RTD Market 2024 Comprehensive Overview

Introduction

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The Ready-to-Drink (RTD) category has emerged as one of the most dynamic and influential sectors within the beverage alcohol industry. Rapidly evolving consumer preferences, coupled with changing economic conditions, have propelled RTDs into a position where they are reshaping the competitive landscape. For alcohol brand owners and marketers, understanding the shifts within the RTD market is crucial for strategic planning and capitalizing on new opportunities.

This article provides a comprehensive overview of the current RTD landscape, examines key factors influencing its growth, and explores how spirits and RTDs are gaining market share at the expense of wine. By delving into consumer behavior, innovation trends, and market forecasts, we aim to offer valuable insights for stakeholders looking to navigate this fast-paced sector.

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The Macro-Economic Climate and Its Impact on RTDs

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RTDs as an Entry Point for Premium Spirits

In an environment marked by high inflation and cost-of-living pressures, consumers are becoming more cautious with their spending across all beverage alcohol categories. Despite these challenges, RTDs have maintained their appeal by offering an accessible entry point to premium spirits at a fraction of the cost of full-sized bottles. This affordability allows consumers to enjoy high-quality products without significant financial commitment.

Shifting Share from Beer and Wine

RTDs are increasingly capturing market share from traditional categories like beer and wine. In 2023, across ten key RTD markets, 45% of alcohol buyers purchased RTDs. Spirits were most often consumed alongside RTDs, while beer was the most commonly replaced drink. This shift indicates that consumers are seeking variety and are open to exploring new beverage options that RTDs provide.

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Resurgence in Consumer Recruitment and Consumption Frequency

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After several years of declining levels of new consumer recruitment, 2024 witnessed a notable resurgence in the number of consumers entering the RTD category. According to IWSR's newly published RTDs Strategic Study 2024, approximately 16% of RTD consumers across the top 10 global markets were new entrants in the past two years. This uptick was particularly pronounced in markets like the UK (19%), Germany (18%), Canada (18%), and the US (17%).

"After several years of a slowdown in recruitment, 2024 accrued more RTD buyers who had entered the category in the past two years," says Richard Halstead, COO Consumer Research at IWSR. "Markets with the highest level of recruitment are typically those that skew to older RTD buyers, and new recruits skew younger across markets."

This resurgence is contributing to cautious volume growth and an increased share of total beverage alcohol (TBA) for RTDs. The trend underscores the importance for brands to focus on younger legal drinking age (LDA) consumers, tailoring marketing strategies and product offerings to attract and retain this demographic.

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The Relevance of Ready-to-Serve Products

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Evolution Post-Pandemic

Ready-to-Serve (RTS) products gained prominence during the pandemic as consumers sought convenient ways to enjoy cocktails at home. While product launches peaked during this period, there has been a noticeable slowdown in innovation since then. Changes in consumption occasions and the macro-economic landscape have influenced this trend.

Market Variations

RTS products have found significant relevance in the U.S. market, but their adoption in other countries remains varied. The future outlook for RTS products depends on factors such as consumer demand for convenience, the resurgence of the on-trade sector, and cultural preferences in different regions.

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Importance of Alcohol Base in RTD Selection

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Consumer Preferences

The type of alcohol base in RTDs plays a significant role in consumer purchasing decisions. In 2023, the alcohol base was the second most important factor in RTD selection across ten key markets, on par with cocktail type and just behind flavor. Consumers have shown a willingness to pay a premium for spirit-based RTDs over those with malt or wine bases.

Performance of Different Bases

• Spirit-Based RTDs: Outperformed their parent category at the total market level and were the only base type to do so.
• Malt and Wine-Based RTDs: Experienced declines, reflecting changing consumer tastes.

Popularity of Specific Spirits

• Vodka: Remained the most popular RTD base globally.
• Tequila: Saw the largest increase in innovation focus, aligning with the growing interest in agave spirits.

