Brand owners are confident RTDs will regain their place at the top of the drinks market. Adam Withrington reports.
There are huge challenges facing RTD brandowners - be it economic issues like duty or the continuous negative publicity surrounding the category.
So no doubt brand owners see a rather bleak future ahead? Far from it. People like Steve Perez, managing director of Global Brands, see the current situation as the lull before RTDs storm back to where they once belonged.
"A lot of these things go in cycles," says Steve. "RTDs have peaked and now there is some decline - as happened in the mid-90s with premium packaged lagers (PPLs). Now PPLs are starting to outsell RTDs. I daresay, provided there are no big changes in duty and tax, RTDs might overtake PPLs again. It doesn't mean people are going to drink more, it just means they are going to drink differently."
Currently, the market is in a period of major consolidation with the top four or five "pillar" brands dominating it. For example, the biggest brand, Smirnoff Ice, has a 29 per cent market share, according to AC Nielsen, this is followed by WKD, Bacardi Breezer, Reef and Vodka Kick, but there is little else making a big noise. And what with strong rumours of Coors Brewers looking for a buyer for Reef, five could become four before too long.
Sustaining success in the RTD market is a difficult business. More than any other category, RTDs are all about image. When asked how to enjoy prolonged success in the RTD business, Beverage Brands paraphrased Tony Blair by saying, "Innovation, innovation, innovation".
The message is the same at Bacardi Breezer, according to senior trade marketing manager Fraser McGuire: "We believe innovation is absolutely crucial to retaining the drinkers we have and regaining lapsed consumers. There is a huge market of lapsed consumers out there. And innovation will bring people back into the category."
But the big question is what kind of innovation should a brand owner pursue in the future to be successful? The market has changed a lot in 10 years.
"According to AC Nielsen, 90 per cent of new products fail," says Joe Woods. "And now of course is a very different environment to launch a product in compared to 1996. If you wanted to launch a new beer or spirit it would cost you a fortune but with alcopops it was okay - it would cost maybe £500,000. But if you are launching a new RTD today, unless you are prepared to throw £5m at it you can forget it, and there is no guarantee of success."
So, how are brand owners approaching innovation?
- New product development
The most obvious form of innovation, and in RTDs it has become crucially important. In a category so dominated by image, consumers can become bored with a brand very quickly. Over the last 10 years the top three most popular brands have changed on an almost yearly basis.
And despite being in a period of consolidation, innovation from brand owners shows no sign of abating. However, the best route to follow in terms of new product development may be a cause for debate:
- Mix with dark spirits
Last month Diageo, which in Smirnoff Ice has the number one player in the RTD market, launched a new bourbon-based RTD called Slate 20. The drinks giant took its lead from the more mature Australian market, where bourbon RTDs now outsell vodka-based RTDs. Without disclosing specific details, sources at Diageo revealed the company would be unleashing a number of similarly original new RTDs, moving away from the traditional vodka mix.
One of the more interesting RTD success stories in the last year has been Independent Distillers' Vodka Mudshake. Out of nowhere, this milk-based RTD has been making waves and now others are getting in on the act, such as Anglo Drinks' Brown Cow, which according to some drinks buyers, including Jason Danciger at Laurel, is seeing some success on the high street. However, Richard Clarke, head of marketing at Halewood International, feels that significant milk-based RTDs will not push the sector back into huge growth.
Says Richard: "They have a role to play but they are not going to be a massive player in the market because consumers won't drink them all night. They will only drink them to break up the repertoire."
Play it safe and keep it neutral
While bourbon RTDs may be top of the stocks in Australia, it doesn't necessarily mean that the same will happen in the UK market.
At least that is the view from Joe Woods at Beverage Brands. He says the secret is to play it safe and stock brands made using neutral spirits. "If an RTD is not using a neutral spirit then it is just not going to work. Anything other than vodka or white rum is always going to be too challenging a taste," he says.
Beverage Brands has had good experience with branching out into more exotic tasting RTDs - such as its tequila-based Ca'Quila. In the words of Karen Salters: "No bugger bought it. It sounded like a good idea at the time."
"The popularity of vodka based products is down to the peculiarly British culture of drinking vodka by mixing it," says Joe. "Eighty per cent of the world's vodka is drunk neat in shots. It is just here and to a lesser extent in the US that it is mixed."
There is a danger with this, particularly with endless different flavours. The category's short history has taught us that if you stick with a brand too long it can become tired, no matter how many new flavours you pump out. Hence the trend for regular launches of new brands.
Bacardi Breezer stood accused last year of being responsible for a sizeable chunk of the entire category's lost volumes - and this was blamed on its decision to keep churning out new flavours without keeping the product relevant.
However, the launch of Breezer's Half Sugar earlier this year, following on from the success of Breezer Diet Lemon, has proved to be a lifesaver.
"With Half Sugar we have found something that consumers really want," says Fraser. "It will develop and I am sure more and more people will enter the category as a result. It's happened in the soft drinks sector and is happening in beer. Look at how far ahead they are in the US market on this.
"The category has changed so much. When we launched in 1996, it was about range and increasing the number of flavours. "Consumers want something different now. So changing the image of the product to something more healthy is quite important. We believe the introduction of Half Sugar will actually help stabilise the category."
And so far Fraser's point is spot on - the Half Sugar range now accounts for more than 15 per cent of the total Bacardi Breezer volume.
So it seems that despite the doom and gloom headlines there is some positive news for RTDs. It is too important a category for some companies to just let die. Recent end of year financial results for Diageo showed that RTDs still account for around 10 per cent of global sales and six per cent of volumes. The company's results showed a two per cent increase in operating profits, which some analysts have attributed to the slump in RTDs bottoming out.
So is Steve Perez right when he says RTDs are simply going through the bad part of a cycle and will soon be on their way back up again? The chances are he is.