Why the prudent will prosper as the RTD boom continues

As the beverage alcohol industry has consolidated over the decades, there has always been tension between the global and the local: multinationals with fat budgets and sophisticated distribution chains can create formidable routes to market but do they possess enough insight about individual countries to exploit influential consumer trends? This local knowledge is arguably even more vital when it comes to RTDs, where trends move at breakneck speed and flavours that are hugely successful in one market can fail to gain any traction at all in another. RTDs were famously one of the big beverage alcohol winners during Covid-19 lockdowns, particularly in the US market, and particularly in the hard seltzer segment. But the RTD boom Stateside has spawned as many questions as answers: will hard seltzers resonate with consumers outside North America? And, if not, what forms of RTD will be most successful, and where? Globally speaking, it’s a hugely fragmented and complex picture, but some localised clues are beginning to emerge. First from Ireland, where Drinks Ireland reported significant RTD growth in the country over the past year, with hard seltzer sales up 46% (but off a small base). Then came another report from the other side of the world: a growing proportion of Australians are drinking RTDs, said Roy Morgan Research, even as alcohol consumption among the total LDA population continued its long-term decline. There’s evidence hard seltzers in Australia are continuing to drive overall RTD growth – they hit the market in significant numbers relatively early on, during pre-pandemic 2019 – and, as they gradually increase their penetration, beer consumption is continuing to decline. This echoes the US, suggesting consumers are migrating over from beer to RTDs, and hard seltzers in particular. However, we all know what has occurred in the US – if Australia continues to follow that example, hard seltzer makers may need to cool their engines when it comes to future growth expectations. The RTD church is a broad one in which savvy brand owners play across multiple segments, rather than pinning all their hopes on one. There’s some intriguing detail in the research from Ireland, too. Sure, hard seltzers have seen some serious early growth but long drinks and cocktails have proved to be even more impressive, with sales up 60%. Imported products account for the vast majority of RTD sales in the country, but there’s an interesting sideline in the emergence of local players trying to tap into the trend – for instance, Little & Green’s sparkling canned cocktail based on Ireland’s traditional poitín spirit. As the RTD scene begins to expand, diversify and mature, such local initiatives will play an increasingly important role in maintaining category momentum, playing on their credentials of local provenance and authenticity, and using local insight to create products that appeal to the population. That’s a phenomenon we’ve already seen in the gin category – just look at the local brands already emerging in fast-growing gin markets such as South Africa and Brazil – and there’s no reason to think that history won’t repeat itself in RTDs, too. The significance of these local players lies more in creating and maintaining consumer interest in RTDs, rather than dominating category volumes. International players will continue to do that, thanks to their unrivalled marketing budgets and routes to market. RTD opportunities abound but caution needed But such is the complexity of the RTD marketplace – from hard seltzers to premixed G&Ts, premium canned cocktails and niche segments such as hard kombucha and hard tea/coffee – that there’s plenty of room for everyone. In fact, that very diversity is a strength in terms of the breadth of RTDs’ consumer appeal. “Room for everyone” means exactly that – brewers for sure, not least because beer volumes are under greatest threat from RTD growth – but also spirits companies, wineries (as the Port industry’s successful creation of the ‘Portonic’ RTD illustrates), and soft drinks businesses. With the latter, however, there are concerns, amply illustrated by the rather astonishing reverse-ferret recently undertaken by Monster Beverage Corp. Suddenly a company that was explicitly reluctant to enter the murky world of booze has fully embraced it, to the extent it will launch a 6% abv FMB (flavoured malt beverage) later this year. It would be unfair to judge the Monster launch before it’s happened but it’s hard not to be cynical about the company’s sudden conversion to the cause. Have those entirely credible concerns about taking a non-alcoholic brand, with a notably young demographic, into the world of RTDs vanished overnight? There’s no reason why soft drinks companies shouldn’t flex and move into alcohol – but how they do it is key. I have zero concerns about the tie-up between Brown-Forman and The Coca-Cola Company to market a co-branded Jack Daniel’s and Coke premix – simply because the booze element is so front-and-centre in the branding. But can we say the same about Coca-Cola’s Topo Chico hard seltzer, given the brand is predominantly known as a sparkling mineral water? Or about Hard Mtn Dew from PepsiCo? Or, if it is marketed in a similar way, about the new Monster FMB? Companies will point to the packaging, the clear messaging around alcohol content and their own policies around compliance and responsible consumption. All very well, but it’s the impact on consumers that counts, and their perceptions of the products in question – that’s certainly what regulators will be looking at. We live in a world where the regulation of alcohol – generally speaking – is not going to get any looser, but only ever tighter. The recent news coming out of South Africa, where there are proposals to raise the legal drinking age to 21, ban alcohol advertising and increase excise taxes, is evidence of that. And for good reason, because the country has a big underage drinking problem. In the years ahead, there will be huge opportunities within the diverse and multi-layered RTD category for businesses of all sizes – from the biggest multinational to the smallest local operator – as more and more consumers buy into its key attributes of convenience, portability and flavour innovation. But, in the rush to cash in on this potential boom, wise companies will take a moment now to think through the likely consequences of their plans. Individual strategic errors in the short term could have highly negative long-term effects for the entire category in the years to come. What Monster’s alcohol U-turn means for the future of soft drink crossovers Beer helped fuel the rise of RTDs. How can it strike back?