Mexico’s RTD market is well-placed to benefit from the flavour boom that has swept through the country in recent years – and tequila-based RTDs are poised for a resurgence on the back of falling agave prices.

Despite pressure on consumer spending amid a worsening economic backdrop, RTD volume growth in Mexico continued – building on the strong gains recorded in 2022, when category volumes rose by +12%, according to IWSR data.

“Despite hefty price hikes due to the rising cost of raw materials, volume growth for RTDs in Mexico continues,” says Jose Luis Hermoso, Research Director for Central and South America, IWSR. “The category remains buoyant and is expected to continue to grow, driven by favourable demographics, expansion of the convenience retail channel, and strong investment from multinationals. These companies are now fully committed to developing the RTD category in a market that is increasingly mature.”

IWSR forecasts show that RTD volumes in Mexico will grow at a CAGR of +5% between 2022 and 2027; however, the category will still represent less than 2% of TBA (total beverage alcohol) sales at the end of the forecast period, leaving ample headroom for future growth.

Thanks to their accessibility, RTDs appeal particularly to the younger legal drinking population, with 64% of category consumers either Millennials (47%) or Gen Z (17%), according to IWSR consumer research.

The value equation

For brand owners, category margins are tight and the barriers to entry are high, with longstanding RTD brands benefiting from their large volumes and maintaining market share. Local production is essential to keep costs down.

Despite this, RTDs are relatively expensive in Mexico; on a per-serve basis, only wine costs more. “RTDs are generally double the price of beer per serve, and there is almost no innovation happening at the value end of the RTD market,” says Hermoso.

“In the current context of squeezed disposable income and downtrading, new propositions at lower price points could appeal to some drinkers, luring them away from full-strength spirits and other more expensive options.”

Agave trending

Tequila-based RTDs lead the category in Mexico, preferred by 67% of RTD consumers (versus 51% for vodka-based RTDs and 45% for whisky). But, despite tequila’s status as a national icon, brand owners have been deterred from launching RTDs using the spirit by soaring agave prices and huge demand for tequila in the US.

But this is changing now, in line with general market trends, says Hermoso: “High agave prices have discouraged innovation in tequila-based RTDs, while benefiting spirit bases that are cheaper to produce, such as vodka,” he explains.

“The cost of agave is now falling, bringing more innovation in tequila-based RTDs, which continue to be in demand. This may lead to more activity in the value price segment.”

Demand for seltzers waning

Hard seltzer launches had dominated the RTD innovation space in Mexico in recent years, but this is waning as the segment suffers from the non-rotation of items on-shelf. Too much supply – and too little demand – has resulted in unsold stock nearing its expiry date.

Despite high levels of investment from big companies and evidence of consumers being open to trialling the products, hard seltzers simply haven’t taken off in Mexico, with IWSR forecasts predicting a steady decline in consumption between now and 2027.

“Some hard seltzer brands have exited the market because of poor sales,” says Hermoso. “This RTD sub-category remains largely misunderstood by the vast majority of Mexican consumers.”

Flavour explosion, mojito opportunity

The Mexican market has seen a flavour boom in the recent past, not only in RTDs, but also in the full-strength spirits category, with rum, vodka and even brandy getting involved. This has spurred a wave of innovations, with 85% of new RTD product launches between mid-2002 and mid-2023 fruit-based.

“Among leading RTD brands, the grapefruit-based paloma cocktail remains the most popular, encouraging brand owners to include a grapefruit version in any new product development. Citrus-flavoured drinks like the margarita are also in demand.”

However, NPD activity is lagging well behind the stated demand for mojitos. Despite a strong preference for the cocktail among Mexican consumers, only 8% of RTD cocktail launches were mojitos between mid-2022 and mid-2023 – compared to a combined 50% share for palomas and margaritas.

A format that fits

Single-serve RTDs remain the single most preferred packaging format – mentioned by 33% of RTD consumers in Mexico – but there is growing interest in larger formats that offer greater value for money.

Multipacks and larger formats are preferred by a combined total of more than 50% of RTD consumers surveyed in IWSR research. “These larger formats help to reduce the price per litre of RTDs, and are doing better than single-serve formats in the currently challenging economic conditions, which have squeezed disposable incomes,” explains Hermoso. New Mix and Vina Real, for example, have well established 2L PET formats on sale in the convenience store chain Oxxo.

Multinational investment continues

The Mexican RTD market continues to see investment, from internationals as well as local players. In May 2023, Diageo and FIFCO partnered to launch Smirnoff Smash for the Mexican market. FIFCO is also investing in its Seagrams Escapes and Bamboo RTD lines. Meanwhile local players Kosako and newcomer +Kool are also investing in the category.

