of zero-proof vs. alcoholic beverages and why they charge what they do for their respective products.

What Goes Into the Cost of an Alcoholic Drink?

The costs for any alcoholic product, be it a bottle of bourbon or a craft beer are pretty standard...

You've got ingredients, production/labor, aging, packaging, marketing, distribution, etc.

And it's no different in the zero-proof space.

Let's look at ingredients...

Zero-proof makers have to be even more focused on quality ingredients than their alcoholic counterparts. Anyone consuming a non-alcoholic beer or gin doesn't just care about the buzz. They want a tasty beverage and a nice experience.

"You can drink a whisky sour and mix it with cheaper stuff because you want the whisky," Sam Thanis from Getaway Bar told us. "But we can't do that at Getaway. There's no, 'here's the premium booze, don't worry about the rest.'"

Sam and his partner Regina Dellea, charge up to $13 for their zero-alcohol beverages like the Ginger Spice, made with spicy ginger, grapefruit, extra bitter tonic, blackberry and cucumber.

The bar uses all fresh-squeezed juices. And the syrups, shrubs and other mixers are either made in house or purchased from premium brands like Som (a Portland-based cane-vinegar cordial). Getaway also uses non-alcoholic spirits like Seedlip and Three Spirit in some of its drinks.

Everleaf, the UK-based aperitif, takes its ingredients a step further...

"We use saffron and vanilla in Everleaf - two of the world's most expensive spices," founder Paul Mathew explained. Everleaf uses 16 plants in total, and they're all sustainably sourced, which means the ingredient costs in an 18£ bottle (about $24) "are really quite high" Mathew says.

And Athletic Brewing co-founder Bill Shufelt explained their beers "are made from certified all-organic grains (which almost no craft brewers can claim) and are about 40% more expensive."

Bill Shufelt (right) with Athletic Brewing co-founder John Walker at the company's Stratford, CT headquarters.

How Production Factors In...

There's a large infrastructure around brewing and distilling alcoholic beverages.

Of course, the larger producers have their own production facilities. But if you don't want to create the product yourself, there are tons of contract distilleries and brewers that will make your product for you. Then you can hire a co-packer to fill the bottles and slap a label on them.

That's exactly what George Clooney's Casamigos did, before he sold the company to Diageo for $1 billion in 2017.

The same facilities are available to zero-proof products, but you may have some issues convincing them to do so, like Drink Monday's Boyd did...

"You may have challenges finding suppliers who understand what you're trying to do (we got laughed off the phone more than once). And when you find them, they may have trouble sourcing your unusual raw materials, have big [minimum orders], want cash up front and deliver with long lead times."

All of the issues Boyd mentions above make it even more difficult for a zero-proof startup to compete with the big boys.

In some cases, Everleaf's Mathew had to go custom to produce his aperitif...

"In order to give Everleaf its unique texture and mouthfeel, I use plants and production techniques that aren't traditionally used in drinks. That meant customizing some of the equipment in order to produce it, as well as a time-consuming blending process at the end."

Everleaf founder Paul Mathew

Mathew also uses a different extraction technique (distillation, infusion, maceration, etc.) for each botanical depending on what's best for the ingredient, which further adds to the cost.

And when it comes to making non-alcoholic beer, it's actually more difficult and costlier to brew. In most cases, you fully brew a normal beer. Then you have to remove the alcohol (usually by burning it off). Athletic Brewing spent around a year coming up with a proprietary technique to brew its beer with a lower alcohol content.

"Ultimately, [Athletic Brewing is] real, fully-brewed beer with full ingredient bills - the alcohol is a free byproduct of fermentation so not sure why it should cost more with alcohol," Shufelt told us.

Redefining a category

Marketing these new products is a whole different problem. Large alcohol brands have massive marketing budgets and built-in distribution. But these new, zero-proof brands are starting from scratch, and fighting their way into this market.

They are also trying to renew interest in a category defined by lower-quality and lower-price options.

Consider non-alcoholic beer. To most consumers, the entire sector is defined by one or two brands - like O'Doul's. And because they aren't aware of the many, high-quality offerings, they don't bother looking at the non-alc section in a store or on menus.

And most restaurant patrons won't even pick up the drink menu because they've been trained to expect juicy and sugary "mocktails."

But restaurants are picking up their game as well...

At The Macintosh restaurant in Charleston, part of Steve Palmer's The Indigo Road Restaurant Group, servers are trained to mention their zero-proof options when they drop the drinks menu.

All of this education takes time and money.

So, if products want to offer a high-quality, innovative product, a premium price point is essential to help them compete with "Big Booze." And despite the term "mocktail," a premium price signals these products should be taken seriously.

"If we were selling five-dollar drinks, it would seem cheap," Getaway's Thonis told us. "We're charging a price that says we're putting work into this, we care about what we're doing and we want to pay the rent and our staff."

When Thonis sees other places charging low prices for non-alcoholic drinks, he believes it devalues the whole market. He wants to dispel the belief that bars and restaurants make money on the drinkers and lose money on non-drinkers. He says, that eight months in, Getaway Bar is making comparable margins to a bar that serves booze.

If anything, Getaway Bar, Athletic Brewing, Everleaf and these other, premium zero-proof business owners are showing that non-drinkers are willing to spend money for a high-quality drink and a nice experience.

Selling a Zero Proof Brand for $1 Billion

We're still early in zero-proof trend, but the market is growing.

More and more products are coming to market... ABInBev, Diageo, Coca-Cola, Molson and other huge beverage companies are growing their NA portfolios. And that means a huge wave of capital flowing into the sector.

But it's still going to take passionate entrepreneurs to break things open and educate the market on a premium, non-alcoholic experience.

Drink Monday's Boyd likens it to the growth of craft beers...

Fifteen years ago, your go-to bar line-up was Bud, Bud Light and Coors. If you saw an IPA on the menu, you'd likely not know what it was doing in the beer section, especially with a ridiculous eight dollar price tag.

Fast forward to today... people understand the difference in beer variants and the high-quality ingredients that go into their drinks. And they regularly go to places where 30 craft beers on tap is the norm and eight buck s for a pint is a deal for the hoppy stuff.

In 2015, as competition in the craft beer market reached a fever pitch, beverage giant Constellation Brands bought California-based craft brewer Ballast Point for a stunning $1 billion.

Sam Adams also bought Dogfish Head for $300 million. And Lagunitas sold a 50% stake to Heinken at a $500 million valuation.

We wish our trailblazing friends in the zero-proof space a similar fate.

Already Diageo purchased a majority stake in Seedlip for an undisclosed sum. And that's only the beginning.