Over the next couple of weeks Adam Withrington will take a look at the RTD sector. This week: brand owners.
The Ready-To-Drink category has increasingly become a political hot potato; in other words a category that the trade doesn't really want to talk about.
Despite still being worth £1.1bn a year in sales it is treated like the ugly little brother that you hide away at family occasions. We all know it's there but we don't have to acknowledge it.
This has been reflected by its coverage in the trade press, which varies from occasional to non-existent. So over this and two future weeks I shall take an in-depth look at the category, analysing brand owner and licensee views to try and come up with a definitive report on state of RTDs.
If you believe what you read then the day of the alcopop is over. Sales of alcopops, or to give them their official trade name, RTDs, are falling. And falling fast. AC Nielsen statistics show that between May 2004 and May 2005 RTDs lost 19 per cent market share in the on-trade. And this loss was felt across the board, with managed, tenanted and independent pubs as well as nightclubs all losing between 16 and 22 per cent in volume in that time.
So it seems in the 10 years since the RTD trailblazers Hooch and Two Dogs were launched, the category has gone from a cash cow to a dead horse. It was in trouble some two to three years after their launch. Seen as the new scourge of society by the national press, there was talk of a ban on RTDs or at least very strict government controls. However, the category was saved by two things. First, the setting up of a code of practice by the Portman Group, which established, at least in the eyes of government, a responsible self-policing system for the industry.
And second, by the new wave of "grown up" RTDs that hit the market in the late 1990s, such as WKD Blue, Bacardi Breezer and, arguably the most significant of all, Smirnoff Ice.
"When Smirnoff Ice came out it really took the category up to the next level and legitimised it," says Joe Woods, managing director of WKD brand owner Beverage Brands. "There was a huge shake-up of brands at that point with many getting withdrawn."
However, as the RTD market faces these new problems there now doesn't appear to be a knight in shining armour on the horizon to legitimise the category or move it up to the next level. Above the line investment from most of the big brand owners has dwindled this year, while public opinion on the evils of binge-drinking has been whipped up into a frenzy by the national press.
Why the RTD category has declined
- Duty increase
In April 2002, Gordon Brown hit RTD manufacturers with a massive blow. He announced in his budget that he would be aligning duty for spirit-based RTDs with that of spirits (previously they were classified as wine-based drinks). This equated to a 65 per cent duty hike.
Not only did that add 12p per 275ml bottle but it was reported in The Publican at the time that some licensees used the opportunity to put prices up by as much as 20p-50p.
In September 2002, The Publican reported the struggle that Newcastle-based late-night operator Ultimate Leisure was having with the duty hike.
"We put our Smirnoff Ice prices up by 20p following the budget but, frighteningly, in order to achieve the same margin, we would have needed to increase the price of each bottle by 49p which, needless to say, we didn't dare do," said managing director Bob Senior at the time.
Brand owners across the land suffered. Joe Woods from Beverage Brands says the company was about to launch WKD Silver, but aware of the product's similarity to Smirnoff Ice Black, which had just launched, was going to make it different by serving it in a 330ml bottle. The duty hike slamdunked that idea.
Across Europe duty is a weapon that is being used to kill the category stone dead. In France, the government, looking to protect its beer and wine markets, has effectively killed RTDs through duty hikes. In Switzerland a similar thing has happened.
Increased competition in the marketplace
Karen Salters, marketing director at Beverage Brands (pictured), explains: "There are a hell of a lot of other ways to spend your leisure pound in 2005. You can buy a flight to Barcelona now cheaper than a large Latte in Starbucks. As much as 33p in every pound is spent in a major multiple retailer. Our split is about 60:40 on-trade to off-trade. So our only option is to compete on quality not price - to create an experience. To offer people something they can't get at home."
However, it is important to note that increased competition is affecting the whole drinks market and other categories are not haemorrhaging 19 per cent in year on year sales. Media backlash
While the big backlash took place in the mid to late 1990s, RTDs are still the bete noir of the tabloid press, with RTD manufacturers often portrayed as little better than drug dealers.
Steve Perez, managing director of Global Brands, owner of Vodka Kick (VK), thinks such criticism is just plain wrong: "We are being beaten with the same stick. Articles which go on about epidemic levels of drinking and binge-drinking always seem to have the word 'alcopops' stuck in them. Alcopops is a catchy phrase for journalists to use. "The fact is that alcopops are more expensive than bottled beer - VK is only four per cent, nowhere near as strong as most PPLs. There are no PPLs on the market at four per cent.
"The people who say that binge-drinking is on the increase and blame us should, of course, note that RTD sales are on the decrease. So you can't blame RTDs for binge-drinking."The fact is, however, the "RTDs are to blame" argument seems to have had an effect. Richard Clarke, head of marketing at Halewood International, which owns Lambrini and Red Square, says: "I think the responsible drinking issue is a major factor behind falling sales. It has affected retailers because they are being told that RTDs are the problem behind irresponsible drinking and licensees are then telling us they are reducing the space available in their bar for RTDs."
Resurgence of wine and cider
Alternatives for young drinkers at the bar are growing. Wine, cider and the rejuvenation of spirits and mixers (helped by programmes such as Diageo's Every Serve Perfect initiative) have given RTDs a real problem.
According to AC Nielsen, packaged cider enjoyed a 48 per cent growth in volume in the 12 months leading up to May. Even PPLs are enjoying a resurgence, with brands such as Corona Extra starting to win the battle for back-bar fridge space.
Endless flavour variants
Otherwise known as the Bacardi Breezer problem. Perhaps excited by the success it had in the late 1990s Bacardi Breezer launched a multitude of flavours. Sadly all this served to do was cannibalise the brand, with different flavours eating up other flavours' market share. To prove the point Breezer is now looking to completely diversify and is focusing huge attention on its innovative Half Sugar range, rather than focus on its traditional flavours.
Perhaps strangely in view of this, Beverage Brands has just launched a new flavour for its WKD brand: WKD Red. However, the company believes it has learned lessons from the problems its rival suffered.