As the low-to-no-alcohol movement has taken hold with consumers, booze-free hop-infused waters and teas have taken off as a product type.
Spirits and Mexican import beer giant Constellation Brands put its official stamp of interest on the trend by investing in HOP WTR, an emerging brand of zero-calorie sparkling water infused with the fruity bittering agents as well as some on-trend functional or adaptogenic ingredients like L-Theanine (potentially providing relaxation and focus) and Ashwagandha (a purported stress reliever).
The round that brought Constellation’s in as a minority owner of HOP WTR also swept in the venture arm of ingredient company Doehler, as well as existing investors like consumer-focused VC firms Brand Foundry and Lakehouse Ventures. Company founder Nick Taranto turned down the opportunity to provide details on the amount invested or valuation, but explained the earlier investors participated in the new round via convertible debt.
After about a year in development, HOP WTR has moved quickly, shipping its first product to consumers last August. Co-founders Taranto and Jordan Bass launched the brand believing there was a market in products that were healthy alternatives to beer. Taranto launched and sold meal delivery service Plated while Bass had been an e-Commerce executive with the Wonderful Company.
“We knew there was a big market here,” Taranto said. “We could foresee billions of dollars in consumption shifting to non-alc’s; we knew there was a big opportunity. We took the approach that this wasn’t going to be bootstrapped. We knew there was a window of time for that opportunity, and we want to be the market leader. So the intent from very early on was we need to go big, to move quickly to take advantage of that.”
The founders started looking toward a strategic partner after what Taranto termed an astounding level of product interest during “Dry January,” an increasingly common purification ritual for U.S. consumers.
“Dry January blew away expectations,” Taranto said. “We were up 4X month-over-month, so it validated for us that it was a big market, but that we needed big capital if we were going to get after it — that’s when we started those fundraising conversations.”
As for Constellation, the multinational’s experience in brick-and-mortar channels is expected to help balance the focus on online consumer acquisition that has governed HOP WTR’s initial rollout.
“We’ve got a strategic partner that deeply understands beer, beverage, and has tentacles throughout the entire market,” he said. “That should allow us to leapfrog growth and development by years.”
The company had originally planned to launch both in stores and online, but the ongoing COVID-19 pandemic quickly blunted the physical half of that pincer attack.
“By the time we had product, the circumstances had made it clear that we were going to be direct-to-consumer for a while,” Taranto said. “We think that’s going to remain a huge part of the business forever, nevertheless.”
Of course, competition has also ramped up throughout the space, with well-funded non-alcoholic beer brand Athletic Brewing growing quickly and trying to expand behind its own Daypack line of hop-infused sparkling waters, as well as entries from Hoplark Hop Tea and craft brewer Lagunitas, among many others. Also likely to be part of the battle for market share are brands infused with cannabinoids like CBD or THC, such as Cann or Ceria, a non-alcoholic beer that plays in both the cannabis and NA spaces.
Regardless of competition, the investment comes as retailers, press and consumers are increasing the attention they pay toward products that remix the flavors of beer without the fermentation that results in alcohol. Sales of what Constellation termed the non-alcoholic segment of total beverage alcohol grew 37% in 2020, according to the company, with 58% of consumers switching between non-alcoholic and full-strength drinks in the same drinking occasion. Stories are popping up in mainstream publications like the New York Times, and web-based platforms specializing in the curation and sale of NA beverages have also begun to appear.
So how to separate from the pack? According to Taranto, HOP WTR is non-alcoholic, but with its adaptogens and nootropics complementing the hop profile, “we really see ourselves sitting at the intersection of non-alcoholic beer and functional beverage.”
The three-flavor line — Classic, Mango, and Blood Orange — has had a fairly limited brick-and-mortar presence thus far, focusing mostly on the West Coast, although Taranto said many new retail outlets are coming and that Boston and Austin will soon be tested as expansion markets. Physical store growth is being led by David Vartanian, a veteran of Anheuser-Busch and PepsiCo. The company plans to launch a Mexican Lime variety in about 8-10 weeks, according to marketing head Lily Badger. Badger might face the biggest challenge in terms of promotion, however.
She’s been tasked by Taranto — albeit facetiously — with coming up with 11 other months worth of spirit-free monikers beyond “Dry January.” Right now, for example, HOP WTR is donating to the American Cancer Society while promoting “Dry July.”
Only 10 more to go. Do we hear “N.A. May?”