The rise of the RTD - fad or fabulous?
By the end of 1999, Bacardi Breezer, Smirnoff Ice, WKD, Hooper#;s Hooch, Caribbean Twist and Metz were all selling in excess of 1 million cases a year. Bacardi Breezer has now registered its eighth straight year of growth and the ready-to-drink (RTD) category in the UK alone controls 10% of the combined beer and RTD market.
No wonder then that we have witnessed in the past two months a plethora of launches in a sector which drinks analyst, Canadean, called: "The most dynamic, innovative and fastest growing category of the total alcoholic drinks sector," in its recent report Premium Packaged Spirits Fad or Fab?
The activity has been quite breathtaking. Have there been so many launches in such a short space of time in one isolated sector before? News earlier this month that Miller was teaming up with Brown-Forman to release a Jack Daniel#;s ready-to-drink was just the latest in a long line of similar announcements that have included other Miller ventures with Allied Domecq (Stolichnaya Citrona and Sauza Diablo), and SKYY Vodka (Skyy Blue), a further Diageo launch (Captain Morgan Gold) and a joint venture between Bacardi and Anheuser Busch (Bacardi Silver).
And the protagonists, in bullish mood, are throwing the full might of their sizeable marketing muscle behind the category. In the US alone this year it is estimated that the brewing and spirits companies will spend $350m in attempts to woo young drinkers to the new products.
And yet the uneasy feeling that this is all just a fad continues to bubble under the surface of all the hype and good news. The fear is that, like alcopops before them, these products will have a relatively short life-cycle and fall victim to the fickle changes in consumer tastes that have so far been the cause of their success. If so, such huge marketing budgets might be hard to justify.
The likes of Diageo are rejecting this claim outright. In a recent interview with analysts from Merrill Lynch, the company#;s CEO, Paul Walsh, argued that the two phenomena, alcopops and RTDs, were completely different animals. "It is hard to call them (alcopops) brands and they were extremely juvenile in their positioning," Walsh said. "Smirnoff Ice has tremendous credentials and the fact we can advertise to the extent we are able to certainly keeps it very relevant in the minds of consumers."
He went on: "Bacardi Breezer has grown for eight years straight; that is not a fad."
Many of the analysts seem to agree. "The push is enough to drive consumer pull," one senior drinks analyst commented recently. "They#;re gaining momentum, and I think we have at least two more years of them gaining market share."
Canadean went further, saying: "Following the outstanding achievements of Bacardi Breezer, Smirnoff Ice and the successful introduction of Archer#;s Aqua (only in the UK at present but seen as a serious competitor to Bacardi Breezer), Canadean predicts that under present market conditions consumption of low alcohol spirits, in all their various guises, will expand, in most Western European countries over the next five years." Although it does concede that volumes in the US and Canada are predicted to fall as "hard lemonade" brands become less popular.
Positive as these views are, can they really justify the brand activity of the last two months, which will surely be added to in the near future? (Coors is said to be looking at its RTD options, expect more from Allied while Diageo, Walsh says, has around 20 to25 different tests going on around the world in RTD product development.) Many people believe not.
"Our mathematical modelling of RTD product cycles suggests the market should not be as excited as it is about the future growth of the category," a recent research note from investment bank West LB Panmure said. "Margins and growth rates are set to fall while brand volatility increases. RTDs will be similar to the cider market - a niche within the long-drinks sector - and not the panacea to non-growth companies."
The sudden increase in competition will also surely take its toll one way or another. And what sort of fight the brewers display in this environment will be of utmost interest. After all, the RTDs the likes of Anheuser and Miller are now distributing are in direct conflict with their main focus - beer - and must surely, by definition, remain a secondary concern. Indeed, the more cynical observer may argue that Anheuser and Miller have been keen to take on the distribution of these products so they can "control" the success of brands that are eating into market share traditionally the domain of their beloved beer brands.
The truth is that despite a number of years of good growth the fad potential of the RTD is still unknown. But the major concern regarding its future, the fast-changing tastes of its consumers, is also one of its greatest strengths. RTDs were born out of consumer demand. "This is what the consumer wants," said Walsh. "If we didn#;t offer them premixed products they#;d mix there own." The very nature of these origins lends the category an unmatched potential for flexibility and innovation that it can use to adapt to shifts in consumer behaviour.
Diageo meanwhile has been particularly busy. It is planning to attack the US sports arena and beach market with Smirnoff Ice in non-glass packaging, has rolled-out the brand in Ireland on tap and in the UK is experimenting with bigger bottles.
"The concept is not just growing, it is evolving, not only in respect of new flavours, bottle sizes, alcoholic strengths and bases, but also in terms of image and market positioning," says Canadean. "It may falter at times but the revolution is gathering force and brewers, cider makers and distillers of traditional spirits ignore it at their peril."
In other words, while throwing million dollar marketing budgets at an unproven category is a risky business, given the potential of RTDs and the importance of every market share and growth percentile for the industry at present, it is perhaps riskier not to get involved.
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