Continued brand owner investment – alongside flavour innovation, larger formats and favourable consumer demographics – is driving a positive outlook for Mexico’s RTD market.

You may also be interested in reading:

No-alcohol share of overall alcohol market expected to grow to nearly 4% by 2027
Home consumption vs the on-trade: have pandemic behaviours become entrenched?
The innovations shaping future low-alcohol growth

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post RTDs in Mexico continue to show growth potential appeared first on IWSR.

The US ecommerce market for beverage alcohol is entering a period of more moderate growth as trading conditions continue to normalise – with consumer demand transitioning from pandemic necessity to novelty and convenience.

While recruitment to the channel has slowed since the Covid-19 pandemic, there is still headroom for future growth, particularly among Millennial and LDA Gen Z consumers.

The channel also lends itself to higher-value alcohol purchases, with wine enjoying a larger online presence thanks to its established D2C (direct to consumer) presence, although both spirits and beer are expected to gain share over the next few years.

However, online consumers are also becoming more price-sensitive thanks to ongoing economic pressures – and they are increasingly prioritising special offers and lower prices over faster delivery times.

“The US online alcohol market achieved steady but slower growth of 1% [by value] in 2022, with a slight year-on-year decrease in the total number of online alcohol buyers,” says Guy Wolfe, Head of Ecommerce Insights, IWSR. “After substantial pandemic growth, online alcohol sales have stabilised as the on-trade recovers and consumers revert to more typical purchasing habits.”

Recruitment potential

As it normalises, ecommerce is still expected to outperform the overall US total beverage alcohol market: IWSR forecasts predict a 2023-27 value CAGR of +7% for online alcohol sales, compared to a total beverage alcohol (TBA) CAGR of +1% over the same timescale. That would see ecommerce’s TBA share increase from 3.2% in 2022 to 3.9% in 2027.

Although there has been a slowdown in online use by alcohol purchasers – in 2023, 14% said they had shopped in the channel in the past six months in 2023, down from 18% in 2022 – IWSR consumer research suggests that there is still plenty of growth potential in the US.

“Recruitment has unsurprisingly slowed down since the pandemic, especially among Boomers, indicating that the channel is becoming more mature,” explains Wolfe. “However, there is still room for growth, as one in four online buyers has been recruited in the past two years. In addition, frequency of online shopping has continued to rise among those who use the channel.”

Millennial and LDA Gen Z consumers who don’t currently buy alcohol online are most likely to consider doing so in the future: according to IWSR consumer research conducted in 2023, 44% of Millennials are somewhat or very likely to start making online alcohol purchases in future, as are 39% of Gen Zs.

High-spending Millennials

Online purchasers of alcohol in the US are skewed towards men, Millennials, those on higher incomes and people with broader alcohol repertoires – and 60% now spend more on alcohol than they would in a store, an increase on 2022.

“IWSR research also shows that 67% of Millennials say they spend more online than in-store, significantly higher than the total sample,” points out Wolfe. “This suggests they are key drivers of volume and value growth – so tailoring marketing strategies and product offerings to appeal to this group is an important part of any online strategy.”

Increasing price sensitivity

At the same time, however, consumers are becoming increasingly price-conscious when shopping online, with special offers and lower prices now almost as important to them as fast delivery times. Delivery charges are also one of the most significant barriers preventing consumers from buying alcohol online.

“As online shoppers become more price-sensitive due to economic pressures, competitive and transparent online pricing strategies are increasing in importance,” says Marten Lodewijks, Director of Consulting – North America, IWSR. “Faster delivery is becoming less critical to consumers, and keeping delivery fees down is essential.”

Shifts in online behaviour can also be seen in site loyalty, with more consumers staying loyal to their favourite brands, rather than staying site loyal. The exception are Boomers, who are notably most likely to stick to a single retailer for all alcohol purchases. Gen Zs on the other hand are more likely to vary online retailer according to the occasion.

Research prior to purchase over indexes for online shopping

More than four in five respondents spend at least some time doing research before purchasing a beverage online, more than in any other shopping channel. Frequent online shoppers are most likely to take a lot of time researching products online. This implies that they are engaged consumers rather than impulse buyers. The main reasons for researching prior to purchase include finding out more information about a specific product; discovering something new and interesting; and finding the best price possible.

Beer, spirits to eat into wine’s share

Wine stands out as the most mature category in US ecommerce, thanks to the widespread acceptance and use of D2C: while wine has a 22% value share of TBA in the US, its slice of TBA ecommerce stands at 45%. Spirits has a 37% ecommerce share (33% of TBA), with beer/cider/RTDs at 18% of ecommerce (44% of TBA).

