Five ways the RTD market in the US is changing

Ten years ago, RTDs in the US accounted for less than 3% volume share of the total US beverage alcohol market. In 2022, this grew to almost 12% – larger than the entire wine market in the US. This growth was driven almost entirely by the hard seltzer subcategory.

Post-pandemic, however, the category is transforming yet again, as momentum for hard seltzers moderates, slowing down the pace of growth for the overall RTD category.

IWSR expects the RTD market in the US to make incremental volume gains between 2022 and 2027, expanding at a CAGR of only +1%, largely due to a substitution effect from malt-based to spirits-based products for seltzer-like RTDs. There is, however, still a high level of investment in the RTD category from major producers, which should fuel sustainable growth across segments such as FABs, hard tea, hard coffee, hard kombucha and cocktails/long drinks.

“Consumer demand and a crowded marketplace are driving an ongoing premiumisation trend, especially evident in pre-mixed cocktails. Advancement in the hard tea subcategory is also expected, as more producers invest in new products. Meanwhile, demand from core consumers will drive FAB volume gains,” notes Marten Lodewijks, Director of Consulting – Americas, IWSR.

In this rapidly changing marketplace, IWSR has identified five key changes to the RTD market in the US.

1- Premiumisation

In 2022, RTDs posted the largest year-on-year increase in average price per serving versus other categories, signalling that the premiumisation observed in spirits continues to assert itself in RTDs too.

This is partly being driven by the rapid expansion of the cocktails/long drinks segment, which has the highest forecast growth rates and share gains, with consumers increasingly trading up to spirit-based cocktails. The subcategory is expected to surpass FABs by value in 2023.

Between 2018 and 2021, the super-premium price band of RTDs recorded a CAGR of +71%, ahead of premium (+48%), standard (+39%) and value (+19%), according to IWSR data.

“With more spirits brands launching cocktails, consumers are migrating across from hard seltzers,” explains Adam Rogers, Research Director, IWSR. “More ‘branded’ cocktails using well-known bases provide consumers with a degree of familiarity.

“In addition, state-level regulations are being challenged by large organisations to allow spirit-based RTDs to be sold alongside malt-based ones, levelling the playing field.”

2- Seltzer slowdown

Hard seltzers suffered a -10% volume decline in the US during 2022, largely due to the declines in the malt-based hard seltzer subcategory, as well as increased competition from rival segments such as cocktails/long drinks and FABs.

At their peak in 2021, hard seltzers accounted for more than half of all RTD volumes in the US, and were responsible for over 80% of all RTD volume gains between 2014 and 2021.

Even as hard seltzers’ share of RTD volumes recedes – IWSR expects it to shrink from its peak of 58% in 2021 to 37% by 2026 – pockets of growth remain, including spirit-based products, which enjoyed near triple-digit growth in the first half of 2022.

“Over the next few years, hard seltzers are expected to continue to decline until the segment stabilises,” says Rogers.

“Many malt-based hard seltzers are receiving less support from brand owners as they realign their focus to newly released brands and/or line extensions in the cocktails/long drinks segment. This will lead to further declines for the hard seltzer segment until the shake-out is complete and the true level of consumer demand is apparent.”

3- Flavour innovation

Taste is still the most important reason prompting people to consume RTDs, with 49% naming it as their prime motivation for purchase, making flavour innovation key for brand owners.

Current demand is moving towards fuller flavours and higher ABVs, particularly in the FAB segment, while hard seltzer flavour profiles are evolving rapidly – fruit flavours remain by far the most prevalent, but inspiration is also sought from teas, cocktail/sodas and even fruit smoothies.

“While some producers aim to drive a new trend, others piggyback by bringing out similar products, aiming to capture share,” says Lodewijks. “This ultimately shortens the life cycle of the trend, causing saturation.

“Unlike the past, where declining brands were given more time for success, underperforming brand lines and flavours are now quickly discontinued or reformulated to maintain brand recognition.

“This shift in approach underscores the importance of innovation as the key driver of growth for RTDs in the future.”

4- Cross-category partnerships

Partnerships between leading names in the beverage alcohol and mixer categories are an increasingly common feature of the RTD market in the US, leveraging improved distribution and consumer recognition.

Examples abound, including Jack Daniel’s and Coca-Cola; the Vita Coco Company and Captain Morgan; and PepsiCo and Boston Beer (Hard Mountain Dew). Such partnerships lower the barriers to entry for soft drinks companies, reducing the need for costly capital expenditure.

“Major non-alcoholic beverage companies have added another consumption occasion to their brand family by partnering with alcohol suppliers to produce, distribute and market new alcoholic versions of their products,” says Lodewijks.

“This is expected to continue, with more releases planned. Capitalising on existing brand awareness has proven successful as these companies bring to market alcoholic versions of well-known brands. The market has never been so dynamic, with outside-the-box attempts to entice consumers who have wider repertoires.”

5- Packaging innovation

The innovation dynamic that pervades the RTD category extends into packaging, with formats including bag-in-box and resealable cans now being introduced by brand owners.

Ready-to-pour packaging in larger formats is also increasingly prevalent in the US, along with elegant packaging – typically glass – for spirit-based, premium-plus pre-mixed cocktails.

Metal cans are by far the most used format, but 47% of consumers express a preference for glass, compared to 36% for cans, according to IWSR consumer research. Brand owners have recently been restricted in their choice of materials by supply chain disruption.

“Fridge-friendly bag-in-box offerings are becoming more commonplace, especially for big gatherings,” says Rogers. “This pack type is growing in both the affordable (margarita) and upscale (negroni) segments.

“The vast majority of consumers prefer single-serve sizes, whether purchased separately or in multipacks. Higher-income consumers (US$100k-plus) are relatively more likely to prefer buying RTDs in larger bottles, while hard seltzer users show a relatively higher preference for multipacks.”

Some RTD brands also offer assorted flavour multipacks to give consumers more variety. This is a fairly unique packaging innovation not seen in many other drinks categories, except for higher-end gift packs.

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