Research in Focus - Ready for More Growth: RTDs Continue to Defy Doom-Mongers
RTDs have proved very popular in the on-trade in developed markets
The ready-to-drink (RTD) category continues to offer growth potential for spirits producers while giving their brands access to consumption occasions they were traditionally excluded from and the opportunity to attract new consumers through product innovation.
It may be one of the drinks sectors most often tipped for meltdown but the pre-mix or ready-to-drink (RTD) market shows no signs of obliging. Yet again, while some suggest the growth trend in RTDs is running out of steam, the category continues to turn in solid progress year in year out.
With the exception of three years during the economic crisis, where most drinks categories suffered, RTDs have grown steadily, with average annual growth of 0.6% over the past ten years. True, this is nowhere near the growth achieved during the explosion of the category between 1998 and 2003, when annual average growth of 20.8% was being achieved, but equally it does not suggest a sector which is on its last legs.
Indeed, last year saw an acceleration in growth, according to a new report from The IWSR and just-drinks, as volumes grew by 3.2% to 330m cases in 2012, with Japan, the US, Australia, Mexico and Canada leading the charge. While some markets, such as Russia and the UK, have declined during the past five years, that total volume figure makes the sector at a global level larger than all other categories with the exception of vodka and national spirits, and The IWSR/just-drinks is forecasting further growth for the sector.
It is not hard to see why the category continues to defy the doubters - for drinks marketers there appears to be much to love.
"Despite the mixed market performances, there are few categories that are as dynamic in terms of innovation and the energy that it brings to the marketplace," the report states. "RTDs have consistently evolved, adapted and innovated to find new ways of fulfilling consumers’ needs. Perhaps they became malt-based instead of spirits-based, or launched new flavours, or altered the packaging format."
Moreover, the report suggests that trend of constant evolution looks set to continue. While the overall global outlook for RTDs remains "positive", The IWSR/just-drinks says there is a "revolution under way" as the focus shifts from the on-trade to the off-premise channel and the category "re-invents itself" accordingly, with more "sophisticated positioning, more convenient packaging and serve innovation".
The report outlines how RTDs have allowed spirits brands access to new consumption occasions, which were typically the preserve of wine and beer, such as picnics, concerts and sporting events.
The versatility of pre-mix drinks means that suppliers can target an array of consumer segments. As a rule, RTDs have tended to appeal to younger legal drinking-age (LDA) consumers, with a bias also towards female drinkers "The challenge for marketers is to extend beyond this heartland," the report states. However, the versatility and flexibility of the RTD format offers huge potential for the product innovation that can make that expansion possible.
Much of that innovation is coming in the form of new flavours, the report continues. "Producers are moving from mainstream berry and citrus flavours or classic cocktails toward more esoteric flavours," IWSR states. In addition to the addition of new flavours, the report also identifies premiumisation and low-calorie as other areas of product innovation for RTDs.
Another reason why spirits marketers appear to love the RTD format is its potential for underpinning the parent brand. This feature of the sector also flies in the face of received wisdom about RTDs. Far from realising a benefit for the overall brand, in the early days of the category marketers were concerned that such products might cannibalise sales of full-strength spirits brands. There were also concerns about the impact RTDs might have on the brand equity of an established brand. However, the evidence today is that well-executed RTDs can enhance both the sales and image of the parent brand.
Anu Goel, VP global marketing at Beam Inc, says innovation in RTDs is "accretive" to a mother brand. "Intuitively we know that RTDs enable our brands to recruit new consumers, play in new occasions, and extend brand visibility. In terms of being incremental to the full-strength parent, that really depends on how you execute the RTD. If you leverage the RTD to focus on a different consumer group, a different customer channel, and a different day part/occasion, then there’s a much greater chance that you’ll drive incremental growth for the brand."
The IWSR/just-drinks also point out that RTDs can be used as a means of promoting a spirits brand where advertising of full-strength spirits is not permitted.
They can also reinforce an accepted or desired style of usage for a major spirits brand. For example, Brown-Forman points out that mixing Jack Daniel’s with Coca-Cola has been a key element in the brand's success. Jack Daniel’s global marketing director Carmen D’Ascendis says "the RTD and RTS [ready to serve] versions reinforce our brand’s mixability".
Another key advantage the RTD sector appears to have going for it is the sheer number of significant participants in the category. The RTD sector benefits from innovation and investment from a wide range of participants.
"The great strength of the RTD and RTS sectors is that there is a broad array of participants from the spirits, wine and brewing industries," IWSR states. "This guarantees a tremendous critical mass of investment around the category. It also ensures a tremendous amount of competition."
While not surprisingly Diageo is the largest RTD supplier, with a 13.5% share of the global market, the fact that this has fallen from 18.2% five years ago underlines that there are other significant players in the sector.
Japanese group Kirin is the second-ranked pre-mix supplier, with around 8.7% of the global market in 2012, while Canada’s Mark Anthony Group is the third-largest producer with a 6.6% share.
Another Japanese company, Suntory, is the fourth-largest producer with a share of around 6% in 2012. New Zealand-based Independent Distillers is the fifth largest RTD producer on the market, while both Brown-Forman and Beam are significant players and have both enjoyed strong growth over the past decade.
Just before January is out, Ian Buxton is here for his first comment piece of 2014, and he's keen to consider what the fist big M&A transacion of the year will mean in the Scotch whisky industry....
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