Understanding the preferences for alcohol base across different markets is crucial for product development and branding strategies. However, an interesting insight from the IWSR study reveals that consumers often misattribute the alcohol base of their RTDs. While they consider the alcohol base important, many are unclear about the actual content, such as associating hard seltzers with spirits when they are predominantly malt-based. This confusion highlights the need for brands to educate consumers, aligning perceptions with reality and potentially strengthening brand loyalty.

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Consumer Confusion About Alcohol Bases

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An interesting insight from the IWSR study is the consumer confusion regarding the alcohol bases in RTD products. While spirit-based RTDs are driving category growth, many consumers are unclear about the actual alcohol content in their drinks.

For example:

• Hard Seltzers: Most buyers (54%) associate this segment with spirits, yet 83% of hard seltzers are malt-based.
• Malt-Based RTDs: These are continuing their decline, leading to a shift towards spirit-based formulations.

"Consumers often misattribute the alcohol base of their RTDs, which presents both a challenge and an opportunity for brands," notes Goldspink. This confusion can impact purchasing decisions and brand loyalty.

Implications for Brands:

• Educate Consumers: Clear labeling and marketing can help consumers understand the product, enhancing trust and preference.
• Premiumization Opportunities: Shifting to spirit-based RTDs can cater to consumers seeking higher-quality options and justify premium pricing.
• Product Differentiation: Emphasizing the type of alcohol base can set a product apart in a crowded market.

By addressing this confusion, brands can better align with consumer expectations and strengthen their position in the RTD category.

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Maturity of RTD Segments and Innovation Efficiency

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As the RTD category matures, the pace and nature of innovation within the market are evolving. After reaching a peak in new product launches in 2021, there has been a noticeable deceleration, signaling that certain segments are reaching saturation and consumers may be experiencing fatigue.

Slowing Innovation Rates

• Deceleration of New Launches: In 2021, the RTD category saw over 3,300 product launches globally. However, this number dropped to less than 1,000 in the first half of 2024. This significant reduction suggests that the market is becoming more saturated, and the frenetic pace of innovation seen in previous years is unsustainable.
• Market-Specific Trends: While most markets are experiencing a slowdown in innovation, Japan and South Africa are exceptions, continuing to see growth in new product launches. This indicates that opportunities for innovation still exist in certain regions, driven by unique consumer preferences and market conditions.

Innovation Efficiency and Consumer Experimentation

• Strategic Focus: The slowdown in new product introductions doesn't necessarily indicate stagnation but rather a shift towards more strategic and effective innovation. Brands are prioritizing quality over quantity, focusing on products that meet specific consumer needs and preferences.
• Consumer Behavior Shifts:
  • Reduced Appetite for Experimentation: Consumers are showing a diminishing appetite for new flavors and are less willing to experiment with unfamiliar products, particularly in an uncertain economic climate. Cost-conscious consumers prefer to minimize risk by sticking with known and trusted brands and products.
  • Stability Over Novelty: In 2021, experimentation among consumers was higher, driven by curiosity and the novelty of new RTD offerings. By 2024, this willingness to experiment has decreased, reflecting both a diminishing desire for new flavors and economic factors influencing purchasing decisions.
• Industry Insights:

"While the pace of innovation has tailed off, volumes continue to grow as we see less reliance on innovation to drive performance, and consumers wanting to minimize risk on new products they do not know," explains Susie Goldspink, Head of RTD Insights at IWSR.

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Read more: Alcohol Sales Guide - How to Increase Alcohol Sales

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Implications for Producers

• Strengthening Core Offerings: Brands need to focus on enhancing existing product lines to reinforce brand loyalty. This includes refining popular flavors, improving quality, and maintaining consistency to meet consumer expectations.
• Effective Flavor Options: Offering variety packs and popular flavor profiles can sustain growth, especially among younger consumers who still seek some level of variety within familiar boundaries. Tailoring flavor options to local tastes can also enhance appeal.
• Building Brand Awareness: In a mature market, connecting with consumers becomes increasingly important. Brands should invest in marketing efforts that emphasize authenticity, storytelling, and engagement to differentiate themselves from competitors.
• Strategic Rationalization: Producers may need to rationalize their product portfolios, discontinuing underperforming SKUs and concentrating on high-performing segments. This strategic focus can help maintain consumer interest and drive sustainable growth.

