Research - Innovation leads to modest RTD recovery
Is the future for RTDs still worth smiling about?
Hit by negative associations with underage drinking, leading to advertising restrictions and punitive taxation in some markets, ready-to-drink (RTD) spirits have suffered declining sales of late. But, a new IWSR/just-drinks report suggests innovative product development has given the sector a new lease of life. Ben Cooper reports.
To paraphrase Mark Twain, reports of the death of the ready-to-drink (RTD) category have been greatly exaggerated. According to a new IWSR/just-drinks report, after a difficult few years the sector rallied in 2009, and has been given renewed vigour by the parallel development of 'ready-to-serve' (RTS) cocktails.
According to the 2010 edition of the IWSR/just-drinks Global RTD and RTS market review, sales declined by 2.8% in 2009 to 286.9m nine-litre cases from 2008 but this represented a modest improvement over the 2005 to 2009 compound annual growth/decline rate (CAGR) of -3.5%. Indeed, some of the larger markets, notably Japan, Australia and Mexico, actually returned to growth in 2009, while others, such as South Africa and Canada, saw growth accelerate.
Particularly encouraging for the sector was the return to growth in Japan, the world’s largest market for RTDs. Sales in Japan grew by 4.7% to 69.7m cases in 2009 against a compound annual decline of 2.1% between 2005 and 2009.
While the recovery in Japan is clearly welcome news, RTDs continued to decline in other major markets, including the US and UK. The US saw a compound annual decline between 2005 and 2009 of 8% per year and, while the market continued to fall in 2009, preliminary IWSR estimates suggest the market declined by just 1.7% from 2008 to 2009, to stand at 49.1m cases. The rate of decline in the UK has also slowed. The fall from 2008 to 2009 in the UK was still a hefty 5.7%, but, compared with a compound annual fall of 9.1% between 2005 and 2009, still represents something of a recovery.
Moreover, the report says another “encouraging aspect” for the sector is the “vast potential” for RTDs in emerging markets such as Brazil, China, South Africa and India.
Having been hit by negative associations with underage drinking, the sector was subject both to adverse publicity and the imposition of advertising restrictions and punitive taxes in certain countries, such as Australia and Germany.
However, the report points out that the category has always been “one of resilience and evolutionary mutation” and it is this resolve and creativity which appears to have given it a new lease of life. “The category is again showing signs of further reinvention with the move by the major spirits companies and independent labels into the pre-mixed or RTS cocktail arena,” the report states.
While the recession can hardly be seen as a boon for any sector, the switch in consumption from the on-trade to the take-home market in many countries has encouraged drinks companies to tap into the at-home consumption occasion through product innovation, with RTS cocktails and canned RTD cocktails representing a prime example. “The pre-mix cocktail addresses both the growth of the cocktail culture and the shift in many markets towards take-home consumption since the onset of the recession,” the report states. “In the last year there has been a big increase in the amount of innovation around the RTS area. This has been marked by the arrival of new flavours and new packaging concepts."
The report goes on to say that the development of the pre-mix area has been “underpinned” by “significant improvements” in the quality of these drinks, citing R&D work by groups such as Diageo and Bacardi, “which have enhanced their technical know-how and capabilities of including juice with alcohol, and mimicking freshly made bar-serve quality”.
Furthermore, IWSR believes the bounce the sector has seen in the last year or so could be a platform for further growth. “As the RTD category matures it will also inevitably segment by price and style," the research firm says. "It is showing signs of doing this in the US and UK. Fundamentally the pre-mix cocktail promises to broaden the usage occasion. RTSs also have the potential to expand the popularity of cocktail consumption in markets where the penetration is low such as Asia or Western Europe.”
The problem for the sector, however, is that it will always tend to be associated with younger drinkers. While the backlash against RTDs appears to have abated somewhat, these products will always be subject to close scrutiny. In spite of recent evidence published by the Institut für Therapieforschung (IFT) in Germany that the punitive taxation on RTDs appears to have been ineffective at reducing underage alcohol consumption, higher taxation where it has been imposed is likely to remain.
The fact that these products are designed to appeal to younger adults presents a further problem for RTD producers which is identified in the report. “If there is a weakness to the RTD sector it is that it suffers from what might be termed the ‘leaky bucket’ syndrome. Many newly legal-aged consumers enter the drinks sector through RTDs and then move on to full-strength spirits as their tastes mature. This means that RTD producers must continually recruit new drinkers.”
It is in the “recruitment” of younger drinkers, above - but perhaps only just above - legal drinking age, where the reputational dangers will continue to lie.
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