The untold reasons of the Lo No alcohol success (and what it means for you).

After the hard seltzer madness and the tequila explosion, Lo No alcoholic beverages seem to be the next Big Thing with brands racing to introduce offers to satisfy consumers’ health thirst. Could this newfound consciousness explain alone the rush to conquer starting blocks for the upcoming Lo No race ? Read here the untold reasons that drive this category and the brand development implications it holds for your business.

In many cases, for a category to thrive, it requires both a demand from consumers and an interest from producers. To put it simply, if producers and distributors can’t make sufficient profits from a category, it will not expand. The driving force behind alcohol brands entering the Lo No category often boils down to the age-old saying: ‘Follow the money.'”

  1. Additional Profits: Lo No alcohol brands are more profitable on an unit base, especially if they are sold at a similar Retail Sales Price than their alcohol equivalent. Why ? Because Lo No alcohol brands are subject to little or no alcohol excise duties. It’s that straightforward. This creates an ‘available’ margin that can be shared among wholesalers or retailers, thereby motivating these partners to promote Lo No alcohol brands. Naturally, this margin can also be incorporated at the brand owner level, such as in the case of a fully owned subsidiary or online sales.
  2. Lower Business Risks: From a business dynamics standpoint, Lo No alcohol, particularly in the space of spirits, presents an attractive model for new comers. Unlike beers (or soft drinks), which typically yield a modest per-unit gross profit and thus rely on high turnover to generate substantial profits, Lo and No alcohol spirits can sustain a spirits-like “lower” turnover because they enjoy a higher per-unit gross profit. This feature makes it more accessible for new brands to enter the market with lower initial investments, especially in the case of spirits line extension. But make sure your products are sold before they expire!.
  3. Incremental Distribution: The third untold reason that make Lo No alcohol variants attractive to alcohol brands, and in particular to spirits players, is the hability to enter into new distribution networks. For instance, in the US or in The Netherlands, spirit brands above a certain ABV level can only be distributed in liquor stores. Lowering or removing the alcohol altogether allows to be present in other channels like super markets, which was very much the strategy of vodka and rum RTDs in The Netherlands. And more distribution means more business.
  4. Business Protection: The fourth untold reason holds significance to existing alcohol brands venturing into Lo No equivalents with regards to the unpredictability of future public health policies. In a worse case scenario, alcohol brands may be forbiden to participate into the Lo No category on the grounds that a Lo No brand bearing an alcohol-related name essentially serves as promotion for its alcoholic counterpart. However, by establishing a business within the Lo No sector using alcohol brand names, it can potentially make it more challenging to ban the entire sector’s volumes, particularly if these brands are designed to promote responsible drinking.While this may be more speculative, it’s a factor worth keeping in mind, depending on the stringency of public health regulations in different markets. To illustrate the point, in France, No alcohol beer brands must comply with the Loi Evin, which mandates health warnings in their advertising because they are regarded as alcohol brands, even when their 0% variants contain no alcohol.

So, where does that leave us ? It seems there is a good opportunity and business case to create or line extend alcohol brands into the Lo No sector. Of course, this hinges on maintaining high quality, as many brands have faced setbacks due to disappointing products. If we step a bit back, the following considerations can be made with regards to brand development in the Lo No space.

Lo No : an adults drink market in its infancy that will see segmentation arise

From a Brand positioning perspective, the market is yet to be built : indeed, at the risk of over generalising, it seems that the vast majority of Lo No alcohol brands adopt a colourful, innocent or naive tone. If we remind us that Lo No alcohol are adult drinks after all, i.e. the social facilitators of many occasions, in the long run we will see a category which is at the moment very playful or “affiliative” to adopt more statusful, discerning or independent propositions.

Now is the time to prepare Lo No brands with real character

Given the time required to develop the right liquids and messaging, it is almost too late to launch a Lo No alcohol brand which focusses on the “nice feel of being free from alcohol” because all the major players have already placed their chips. BUT if you want to play with Lo No alcohol propositions that act like real adult drinks and make the most of No alcohol consumer insights, this is the time to prepare the future. Because best launches happen when a demand starts peaking.

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