Smirnoff Ice and Bacardi Breezer are among the most important brands in the drinks industry at present, bringing growth to other wise flat beer and spirits markets. However, the RTD has never been able to shake off the fear that it is only a fad, liable to come crashing down around the industry's ankles. Chris Brook-Carter discusses why this otherwise buoyant market is attracting so much gloom.

A fad - an intense but short-lived fashion, according to the Collins English dictionary. The RTD - a ready-to-drink alcoholic beverage that has been dominating frontline spirits and beer growth since the late 1990s, which now commands 3.5% of the US beer market and represents 10% of Diageo's total drinks sales. Not much evidence there that these two things are one and the same.

And yet, noises that RTDs have never been anything but a fad not only persist, but are also getting louder. The comments accompanying this year's edition of the US Adams Beer Handbook, while agreeing the "buzz in the beer industry over the past 18 months has been malternatives," go on to say that "the jury is still out on whether this new segment is a fad or an enduring trend."

The industry's leading player Diageo has been the RTD category's most vocal supporter. "Do I think (malternative) growth for Diageo is sustainable? Yes, I do," said its CEO Paul Walsh. "I firmly believe they are here to stay."

That's quite some vote of confidence from one of the industry's leading figures. So why do so many people remain so unconvinced? Part of the problem is Diageo's biggest embarrassment to date, Captain Morgan Gold, which, when compared to the expectations of the company and market, was a flop.

Diageo believes that in this case it rushed the product to market and may have got some elements of the product mix wrong, in particular the taste. However, more disappointing for RTD supporters was the dashed hope that Gold would be able to broaden the appeal of the category, to both males and rum drinkers; it failed.

However, the concern runs deeper than just one unsuccessful product launch. There have been at least five high profile RTD arrivals in the last year, backed by the industry's biggest players, including Brown-Forman, Anheuser-Busch, Miller Brewing and Allied Domecq, but all have failed to attract new consumers to the category.

Reports are trickling in from the US that suggest the RTD market may have already peaked there, perhaps even as early as July, at round 3.5% of the total beer market. And one recent analysis pointed to an assessment based on the forward advertising spend by manufactures, which, it said, showed that some producers are already scaling back ad spend on RTDs, a warning sign the market is in decline. And, this at a time when the US beer giants are aggressively fighting back from the setback they have been dealt by the likes of Smirnoff Ice in the last couple of years, with significant marketing pushes of their own.

If this wasn't enough, the pressure is being felt on more than just the market level alone, with the anti-RTD bandwagon seemingly picking up pace among anti-drink lobby groups and government circles alike. RTDs, since their launch, have been desperately trying to avoid the kind of moral condemnation that help put paid to the alcopop sector in the mid 1990s. However, rumblings from the US Bureau of Alcohol Tobacco and Firearms about changes to the way malternatives are categorised (at the moment they are included in the beer sector and not spirits) and taxed are less than encouraging.

And their plight will not have been helped by a recent study by the Centre on Alcohol Marketing and Youth at Georgetown University, which claimed that youths between the ages of 12 and 20 saw 54% more malternative ads in magazines than adults over 21-years-old.

It is no doubt these sorts of concerns that drove Paul Clinton, the US boss of Diageo, to call for a pan-industry summit to combat the threat of tax increases and convince the wider world that the industry is committed to responsible drinking.

Diageo, of course, has the most to lose should any downturn prove anything more than a seasonal blip. "If Smirnoff Ice drops from being 1% of the beer market to 0.5%, you're looking at taking 2% to 3% off Diageo's top-line (revenue) growth," analyst with Morgan Stanley Alexandra Oldroyd said recently. "For a company with a top-line growth target of 8%, that would be quite painful."

However, while there would no doubt be a degree of schadenfreude at Diageo's misfortune, such a scenario would also be bad news for the industry in general. The RTD category has produced spark, interest and growth in an otherwise flat beer and spirits market.

Hopefully though it will not come to this. This column was cautious about the arrival of the RTD as the spirits industry's saviour when the category's growth exploded, but it again calls for the same restraint before believing the sector is about to nose-dive.

Firstly we still no too little about the category to ascertain whether the slowdown that is occurring now is anything but a seasonal occurrence. But most important of all is to understand the nature of the RTD. The likes of Smirnoff Ice and Bacardi Breezer where never meant to be long-term products in the way Johnnie Walker or Jack Daniels are. However, that is not to say that the RTD category itself cannot be long term.

Expert Analysis

Premium Packaged Spirits - Fad or Fab?

This report provides an in-depth investigation of the developing international market for low strength spirits and competing alcoholic drinks. Global coverage and data from 1996-present.


In the short period of time the RTD has been around we have already seen a staggering level of innovation in the category, which has helped drive the brands forward. In a market where consumers are demanding ever more choice and convenience, the RTD has an important role in meeting those needs. But because they are at the forefront of the changing drinking habits they will have to keep evolving.

The likes of Diageo need to keep one step ahead of the market, if the RTD is truly here to stay.