just-drinks and The IWSR have this week released research into the RTD sector

just-drinks and The IWSR have this week released research into the RTD sector

Looking for a single reason why the ready-to-drink (RTD) category is set for such strong progress during the coming five years will be a fruitless task. Yet, it is for that exact reason why the segment's future is so rosy.

It is the "sheer diversity of the mixed drinks category", as a new joint report from The IWSR and just-drinks puts it, that is arguably RTDs' greatest asset. "The sheer diversity of the mixed drinks category in terms of product type and formulation is creating a battleground that transcends traditional drinks sectors," the report states. 

Breadth can be found when looking at almost any dimension of the RTD category, which the report forecasts will grow by a compound annual growth rate (CAGR) of 3% over the coming five years to reach 455m cases by 2020.

Of course, it almost goes without saying that the products themselves are varied, but the breadth of product possibilities available in the RTD segment reflects a possibly more fundamental strength the category has in eking out growth in the global drinks arena.

As a category, it includes companies from all the beverage alcohol sectors and benefits from that diverse range of experience. The report states: "The diverse and fragmented nature of the pre-mix sector is only likely to increase, given the presence of brand owners from the spirits, wine, beer and cider sectors. All are bringing their own expertise and identity to bear on the category." Moreover, the fact that pre-mixes have crossover into a variety of different drinks sectors helps to create a consumer appeal that "transcends the traditional boundaries of those categories".

The report suggests one of the most influential trends in the market over the past five years has been the increased attention major drinks conglomerates have paid to the sector. In particular, the US market has benefited from a heightened presence of major brewers in the pre-mixed drinks sector. 

Notably, Anheuser-Busch InBev has seen huge success with its range of flavoured drinks based on its Bud Light beer brand. Of these, Bud Light Lime-a-Rita has been a particular success since its introduction in 2012, and the range has grown to become the largest brand globally in pre-mixes, with volumes of some 34m cases.

Beer-based pre-mixes have been among the expanding sub-sectors fuelling growth in RTDs overall. Others include functional RTDs in Japan, elderflower-based pre-mixes in Germany and alcoholic energy drinks in sub-Saharan Africa. While alcoholic energy drinks have faced a regulatory backlash in some markets, products such as Smirnoff Double Black Guarana and Orijin - both owned by Diageo - "continue to flourish" in South Africa and Nigeria respectively, according to the report.

Another feature of RTDs globally - though not one which differentiates it markedly from other drinks sectors – is that it comprises a range of mature and emerging markets. The US and Japan are its major mature markets, with China the outstanding emerging market. In addition, there are a host of other emerging markets for RTDs, such as Brazil, Argentina, India and the Philippines and African countries including Nigeria, Kenya, Ghana, Angola, Cameroon and Namibia. Other key mature markets are Australia, the UK and South Africa.

The broad array of products affords the category a wide range of options to address the varying stages of market development in different countries. "Approaches will differ depending on the current state of individual markets," the report states. "In developing and emerging destinations, companies tend to focus on a single brand franchise. In mature markets, new brands and line extensions are a necessity, as success depends on innovation and NPD."

When looking through the consumer drivers that the report believes will spur growth, it is hard not to find a box RTDs do not tick. Above all, the attraction of the broad pre-mix sector is its ability to attract new consumers into the alcohol market through accessible products, using appealing flavour propositions, brand imagery and packaging.

While it has attracted controversy at times and requires a careful approach, RTDs are unquestionably, as the report describes, "youth friendly", and this is clearly a plus point. "Pre-mixes tend to have a much younger consumer base than many other drinks categories," the report continues. "In developing markets with a large, emerging LDA (legal drinking age) base such as China and Mexico, this gives mixed drinks a clear advantage."

Another consumer segment where RTDs score well is female drinkers. For example, while only 30% of Bud Light beer drinkers in the US are women, that figure reaches 65% for the Bud Light-A-Rita beer RTD line extension.

Particularly welcome is the appeal RTDs offer to Millennial consumers, tapping into the demographic's constant quest for new ideas and fresh flavours. Not surprisingly, given what is known about the more exacting requirements of Millennial consumers, they are less swayed by line extensions to established brands and more likely to be won over by new, standalone RTDs, such as Beam Suntory's Skinnygirl and A-B InBev's Mixxtail. Such products, the report says, "have greater appeal for younger, Millennial consumers looking for something new beyond the established brands".

However, at the same time, other RTDs can appeal equally well to older consumers, who may gravitate towards a pre-mix precisely because it is based on a recognised mother brand, such as Jack Daniel's, Bacardi or Smirnoff.

While the RTD sector has proved more than capable of meeting demand for innovation, the report warns that the "need for constant reinvention is severely shortening brand lifecycles", while the "shifting sands of current consumer appeal mean that brand owners are engaged in a constant stream of innovation, in terms of flavour, brand and product type".

The sector clearly requires continuous innovation and reinvention, particularly to retain volumes in becalmed mature markets. Experience to date suggests this is a category extraordinarily well suited to that task.