Market Saturation and Consumer Fatigue

• Avoiding Oversaturation: With the market nearing saturation in some areas, there is a risk of overwhelming consumers with too many choices, leading to decision fatigue and disengagement.
• Consumer-Centric Approach: Brands should adopt a consumer-centric approach, tailoring offerings to meet the specific preferences and needs of their target demographics. Understanding consumer behavior through data analytics and market research is crucial.

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The On-Trade Channel: The Next Frontier for RTDs

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Shifts in Consumption Occasions

Traditionally, RTDs have been consumed at home or during social gatherings. However, there is a growing trend of consumers enjoying RTDs in on-trade settings such as bars and pubs.

Consumer Behavior Insights

• Increased On-Trade Consumption: 40% of consumers reported drinking RTDs in pubs more often than the previous year.
• Market Variations: In the U.S., Canada, Australia, and South Africa, on-trade consumption of RTDs has returned to or surpassed pre-pandemic levels.
• Growth Potential: Markets like Brazil, China, and South Africa show higher likelihoods of consumers drinking RTDs in on-trade venues.

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Opportunities for Brands

The on-trade channel presents a significant opportunity for growth and innovation in the RTD category. Brands can capitalize on this by developing products tailored to on-trade environments and collaborating with venues to promote their offerings.

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Spirits and RTDs Gaining Share from Wine

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Market Share Dynamics

• 2023 Shares:
  • Spirits (excluding national spirits): 30%
  • Wine: 15%
  • Beer: 52%
  • RTDs: 2% (emerging category)
• 2028 Forecast:
  • Spirits expected to increase to 31%
  • Wine projected to decrease to 14%
  • RTDs anticipated to grow to 3%
  • Beer share remains stable

Including national spirits, the spirits sector had a 39% share in 2023, highlighting the significant role of local spirits in certain markets.

Factors Influencing the Shift

• Consumer Preferences: A move towards spirits and RTDs due to their versatility and the variety of flavors and formats available.
• Economic Pressures: Cost-of-living increases leading consumers to seek better value propositions, which RTDs and certain spirits can offer.
• Lifestyle Changes: A growing trend of moderation and selective consumption, with consumers opting for quality over quantity.

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Key Markets Analysis

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United States

• Spirits Growth: Led by agave spirits and flavored spirits.
• Future Outlook: Categories like American whiskey are expected to rebound as economic conditions improve and industry inventories adjust.

Italy

• Spirits Gaining Share: Notable growth in gin (up 3% in volume in 2023).
• Future Trends:
  • Whisky projected to grow at a 2% CAGR from 2023 to 2028.
  • Rum expected to increase by 4% over the same period.

France

• Growth Categories:
  • Vodka projected to rise by 2% volume CAGR (2023-2028).
  • Gin expected to grow by 3%.

China

• Market Dynamics:
  • Total beverage alcohol volumes grew marginally.
  • Declines in spirits (down 9%) and wine (down 14%) were offset by gains in beer and RTDs.
• Baijiu Trends:
  • Overall decline, particularly in lower-priced tiers.
  • Ultra-premium baijiu expected to grow by 7% between 2022 and 2027.

Brazil and South Africa

• On-Trade Potential: Higher likelihood of consumers choosing RTDs in on-trade settings, indicating growth opportunities.

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Strategic Considerations for Brands and Marketers

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Product Development

• Innovation Focus: With slowing innovation rates, brands need to differentiate through unique flavors, formats, and leveraging popular spirit bases like tequila.
• Alcohol Base Transparency: Educating consumers about the alcohol base can enhance brand perception and justify premium pricing.

