The search for flexibility is a key theme running through company strategies in alcoholic drinks – more so now than ever. The nature of competition is gradually shifting, as maturity and changes in consumer behaviour prompt companies to diversify and seek opportunities outside their traditional areas of specialisation. The ready-to-drink (RTD) sector is a shared expansion focus.
RTDs therefore offer a great illustration of portfolio diversification and the erosion of category boundaries in the search for growth; acquisitions and new launches in RTDs are increasingly common among producers operating across beer, wine, and spirits. RTDs also form the main entry point for soft drinks giants taking tentative steps towards alcohol.
Spirit-based RTDs attract attention from all angles
Many factors are at play in producer enthusiasm for RTDs, but much can be attributed to growth rates. RTDs continue their global ascent while much of the industry struggles, and the category is forecast to considerably outperform total alcoholic drinks over the next five years. With demand having moved beyond hard seltzers, in their original formulations at least (which mostly fall into ‘other’ RTDs), the spotlight has pivoted to spirit-based RTDs around the world.
The spirit-based segment is expected to account for around 95% of the absolute volume rise in global RTDs over 2022-2027
Source: Euromonitor International
The appeal of spirit-based RTDs is wide-ranging, covering various consumption occasions, from those served by premium classic cocktails in a convenient canned format, to lower ABV premixes offering variety and simplicity. The rise of canned cocktails represents premiumisation within the category – a positive development from the producer perspective – but the format also appeals to consumers seeking high quality retail alternatives to more expensive on-trade purchases due to current financial concerns.
To buy or to build?
In seeking entry to RTDs, companies have a number of options. The approaches of leading brewers can be taken as an example. Brand extensions were a common move at the peak of the hard seltzer trend – new launches built upon the existing equity of popular beer brands. That remains a viable strategy in some cases now that efforts are being redirected towards spirit-based offers. Companies have also launched their own standalone product ranges. However, acquisitions offer perhaps the simplest route into the category, and further small scale M&A is only to be expected.
On the spirits side, extending core brands into the ready-to-drink format can open the door to alternative occasions, and at the same time offer a reasonably affordable introduction for consumers who are unfamiliar with a brand. While RTDs are mainly associated with single-serve formats, and will remain so, some distillers are releasing premium sharing (‘ready-to-serve’) bottles of well-known cocktails, targeting the enduring popularity of at-home socialising.
No end to growth in sight yet
Differentiation continues to gain significance. Variations in ABV, carbonation, positioning, or ingredient credentials can support efforts to stand out. Alongside this, some diversification is also expected in sales channels.
Sales of RTDs are heavily skewed towards the off-trade; retail accounted for nearly 90% of global volumes in 2022
Source: Euromonitor International
The channel balance will continue to favour retail; however, ready-to-drink options can offer a solution for smaller on-trade venues or high footfall locations where made-to-order cocktails are not feasible, illustrating another potential avenue of growth. As on-trade expectations change and consumers seek alternative settings and experiences, RTDs can play a role, albeit a limited role, in extending company coverage in line with evolving demand.
The sudden change in fortune seen in US hard seltzers demonstrates the risk of overestimating unfolding trends, and the importance of due diligence in assessing new categories. That is especially important if existing brand equity may be at stake. Nevertheless, RTDs will continue to attract attention across the industry and across geographies, with good reason.
Looking some years ahead, the total beverage company concept will see producers defined by category far less than at present, with expansion paths intersecting far more. The situation in RTDs offers a glimpse of that future.
Learn more about company activity across the industry more broadly in our report, Competitor Strategies in Alcoholic Drinks