IWSR’s Asia-Pacific Research Director, Tommy Keeling, answers your questions as part of our Ask Me Anything – Asia Pacific session, and tells us about the impact of Covid-19 on market trends, innovation, and why the region has strong potential for future RTD growth.
Paul: In the US, beer companies make various kinds of beer, as well as low- and no- alcohol variants and hard seltzers. Do you think Korean beer makers should or will go in that direction and make their product ranges more diverse too?
Local producers in South Korea have been under strong pressure from the competition of imported beers in recent years, partly due to a tax system that favours imported beers and the fact that imported beers offer much more variety. Local beers are often used as a base to mix with Soju. The beer market is still dominated by Hite and OB, but there has been some innovation in recent years, especially with South Korean multinational conglomerate Lotte entering the beer market. There is an emerging craft segment, where we are seeing some interesting and high quality beers. This could add further pressure to the large incumbents.
Jennifer: What has been the influence of Covid-19 and the economic crisis on local consumer habits?
Tommy: The impact of the Covid-19 pandemic has varied by country according to the severity of the on-trade restrictions and the readiness of consumers to adapt to drinking at home. South Korea and Taiwan, which have kept local infections low enough to avoid a major shutdown have seen relatively little change, whereas Japan saw a marked shift towards more at-home drinking. Japan has experienced fairly severe declines in the on-trade and already has a relatively strong at-home drinking culture. This shift has benefited categories that are more suited to at–home consumption, such as RTDs and New Genre beer. Categories that are more on-trade-focused such as Champagne, premium wine, and sake have been more negatively impacted.
Australia saw an even more marked shift towards at-home consumption, where it is already more commonplace, and this shift has benefited popular spirits categories such as gin. Initially during lockdown overall consumption increased, but as time progressed, this has settled.
In China the lockdown was extremely severe, which caused a rise in at–home consumption, but it was short-lived, and life has largely returned to normal as the on-trade has reopened fairly unscathed.
Nitin: Are you seeing a surge in the RTD segment (hard seltzers, low ABV meads, and wine coolers) in Asia-Pacific?
Tommy: Japan is by far the largest RTD market in Asia Pacific and continues to grow strongly, even in 2020 we are expecting full year growth versus 2019 to be just under 7%. Most RTDs consumed in Japan contain low amounts of sugar or are sugar-free, similar to many hard seltzer offerings, though they are not categorised as hard seltzers. Despite the low sugar content they can be relatively high in ABV.
In Australia, the second largest RTD market in Asia-Pacific, hard seltzers are just arriving and have the potential to succeed as they tap into current trends that resonate with consumers, such as health and wellness, concern for the environment and the trend for light and refreshing drinks. There has also been some movement with wine-coolers and spritzers in Australia though they remain small.
Kemble: What will be the driver behind the success of the hard seltzer category in China?
Tommy: It is early days for hard seltzers in China, so we are still not sure how successful they will be there. If they are to succeed, taste and wellness cues are likely to be the main drivers. Hard seltzers offer a light, refreshing style that is likely to be popular with younger LPA people, especially women looking for an alternative to beer. Younger LPA consumers are increasingly health-conscious and concerned about alcohol and sugar intake. A low-alcohol, zero-sugar drink could play well in some quarters. There is also virtually no limit to the variety of flavours that can be offered, which will help maintain interest.
What recommendation would you give to new RTD brands entering Asia-Pacific markets?
The markets in Asia-Pacific differ greatly, so it is particularly important to pay attention to the local market dynamics. Japan is alluring because of its sheer size but it is a hard market for foreign brands to penetrate. Local RTD styles are very distinct and unique to Japan and the local players are very strong. New market entrants need to be tailored to the local market tastes and with packaging that resonates with consumers. Coca Cola succeeded with Lemon-Do because they developed a very localised product and marketing strategy that resonated with Japanese consumers.
In Australia and New Zealand, the trends lean towards light and fresh drinks, high quality, provenance, authenticity, health and environmental sustainability. A brand that can satisfy these criteria has a good chance of success.
China has huge potential for RTDs but poses a very different set of challenges, especially from low-priced competition and copycat brands. Strong branding and a USP that can’t be easily copied, such as use of an established foreign spirit, would help.
Sean: In New Zealand and Australia, apart from Rose, Lo & No, Hard Seltzers and Prosecco what are the next trends emerging for still and sparkling wine?
Tommy: There is a general trend in New Zealand and Australia towards premium wines, imported wines and towards certain varietals. Pinot Noir is growing in New Zealand. In Australia, there is a shift away from GSM (Grenache Syrah Mourvedre) towards Shiraz and Cabernet Sauvignon. Pinot Grigio is doing well in both markets, as part of the light and fresh trend. Another area to watch is new innovative packaging and smaller, more convenient formats such as cans, pouches, smaller bottles. Portable packaging is well-suited to the popular outdoor consumption occasion.
Kylie: Are you seeing a swing towards ‘local’ beverage alcohol brands and products in Australia? If so, is this more pronounced in any particular category?
Tommy: Yes, there is a very strong trend towards local products that use local ingredients where they can. This trend has been most pronounced in beer, with the craft beer trend and in some spirits categories, especially gin, where local craft producers have boomed in the last 10 years. In 2014 local gins held around 8% of the gin market in Australia, growing to around 15% in 2019 and we expect local gins to continue taking sharing of the growing gin market over the next five years.
There is also an emerging local whisky segment, based mainly in Tasmania, where the climate is most suitable for wood aging. There are more premium local rum and vodka brands entering the market too and we can also expect brandies and eaux de vies to grow in coming years. In the last year, the trend for local products has spread to RTDs with a proliferation of local, independent RTD brands, including many hard seltzers and also hard kombuchas and hard ginger.
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