“Beer, cider and RTDs under-index online due to their widespread availability in physical channels, especially convenience,” explains Lodewijks. “Wine’s established D2C presence gives it larger online representation.”

However, both spirits and beer/cider/RTDs will gradually erode wine’s share in the coming years. While IWSR expects ecommerce wine sales to reduce slightly (2023-27 value CAGR of -1%), spirits (value CAGR of +7%) and beer/cider/RTDs (+19%) are predicted to make gains.

Additionally, growth occurring from the no-alcohol segments across all beverage alcohol categories is significantly outpacing traditional products. “No-alcohol products are being shipped across the US with no restrictions,” notes Adam Rogers, Research Director – North America, IWSR.

“No-alcohol’s share of sales in the D2C channel is growing more quickly than in typical distribution channels. As such, brand owners can use non-alcohol variants to drive brand recognition and create markets in states where they are currently under-represented.”

Wine passes a peak

Online’s share of total wine sales by value in the US peaked in 2021 at 6.6%, and is now likely to stabilise at around 6.1%. “Post-pandemic growth has been hard to come by across the wine market, including online, with consumer attention being pulled to other categories,” says Rogers.

Following significant growth during the pandemic in 2020, D2C wine has since cooled off with two consecutive years of volume declines. Recent declines are attributed to a reduction of shipments for brands priced under $30 USD while growth remains for wines priced $100 and over.

“This illustrates a scenario where inflation disproportionately affects individuals with lower incomes, while those with higher incomes experience minimal impact from increasing prices,” notes Rogers.

Spirits look to grow

For spirits, whisky dominates online sales with almost 50% value share in 2022, while fast-growing agave-based spirits are poised to overtake vodka during 2024, commanding over 20% share of online spirits sales by 2027. Online’s value share of US spirits sales is expected to reach 4% by 2027, up from 3.5% in 2022.

“Stricter state regulations on the online sale of spirits, compared to other beverage alcohol categories, have resulted in a relatively low but increasing ecommerce value share,” says Rogers. “In an intricate market landscape, spirits continue to find ways around restrictive state laws to meet consumer expectations and demand.”

Spirits industry organisations have collaborated on a “Ship My Spirits” campaign, a grassroots coalition with the common goal of allowing direct-to-consumer shipping of distilled spirits, in order to have parity with the wine industry. While 47 states allow the direct shipment of wine straight from winemakers to consumers, only 11 states, including the District of Columbia, currently allow distillers to ship their products directly to consumers. Any change that brings parity to spirits and wine D2C shipping would benefit the spirits industry.

Beer’s promising future

“Beer, cider and RTDs have not historically attained the same online presence as wine or spirits,” says Lodewijks. “Products are relatively expensive to ship because they are heavy but carry lower prices, reducing margins.”

However, rising levels of consumer interest in the convenience of on-demand, plus access to hard-to-find products via D2C, are expected to drive strong future growth in ecommerce sales, although off a small base.

Online held a 0.6% value share of overall US beer/cider/RTD sales in 2018; by 2022, this had risen by 1.3%, and it is expected to more than double by 2027. “The future is promising for online, both for sales and as a marketing tool that enables beer/cider/RTD brands to connect with consumers in new ways,” says Lodewijks.

You may also be interested in reading:

How might Gen Z reshape beverage alcohol in the US?
Are RTDs in the US learning enough from craft beer?
Where next for the US sparkling wine market?

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post From necessity to novelty, US beverage alcohol ecommerce is evolving appeared first on IWSR.

The dynamic and fast-moving RTD category in the US could risk the same challenges that faced craft beer, with an increasingly saturated market overwhelming consumers and leaving them confused about which product to choose.

IWSR data shows that the number of RTD brand lines available in the US has more than tripled between 2018 and 2022. Over the same timescale, the total RTD category in the US registered strong growth from 2018 to 2020 – volumes rose by double digits each year, 2018-2021 – before decelerating in 2022 (flat growth).

“There are signs that consumers may be becoming immune to new products or brands in a way reminiscent of the recent history of craft beer in the US,” says Marten Lodewijks, Consulting Director – North America, IWSR. “As the number of brands and new variants on the market increases, growth rates are tailing off.”

There are clear echoes of a similar recent trend in craft beer: the number of craft breweries in the US doubled between 2015 (4,847) and 2022 (9,709), according to Brewers Association figures.

However, IWSR data shows that the craft beer category’s strong volume growth at the beginning of the period (+8% in 2015) slowed and then headed to reverse, with volumes declining by -6% in both 2021 and 2022. Most volumes are now sold through taprooms and on-site, leaning into a sense of community for consumers.

