RTDs are a fashion item and to stand still is to commit commercial suicide. So what are drinks manufacturers doing to keep their products fresh? By Adam Withrington.
The headlines have been ringing out for nearly two years now: "Not so FAB any more", "RTD downturn", "Death of the alcopop". Who in their right mind would still be in the ready-to-drink (RTD) market now? One of the great success stories in the drinks industry from the past 10 years has now become a horror story with AC Nielsen figures showing a double-digit fall in sales since 2002.
Call them what you will - flavoured alcoholic beverages (FABs), premium packaged spirits (PPS) or RTDs - there is no doubt that the market has suffered a dramatic downturn in sales.
Many people lay this drop at the door of Chancellor Gordon Brown following his decision to increase tax on RTDs by 65 per cent in the 2002 budget.
Others, such as Richard Clark, marketing director of drinks company Halewood International, makers of Red Square Vodka and the PPS Reloaded, believe it is down to the cyclical nature of the business.
"A few years ago PPSs were riding high and premium packaged lager (PPL) brands were not doing so well," he says. "As a result PPL brand owners took a look at their product - at the packaging, the liquids etc, and now they are enjoying a resurgence at the expense of PPSs. It is simply a life cycle. I think things are slowly starting to move the other way. The PPS market is now consolidating and we are seeing a lot of innovation."
There is no doubt that the market has suffered a knock-on effect from the downturn in sales in the high street.
Graham Page from AC Nielsen says: "When RTDs are affected then so are high street venues - the two facts are connected, I have no doubt about that. It is like when one sneezes the other catches a cold."
However, despite all the gloomy predictions and tales of woe, the fact is that the RTD market is actually in good shape. "It is still a substantial market," says Graham. "It's bigger than the cider market and there is still a shedload of money to be made by retailers and producers alike," he says.
Richard believes that despite competition from the PPL market, RTDs still have plenty of mileage. He says the products were created on the back of consumer demand. "It is not a contrived market and demand is still there. It is worth £1.3bn despite any perceived problems," he points out.
Reich Westerlund, UK marketing manager for Australian drinks company Independent Distillers, believes there is still untapped potential in the UK market. "They are two-and-a-half years ahead of us in Australia and New Zealand in terms of the RTD market. They sell 24 million cases a year in Australia - to a population of just 18 million. In the UK that ratio is 10 million cases to a population of 45 to 50 million."
The next big thing
But how can the drinks manufacturers tap into this potential? Graham is in no doubt about what needs to be done. "The future of RTDs requires some major innovation - through flavours, presentation and packaging. If you don't innovate, then you don't give the retailer an excuse to stock your brands," he says.
However, Deborah Carter, brand manager for WKD at Beverage Brands, advises caution. "I don't think you can just put any old product out there unless you are pretty confident it is going to work," she says. Deborah feels pubs and bars should be more selective in what they stock. "Retailers need to be patient and should avoid duplication - don't put three orange-flavoured RTDs behind your bar, for example," she says.
Richard agrees that innovation is important but believes that brand owners have to be more original with their ideas. "You need to have a point of difference against your brand rivals. People now will only really buy the top lemon PPS, the top orange, or the top blue," he explains. "Our brand, Reloaded, is the top energy PPS - and it has 85 per cent of that particular market. You need to give consumers a full range of tastes, but they only seem to be buying the top one in each category."
Battle of the brands
Indeed, cream and milk-based PPSs seem to be the next big thing and there is a battle going on to see which one of them will be top dog, be it Independent Distiller's Vodka Mudshakes or Vodka Twistees or Halewood's Sidekick Creams.
Richard's point is a very valid one, especially when you consider how the space given over to RTDs on the average back-bar has shrunk. Two years ago they dominated, now they fight each other and PPLs for fridge space. Where once a licensee may have stocked the entire ranges of flavours, now they may only settle for one or two.
Bacardi Breezer has been one of the major casualties of the recent collapse in sales for RTDs - although its new diet lemon variety, Bacardi Breezer Diet Lemon, launched in the on-trade last November is, according to recent AC Nielsen statistics, the second best-selling flavour in the Bacardi Breezer range.
Interestingly, however, Breezer's sales figures in the off-trade are much better, according to Bruce Ray, trade marketing director at Bacardi Brown-Forman. The reason? Quite simply, space. Brands can display their whole range on supermarket shelves - a luxury not afforded to those in the on-trade.
So, in the same way as the big lager brands are battling for space on the bar top, the RTD market is becoming a battle that will be won by clever positioning in the marketplace.
Insiders' views on RTD market
- Bruce Ray, director of trade marketing for Bacardi Brown-Forman brands (Bacardi Breezer brand owner):
"The RTD category is more reliant on innovation than other stable categories. But innovation is about much more than simply throwing lots of new products at the market. Look at our two main spirits brands, Bacardi and Jack Daniels. The packaging has changed a bit but they are fundamentally the same as they were when they first launched years ago."
Joe Woods, managing director of Beverage Brands (WKD brand owner):
"The trade wants instant winners, but all of the RTDs that are successful today have not been overnight successes - WKD Blue and possibly Smirnoff Ice were probably the closest to achieving this, but even then it took several months to establish these variants. The pillar RTD brands have been built up over years. It takes time to seed a brand, regardless of the amounts of media or cash thrown at it, and there is very little patience around."
Bacardi-Martini has responded to the market's downturn by introducing new variations such as its diet lemon drink.
Independent Distillers: RTDs and fashion
While many drinks companies are treating the RTD market as a tidal wave past its peak which should be treated with caution, Independent Distillers is one company that still believes that it can keep on surfing that wave.
"RTDs are here to stay - you can't write off a 10 million case market, as exists in the UK," says Reich Westerlund, marketing manager for the Australian company which produces Vodka Mudshakes and Vodka Twistees. Independent Distillers' answer is to get as many different varieties of a succesful product out there as possible. The company made its move against the dominance of Bacardi Breezers in Australia by launching three flavours of Vodka Cruisers.
According to Reich, Independent Distillers had launched 20 different flavour varieties within a year and Vodka Cruisers were outselling Bacardi Breezers by eight t