What's driving RTD innovation in the US?

IWSR looks at what opportunities there are for premiumisation and diversification within the RTD space in the US

 

The RTD category is the fastest growing beverage alcohol category in the US market, and its trajectory is looking strong for the years to come. By the end of 2020, IWSR expects the category to double its 2019 volume, driven largely by the buoyant hard seltzer segment. This growth will make volume consumption of the RTD category in the US larger than that of the entire spirits category.

The total RTD category, which includes hard seltzers, flavoured alcohol beverages, and pre-mixed cocktails, continues to perform strongly against the backdrop of Covid-19. As the on-trade goes through periods of shuttering and reopening, the category’s intrinsic values of convenience, portability and variety have augured well.

Now, as the RTD market becomes an increasingly crowded landscape, innovation has become a key concern as brands aim to stand out from the competition and meet evolving consumer needs. Historically in the US market, RTD innovation was centred around flavour, which resulted in a cycle of boom and bust for particular flavour varieties, similar to that experienced by vodka.

In more recent times, RTD innovation has been driven by consumer-centric, as opposed to product-centric, trends, allowing the category to expand its appeal and gain a robust relevance in a variety of consumption occasions. Principally, brands have capitalised on the health and wellness movement by creating iterations that are low in sugar and alcohol, and contain natural or organic ingredients.

There is, however, an untapped opportunity for brands to offer premium trade-up opportunities for consumers, and one way they can do so is by using a premium spirit as a base. Brandy Rand, COO Americas at IWSR, explains: “Today’s consumer not only seeks out convenience but also quality, resulting in opportunities for trade-up alternatives for RTDs – something which is yet to be fully realised.”

Rand adds, “one angle of great potential for premium RTDs points to spirit-based products as opposed to malt or fermented sugars. As more spirit-based RTDs come to market, increased premiumisation of the category is anticipated.”

IWSR data shows that across 10 core markets (Australia, Brazil, Canada, China, Japan, Mexico, Spain, South Africa, the UK and the US), the RTD segment is almost overwhelmingly driven by spirits-based products in all countries apart from the US.

Of the newly launched RTD brands in the US in 2020, most (57%) use a base of malt or neutral fermented sugar. However, the number of spirits and wine-based products is increasing, and recently launched spirits- and wine- based RTDs now account for 31% and 9% of the category respectively.

Due to the prevalence of malt and fermented sugar bases, most newly launched RTDs in the US fall into the 4.1% to 5.0% ABV range and as such align with the ‘better for you’ ethos. However, with the rise in spirit and wine-based RTDs, the US market has seen an increase in products that exceed 10.1% ABV. These expressions tend to be versions of full-strength cocktails. Conversely, there is also an equal rise in lower (less than 4.0% ABV) products.

The prevalence of spirit and wine-based RTDs has grown despite the US’s tax and marketing regulations. The US levies RTD taxes at a state and federal level, taking ABV and alcohol base into account. As such, malt-based products pay a lower excise rate and have access to a wider distribution channel, since more outlets are licensed to sell beer than liquor. Fermented sugar-based RTDs are treated in a similar way, and additionally benefit from more relaxed policies regarding marketing.

Despite their commercially advantageous position in the US, malt and fermented sugar-based RTDs risk sliding down consumers’ estimations as drinkers seek premium product offerings. This could potentially result in a volume decline for the entire category if trade-up alternatives are not widely available. IWSR research shows that almost one in two consumers place importance on the alcohol base when selecting an RTD, and tend to perceive spirits to be better liquid than malt.

Brands are rapidly pivoting to meet this consumer need. IWSR data shows that vodka is by far the most common spirit base with Tequila/mezcal, whiskey, gin, and rum following behind. Wine remains the least explored alcohol base among RTDs, though, when it occurs, such innovation predominantly comes in the form of spritzes, mimosas, bellinis, and sangrias.

A number of established spirits brands now have a presence in the RTD space, which increases consumer recognition of and engagement with the category. Key players include Smirnoff, Jack Daniel’s, Jose Cuervo and Southern Comfort, while more unlikely spirit categories, such as Scotch, now have a presence in RTDs as well, with the launch of products such as the new Haig Club Clubman canned drinks range. There have also been a number of seltzer line extensions from established brands, such as Chase and BrewDog. Meanwhile, smaller local or regional producers are increasing their market share by promoting community ties.

With so many new products from existing brands, as well as a widespread acceptance of completely new and authentic brands, saturation in the market may lead to a category shake out, and a number of brands will likely cease production.

“Winners will differentiate their proposition to consumers in order to stand out among the masses,” says Rand. “Premiumisation through alcohol base, unique flavours, functional benefits and purpose marketing strategies are among the angles that could yield greater consumer appeal and demand.”

The findings from this article are explored in greater detail in IWSR’s RTD Strategic Study 2020, which analyses the growth and outlook of the RTD category across 10 key markets. For more information, visit: The IWSR Future of the Global Ready-to-Drink Alcohol Market Strategic Study

IWSR - RTD video

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