“The glut of brands that emerged during the peak of the craft beer movement in the US essentially led to a ‘de-branding’ of the category,” explains Lodewijks. “Instead of buying based on brand, consumers instead started to focus on expressions and flavours of beer, due to the overwhelming number of breweries and brands.

“RTDs may now be moving in the same direction. The importance of ‘brand’ risks being overtaken by other attributes as consumers become overwhelmed.”

A tipping point in flavour expansion

According to IWSR consumer research, the influence of brand on purchasing decisions is declining. When asked in June 2023 of what helped them to select an RTD, consumers in the US mentioned flavour (53%), alcohol base (36%), type of cocktail/long drink (35%), and ABV (31%) ahead of well-known brand (27%).

“Consumers like trying new products,” says Susie Goldspink, Head of RTD Insights, IWSR. “In RTDs, this is mainly new flavours, but it also involves trying – for instance – a spirit-based hard seltzer versus a malt-based product.

“As the category initially grows and establishes itself, the more new options there are, the better. However, there comes a tipping-point where suddenly a brand owner launches six new flavours at once, and the calculus changes.

“Trying six new flavours is firstly expensive, and many of them may not be flavours of interest – so they end up choosing based on flavour they like, and often revert to the familiar products that they know and trust rather than exploring new innovations.”

Both industries, craft beer and RTDs, also have a history of piggy backing trends, shortening the trends lifecycle. This was seen with hard seltzers in the RTD space, and with Hazy IPAs for craft beer. This approach can saturate the market, reducing the ability for a brand to clearly stand out.

Nonetheless, a number of recent high-profile co-brand launches – examples including Jack Daniel’s & Coca-Cola, and Absolut Vodka & Sprite – could yet restore the importance of brand to the RTD category.

Familiarity with brand is still a strong driver of choice among US consumers – Boomers especially.

Balancing consumer exploration with brand building

Lodewijks also sees some important differences between RTDs and craft beer in terms of product/brand fatigue. “Craft beer became so cluttered with new brands (not just new products) that consumers had no idea of how to navigate the category, and had nothing to turn back to,” he explains.

“RTDs aren’t there yet, because they have a few strong anchor brands – but product proliferation could yet prove problematic if it continues unchecked.”

It’s important for the incumbents to show discipline while building the RTD category. They need to provide the consumer with a category structure that is understandable and navigable.

New entrants can, and should, explore the boundaries but should beware not to sow confusion by trying to do too much at once.

“Consumers love novelty and variety, but too much and we get decision paralysis, which will simply stall momentum,” Lodewijks notes. “Exploration needs to be tempered with brand building and if brands are constantly changing their offering, consumers won’t understand what your brand stands for.”

Note to readers: IWSR defines craft breweries as US operating breweries that are small (annual production of 6m barrels of beer or less) and traditional (a brewer that has a majority of its total beverage alcohol volume in beers whose flavour derives from traditional or innovative brewing ingredients and their fermentation). Note this definition differs from that used by the US Brewers Association.

You may also be interested in reading:

Growth drivers for the US ready-to-drink RTD market
Home consumption vs the on-trade: have pandemic behaviours become entrenched?
Has premiumisation stalled?

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post Are RTDs in the US learning enough from craft beer? appeared first on IWSR.

Beneficial demographics and an emerging middle class are creating enticing opportunities for beverage alcohol in Africa, but economic pressures place a fresh emphasis on affordable pricing.

“Alcohol consumption in Africa has been on a consistently upward trend, driven by population growth,” explains Russell Menezes, Research Director – Middle East & Africa at IWSR. “This has led to a substantial expansion of urban areas with younger LDA demographics migrating to big cities, making alcoholic beverages more accessible and boosting demand.

“Recent trends have been predominantly shaped by a young and dynamic middle class, while the proportion of women who consume alcohol is increasing, spurred by socio-economic changes such as improved education and better employment opportunities.”

More affluent consumers in South Africa, Nigeria and Kenya prioritise social status and image, and are increasingly influenced by global trends – which is translating into gradual growth for premium spirits and wines.

Meanwhile, economic pressures have intensified the opportunities for standard-and-below priced products. “As people face financial challenges and uncertainties, there is a growing preference for affordable alcoholic beverages that provide both enjoyment and cost-effectiveness,” says Menezes.

The market’s competitiveness is influenced by the presence of both local and international alcohol producers. Multinational companies have started producing alcohol locally, which is a more cost-effective approach compared to exporting alcoholic beverages from a central location. This approach results in shorter lead times and allows companies to tailor their products to local preferences and tastes. Heineken’s acquisition of Distell and Namibian Breweries in April 2023 is expected to bring additional investment into African markets and a greater focus from the merged company as well.