Market Positioning

• Value Proposition: Emphasize affordability without compromising on quality, appealing to cost-conscious consumers.
• On-Trade Strategies: Develop partnerships with on-trade venues and tailor products for these settings to capture emerging opportunities.

Consumer Engagement

• Understanding Preferences: Utilize market research to comprehend local consumer tastes and preferences regarding flavor, alcohol base, and occasion.
• Addressing Fatigue: Avoid oversaturation by strategically rationalizing product lines and focusing on high-performing segments.

Navigating Economic Challenges

• Pricing Strategies: Balance between maintaining margins and offering competitive pricing in a cost-sensitive market.
• Inventory Management: Adjust production and inventory levels to align with current demand and avoid excess stock.

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Planning for the Future

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To stay ahead in the evolving RTD landscape, brands should consider the following actions:

• Leverage Market Insights: Stay informed about trends and consumer behaviors through industry reports and data analysis.
• Invest in Innovation: Focus on developing products that meet emerging consumer needs, such as health-conscious options or unique flavor profiles.
• Strengthen Brand Messaging: Communicate the value proposition clearly, highlighting aspects like premium ingredients, craftsmanship, and convenience.
• Explore New Channels: Expand distribution in both off-trade and on-trade channels, including e-commerce platforms.

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Conclusion

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The Ready-to-Drink (RTD) category is at a pivotal point, experiencing both dynamic growth and maturation. Shifts in consumer preferences, economic pressures, and evolving market dynamics are reshaping the landscape. The resurgence in consumer recruitment, particularly among younger demographics, highlights the renewed appeal of RTDs. However, as innovation rates slow and consumers become more cautious, brands must adapt their strategies to remain competitive.

Spirits and RTDs are poised to continue gaining market share from traditional categories like wine and beer. The importance of the alcohol base in consumer decision-making, coupled with confusion about product contents, presents both challenges and opportunities. The on-trade channel emerges as a significant frontier for RTDs, offering avenues for growth and enhanced consumer engagement.

By understanding these key factors and strategically responding to market changes, alcohol brands and marketers can position themselves for sustained growth and success in this vibrant sector.

Key Takeaways for Brands and Marketers

• Educate Consumers About Alcohol Bases: Clear labeling and marketing efforts can help align consumer perceptions with product offerings, enhancing trust and preference. Addressing confusion about alcohol content can differentiate brands in a crowded market.
• Leverage the Resurgence in Consumer Recruitment: Target younger legal drinking age (LDA) consumers with tailored marketing strategies and product offerings to attract and retain this growing demographic.
• Prioritize Innovation Efficiency: Emphasize quality over quantity in new product development. Focus on strategic innovation that meets specific consumer needs without overwhelming the market, ensuring that new offerings are effective and resonate with consumers.
• Strengthen Core Offerings to Address Consumer Fatigue: Reinforce core product lines by enhancing existing products and offering popular flavor options. This approach can maintain consumer interest and loyalty in a market where experimentation is declining.
• Capitalize on On-Trade Opportunities: Develop partnerships with bars, pubs, and other on-trade venues. Tailor products and marketing strategies for these settings to capture emerging opportunities and expand market presence.
• Build Brand Awareness and Loyalty: Invest in marketing efforts that connect with consumers on a deeper level. Storytelling, authenticity, and community engagement can differentiate brands and foster loyalty in a maturing and competitive market.
• Adapt Pricing Strategies to Economic Realities: In a cost-sensitive environment, balance the need to maintain margins with offering competitive pricing. Emphasize affordability without compromising on quality to appeal to cost-conscious consumers.
• Utilize Market Insights for Strategic Planning: Stay informed about industry trends and consumer behaviors through continuous research and data analysis. Leveraging these insights can inform strategic decisions and help brands stay ahead of market shifts.

By focusing on these strategic areas, brands can navigate the challenges of a maturing RTD market, capitalize on growth opportunities, and build lasting connections with consumers. Embracing adaptability and consumer-centric approaches will be key to sustaining success in this dynamic category.