Younger consumers are fueling functional drinks. Alcoholic beverage penetration among Gen Z consumers over 21 was the lowest among all generations, according to the latest data from Numerator. 

But Zhou said it’s too early to tell whether the trend will last, or if it’s a product of coming of age during the pandemic, when there were fewer opportunities to socialize in a group setting with alcohol.

Frey added that interest from older generations shouldn’t be discounted. 

“We all focus on the younger generation always,” Frey said. ” But when you think about how much [baby boomers] are worth in terms of their spend and the fact that they are reducing alcohol and looking for other alternatives, I think it’s a really important element as well.”

Jake Bullock, founder and CEO of cannabis drink company Cann, said consumers now have more health and wellness information available than ever on devices such as Apple Watches or iPhones. He said he believes the data is “encouraging people to consider the harms of alcohol in a way that we never would have 20 years ago.”

Consumer health and wellness concerns spiked during the pandemic, and the trend has not gone away, Frey said. She added Nielsen IQ’s research, done every six months, finds health and wellness is a top priority for consumers. But the concerns have evolved from wanting to cure specific ailments to aiming to increase general well-being in order to live longer and better, according to Nielsen data.

Frey said the shift has piqued interest in functional beverages. Drinks that promote higher energy levels, better digestive and brain health and mood-enhancing benefits are among the most popular. 

Three-quarters of respondents to a 2023 survey by Datassential said they believed functional foods and beverages would help them live longer and be healthier without having to radically change their diet. 

“Consumers are looking for products that do more than one thing for them. So if you can achieve a great taste, but also some functional benefit, you’re adding more value,” Jordan Bass, CEO and founder of adaptogenic beer alternative brand Hop Wtr, told CNBC.

Hop Wtr was co-founded by Nick Taranto, an ex-Marine turned competitive athlete, and Bass, who said he was training for a triathlon at the time. The duo loved “to crack open a cold beer” but wanted a nonalcoholic alternative that would relax them without the health drawbacks of alcohol, Bass said.

Hop Wtr was initially marketed as a beer alternative due to its hoppy flavor. But Bass said the company’s marketing shifted after it saw data showing wide consumer interest in functional beverages.

The drink includes several adaptogens and nootropics. Adaptogens are herbs such as ashwagandha that advocates claim help the body’s response to stress, anxiety and fatigue. Nootropics are popular substances such as L-theanine and caffeine that are claimed to improve mood and provide focus and energy.

“Adaptogens and functionals are marketing terms that were invented that mean drugs for sober people,” joked bartender Elliott Edge.

Edge is a bartender and manager at Hekate, a witchcraft-themed sober bar in the East Village neighborhood of New York City. Hekate was the first sober bar in the city when it opened in January 2022.

Owner Abby Ehmann initially thought she would have to make everything from scratch, but said she was pleasantly surprised to find that over time, new alcohol-alternative products started popping up “like every week.”

The bar stays busy — especially during Sober October and Dry January, when, Edge says, “If you smile in here, your cheeks will touch someone else’s.” Customers range from 80-year-old locals to New York University undergraduates, and not all of them are sober, Edge added.

Alcohol is the original functional drink. People use it to change their mood or act as a social lubricant, and centuries ago they drank it for supposed health benefits, from aiding digestion to warding off the plague. But as more consumers worry about negative health effects of alcohol, Edge has found that people are open to trying many alternatives.

“People are curious. It seems like they are tired of relying exclusively on something like alcohol for the moods and feelings they want, which are calmness but also sociability,” Edge said.

Functional drinks serve as not only a potentially healthier substitute for alcohol but also for sodas, as consumers grow more wary of sugar.

But like the health benefit claims made about vitamins and supplements, a lot of the claims by beverage makers are not subject to FDA review. 

“It’s certainly not a straightforward space where you can take everything at face value,” Zhou said.

This uncertainty is already leading to legal trouble. Poppi, a functional soda touting digestive benefits, is now facing a lawsuit challenging its claims of prebiotic benefits.

In a statement to CNBC, a Poppi spokesperson said the company stands behind the product.

“We believe the lawsuit is baseless and we will vigorously defend against these allegations,” Poppi told CNBC.