Spirits: Pricing is key, alongside pockets of opportunity in premium+

Africa’s spirits market is dominated by standard-and-below products, which account for 96% of volumes. Trends are often disparate and highly localised, with pricing strategies vital to success. In Angola, for example, local whiskies are highly popular, while local celebrity endorsement has helped to propel vodka’s momentum in Kenya. Meanwhile, rum recorded double-digit gains in both Nigeria and Ivory Coast in 2022, as spiced rum and Indian café rums gain popularity with young adult women as affordable drinks with a sweet flavour profile.

Premium-plus spirits, meanwhile, command 4% of the region’s total spirits market by volume, and around 20% of its value. South Africa dominates the premium-plus spirits market, followed by Nigeria and Kenya. Combined, they command almost three-quarters of the market volume.

In South Africa, volume share of the premium-plus spirits market is dominated by whisky, which holds over 50% of the market, followed by brandy and gin. Within the whisky category, Irish whiskey, for example, is enjoying sustained growth – seen by emerging middle-class consumers as an affordable alternative to higher-priced Scotch.

South Africa’s brandy market is also premiumising and skewing to Cognac, sales of which grew by 17% in 2022. Cognac is also seeing growth off a smaller base in markets like Ghana and Kenya.

“Cognacs strongly resonate with the image-oriented middle and wealthy classes,” says Menezes. “The Cognac segment in markets like South Africa is driven by continuous investment from leading Cognac houses, and is also witnessing increasing participation amongst women.”

Agave spirits are also experiencing strong growth off a small base, with 2021-22 volume growth of over 60% in both Nigeria and South Africa.

“Tequila’s recent breakthrough into the luxury segment bodes well for the category’s top end in the future, resonating with brand conscious consumers,” says Menezes. “Its involvement in the growing cocktail culture is expected to further boost demand.”

Beer & cider: Lager dominates, cider grows

Affordability is the primary driver of beer, supported by heavy promotions. Beer is well-suited to the hot climate in Africa, and locally brewed products will continue to drive substantial growth, with very limited penetration of international brands.

South Africa, Nigeria and Ethiopia are the region’s largest beer volume markets. In South Africa, beer volumes were up +13% in 2022, although growth is set to moderate, with standard and international brands driving premium lager to the fore.

A number of other countries, including Nigeria, Ethiopia, Cameroon and the DRC, are expected to experience steady growth in lager consumption in the years ahead as well.

In cider, leading market South Africa has witnessed strong consumption gains in nightclubs and post-work drinking occasions; after strong double-digit growth in 2022, the country is expected to record a 2022-27 volume CAGR of +3%.

Other promising cider markets include Zambia, where a 2019 excise duty cut boosted consumption, as well as Mozambique and Kenya.

“Demand for cider has steadily increased over the past two years as consumers are displaying a growing affinity for what they perceive as a more unisex and refreshing alternative to beer,” says Menezes.

Wine: Middle class aspiration

Still wine has experienced significant growth in recent years, successfully tapping into the emerging middle class, particularly in the low-priced and value segments. Key drivers include the penetration of urban and rural areas by major liquor store chains, the increasing participation of female drinkers, and new wine drinkers seeking sweeter options.

Boxed wine is a major trend in South Africa, where premium products are boosting its credibility. Meanwhile, Ivory Coast’s strong francophone heritage helps to fuel demand for low-priced, locally packaged wine, mostly in boxed formats, and Portuguese wine continues to dominate in Angola. Both countries are expected to see growth in the years ahead.

“While Champagne and other sparkling wines remain highly sought-after by aspirational, status-conscious African consumers, there is a strong opportunity in affordable sparkling wine products targeting the continent’s emerging middle class,” says Menezes.

RTDs: Rise of the cans

The RTD segment represents another growing opportunity, driven by factors including affordability, refreshment, convenience and the increasing participation of women in the drinks market. The future is dependent on the growing young LDA population, which is likely to fuel demand.

Packaging is becoming more attractive as formats shift from glass bottles to aluminium cans, with consumers seeking larger pack sizes as they look for better value.

South Africa’s RTD market grew by +14% in 2022, with a forecast CAGR of +3% between 2022 and 2027. The country is seeing increased potential for RTDs with vodka, gin and brandy bases, as well as cocktails and long drinks; meanwhile, other African markets are largely dominated by local FAB brands, which are prized for their affordability.

Planning for 2024

While growth opportunities are nuanced by market, a few key trends are apparent across the region, such as the growing influence of female consumers and their taste profiles, as well as increasing demand of the standard & below segment, and interest in more variety and flavour innovation – especially fruit-based flavours.

Brand owners should look to their marketing campaigns to be more inclusive of female drinkers, breaking down traditional practices and making mixed-gender drinking more visible . A focus on premium+ opportunities will also be key.

You may also be interested in reading:

Home consumption vs the on-trade: have pandemic behaviours become entrenched?
How is Gen Z approaching beverage alcohol?
Purchasing channels evolve for high-end spirits post-Covid

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post Beverage Alcohol in Africa: A heady mix of complexity and opportunity in 2024 appeared first on IWSR.

Following years of strong, steady growth, and a massive spike due to Covid-19, Cognac has seen sharp declines in the US – a market that accounts for over 40% of global sales. Cognac volumes in the US grew by +12% CAGR, 2014 to 2019, followed by further growth during the pandemic, before falling by -20% in 2022. Volumes continued to decline (-16%) in the first half of 2023 vs 2022.

Cognac’s steep volume loss in 2022 can partly be explained by supply chain volatility linked to the Covid-19 pandemic, which left brand owners facing a high volume base for prior year comparison in 2021, and a return to more normal consumption patterns. As a result, the supply chain has been working through high levels of Cognac inventory, as noted by IWSR earlier this year.

However, the sharp declines reported by IWSR in the first half of 2023 appear to have more fundamental drivers: the Cognac consumer is feeling the economic pinch, and is reining in their appetite for this high-status, high-priced category in favour of more cost-effective alternatives. Agave-based drinks, especially cocktails, are a convenient, and in some cases lower cost alternative to Cognac, and the two categories have a lot of consumers in common.

The latest analysis from IWSR’s market and consumer data shows that Cognac’s US performance may also be a specific consequence of increased competition from agave-based spirits as tequila cements its status as a luxury drink popular with high-income consumers.

An overlapping consumer base

There is increasing evidence that Cognac and high-end tequila are competing for some of the same consumers. The Cognac consumer can be broken into a twin-track audience: middle income “core” drinkers and higher income urban millennials for whom Cognac is one of many drinks they like.

It is this group of core drinkers that are disproportionately financially vulnerable, making them more likely to drink Cognac less frequently, or trade down to lower-priced categories, as their disposable incomes shrink.

“Our consumer research shows that Cognac drinkers are two times more likely to drink tequila than alcohol drinkers in general,” explains Richard Halstead, COO Insights and Custom Analytics, IWSR. “And both categories generally find themselves in competition at similar consumption opportunities – social, uptempo occasions.

“It’s also important to note that Cognac’s audience is relatively small – less than one-third the size of tequila in the US, with 8% recalled consumption versus 27% – and has more lower- and middle-income drinkers, but fewer high-income drinkers versus tequila: 43% of tequila drinkers say they have an annual income of US$100k+, compared to 27% of Cognac drinkers.”

Category switching as cost of living rises

IWSR consumer research also suggests that Cognac drinkers have one of the broadest drinks repertoires, in terms of the number of categories explored in the past six months, of any category consumption group: more than one-fifth of Cognac drinkers say they consumed a tequila drink on the last consumption occasion.

As a result, “core” Cognac consumers facing a decline in their disposable income are more likely to drink Cognac less often, buy Cognac in smaller quantities, and/or switch to other spirits from their repertoire that are cheaper, but still carry premium cachet – which include tequila, but also premium vodka and cocktails. Higher income consumers are less motivated to switch for economic reasons, but remain discovery-oriented and appear to be switching more out of desire for variety, with cocktails (often involving tequila) also a strong substitution candidate.

“Tequila has a number of inherent advantages over Cognac in terms of its scale, diversity and versatility,” says Jose Luis Hermoso, Research Director, IWSR. “Tequila boasts a wide variety of styles and price points versus the relatively narrow – and expensive – range of products available in Cognac.

“Tequila also has more versatility in terms of consumption occasions, including shots, cocktails and – increasingly, in the upper price tiers – as a sipping spirit. The category has an inbuilt advantage in that it is used in highly popular cocktails, such as the Margarita, the Paloma and Ranch Water.”

This is especially important because Cognac drinkers are significantly more likely to drink cocktails – and IWSR data shows that 50% of Cognac drinkers say they consumed a Margarita in the past six months.

Other category attributes enjoyed by tequila include speed of innovation – lower ageing requirements compared to Cognac allow brand owners to bring new products to market more quickly – and the sheer number of brands on the market, which gives consumers more opportunities for trial and category exploration.

“Tequila is also much more gender-neutral in terms of its consumer appeal in the US,” points out Marten Lodewijks, Consulting Director – US, IWSR. “Both men and women enjoy the spirit more or less equally, whereas Cognac is primarily consumed by men. This increases tequila’s opportunities for consumption.”

Opportunities for Cognac

It’s important to note that Cognac’s decline is likely cyclical – not structural. The category’s current performance is driven by overexposure to economic hardship. Historical trend analysis shows a correlation between disposable income and Cognac volume consumption (see chart below).

As an inherently higher priced category compared to most other beverage alcohol options, and consequently strongly connected with the affluence of its consumer, the long-run data suggests that Cognac tends to do disproportionately well in the good times, and suffers more acutely when the wider economy is struggling.

So, how should Cognac brand owners respond?

“The first task would be to broaden the appeal of Cognac in the US again,” says Lodewijks. “Looking at historical evidence in our research, it seems that Cognac used to have a broader base of consumers, including more people at a higher income level.

“Cognac’s second task would be to broaden its use cases, counteracting tequila’s inherent advantage as a base for hugely popular cocktails. Tequila is also associated with high-tempo events and social gatherings, whereas brandy in general is more skewed to low-tempo, relaxed settings – so this may be an avenue for Cognac to explore in terms of changing the mood.”

Cognac brands are already trying to remain relevant in the US market, aiming to draw in new customers with more inventive marketing strategies that are designed to appeal to the next generation of consumers and relatively untapped demographic groups, such as Hispanic and female consumers. Cognac brands are also seeking to establish more territory in the cocktail space.

You may also be interested in reading:

Home consumption vs the on-trade: have pandemic behaviours become entrenched?
Is the US premium tequila boom over?
The 8 drivers of change for beverage alcohol in 2023 and beyond

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post Is Cognac losing out to tequila in the US? appeared first on IWSR.

The era of rapid growth for high-end tequila in the US could be at an end after a dramatic slowing of growth for premium-and-above products during the first half of 2023.

While volumes of agave-based spirits continued to expand in the US in H1 2023, lower price segments – standard, value and below – are now growing at a similar pace as premium-plus, reversing previous declines (see chart below). After several years of strong double-digit increases, volumes of premium-plus tequila in the US rose by +4% in the first six months of 2023, versus the same period in 2022.

Meanwhile, the category is expanding strongly in a host of markets outside North America, but off a much smaller volume base.

“As economic pressures mount and the novelty of the category wanes, the age of rapid premiumisation for agave in the US appears to be over,” says Marten Lodewijks, Consulting Director – US, IWSR. “Expansion at the top end is slowing and decline at the bottom end has turned around into growth.”

This phenomenon is underpinned by improvements in product quality and commercial profitability, notes Lodewijks. “As the tequila category becomes more mature and the number of brands grows, overall product quality improves, and this improvement is seen across all price tiers, justifying trade down,” he says.

The high-volume growth occurring through expanded distribution, especially from celebrity-backed brands, has normalised. Due to the influx of new brands, saturation is beginning to occur, making it more difficult for brands to differentiate themselves in the eyes of consumers.

With agave prices normalising after being elevated for many years, manufacturers are better able to maintain margins, even through lower-priced products.

The current trend of trading down mirrors the vodka category’s post-2008 recession era. “Consumers sought products with a favourable price-to-quality ratio and, upon discovering options that exceeded their quality expectations, remained within the lower-priced segment,” comments Adam Rogers, Research Director – US, IWSR. Unlike vodka, which is limited as an unaged product, tequila presents more opportunities for consumers to trade up.

“As economic conditions improve, it is anticipated that consumers will return to higher price points within the tequila category albeit the rate of return is yet to be determined,” notes Rogers.

The current slow down should not hide the extraordinary run tequila has had in the US market, especially at the very high end. The premium+ tequila segment is now significantly larger than in the past and therefore more difficult to expand.

Only ten years ago, the tequila category represented less than 10% of the US status spirit market (spirits in the ultra-premium+ price segment) by volume. In 2022, nearly one in every three bottles of luxury spirits in the US were agave-based (largely tequila).

Growth prospects outside of the US and Mexico

As demand for premium agave spirits shows signs of moderation in the US, overall sales are declining in the category’s other major market, Mexico, with volumes slipping by -4% in the first half of 2023.

Meanwhile, agave is beginning to take off in a number of markets outside North America – albeit off a much smaller base.

In the first half of 2023, agave grew in 15 out of the world’s top 20 beverage alcohol markets (including the US) – and recorded double-digit volume growth in 11 of them.

Category expansion was driven by a number of factors, including the reopening of the on-trade in China and growing appreciation of tequila as a quality spirit in Spain.

In India, volumes more than doubled in H1 2023 vs 2022 (off a small base) partly thanks to growing consumer acceptance of locally-grown agave, which has helped to soften the impact of supply constraints.

And in the UK, the -4% volume decline recorded in H1 2023 masks the changing image of agave in the country: as traditional tequila shot consumption in the on-trade declines, the higher end is enjoying growth, particularly in the home premise.

“Strong interest in agave outside the US has been boosted by growing interest in Mexican culture, celebrity influence and the popularity of cocktails,” says Jose Luis Hermoso, Research Director, IWSR. “The category is also continuing to gain traction thanks to the increasing appreciation of tequila as a quality spirit, a revival of the on-trade and tourism in Asia, and the recovery of the Duty-Free channel post-pandemic.

“Strong performance in the US has meant some brands were on strict quotas in secondary markets, with many of these undersupplied for years as allocations could not fulfil existing demand.”

Premium tequila under-indexes in ROW markets

The disparity between markets in the Americas and the rest of the world means that luxury tequila has huge growth potential. Currently, the US and Mexico sell about 25 times as much ultra-premium-plus tequila as a group of nine ROW markets (the UK, Spain, Australia, China, France, Japan, Italy, Germany and Poland).

For other spirits categories, such as Cognac/brandy and whisky, the differential in ultra-premium-plus volumes is less than two to one.

“The ultra-premium space for agave-based spirits under-indexes outside the US and Mexico, compared with other spirits categories,” says Hermoso. “Potentially, this gives high-end tequila enormous headway for future growth, if brand owners can continue to successfully promote its quality credentials with consumers.”

In the short to medium term, the US (and, to a lesser extent, Mexico) will continue to be by far the most important priorities for agave brand owners – simply because they account for more than 85% of category volumes, and an even larger proportion in the higher price tiers.

But, if demand continues to moderate in the US, and volumes keep declining in Mexico, companies may have to rethink their global brand strategies – and look to a larger and more diverse group of markets around the world to fuel future category growth.

You may also be interested in reading:

Home consumption vs the on-trade: have pandemic behaviours become entrenched?
Does tequila’s growth mirror that of the gin boom?
The 8 drivers of change for beverage alcohol in 2023 and beyond

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post Is the US premium tequila boom over? appeared first on IWSR.

Premiumisation in the US spirits market is being increasingly dominated by two categories – agave and whisky – thanks to a combination of factors including product diversity, strong reasons to buy and powerful brand leaders with high levels of badge value.

In the context of a relatively static market – IWSR analysis reports that spirits volumes in the US were essentially flat in 2022, with value rising by only +4% in an inflationary environment – the growth of whisky and agave spirits at the high-end has been impressive.

Combined, super-premium-and-above whisky and agave saw volumes increase by +14% in 2022 (on top of growth of +23% in 2021), according to IWSR. Breaking this down by price band, prestige-plus (US$200+) combined volumes rose by +15%; prestige (US$100-200) was up +12%; and ultra-premium (U$45-99.99) climbed by +23%.

Looking forward, super-premium-plus agave spirits volumes are poised to grow roughly twice as fast as whisky between 2022 and 2027, meaning that the market for agave spirits at these price points will have grown fivefold in a decade.

However, while the market is growing, there are signs that the rate of growth is slowing: super-premium-plus agave spirits grew +14% H1 2021-22, versus +5% in H1 2022-23 .

“As the tequila category becomes more mature and the number of brands grows, the overall product quality improves and this improvement is seen across all price tiers, justifying trade down,” notes Marten Lodewijks, Director of Consulting – Americas, IWSR.

“With agave prices normalising after being elevated for many years, manufacturers are better able to maintain margins even through lower priced products,” he adds.

This dominance of whisky and agave is also reflected in brand performance: In terms of volume CAGR, 2017 to 2022, the top 12 fastest-growing super-premium-plus spirits brands in the US are dominated by whisky (six) and tequila (four), according to IWSR data.

What is driving this strong dynamic? IWSR has identified three key factors:

1: Product diversity and reasons to buy

Both agave spirits – tequila especially – and whisky of all origins have successfully created a clear and easily comprehensible product pricing hierarchy based on a number of compelling reasons to buy, such as age, origin and flavour.

“The categories that are winning in super-premium-and-above spirits have a wide range of styles, flavours and product types,” says Lodewijks. “There is no one type of single malt Scotch; instead, there is Speyside, Islay, Highland and so on.

“Meanwhile, tequila has quickly diversified into reposado, añejo, extra añejo and cristalino. By comparison, vodka is vodka unless you add flavour – and that is a much more difficult route to premiumisation.”

2: Powerful anchor brands

Despite this diversity, both agave and whisky have strong brand leaders that give consumers a benchmark from which they can use to navigate and explore the wider category.

“One of the reasons why super-premium-plus whisky and tequila are doing so well is the existence of very strong brands at the top of the pyramid,” explains Lodewijks. “These products create an ‘anchor’ for consumers, around which they can experiment, and have acquired the status of lifestyle brands, rather than merely spirits brands.

“These marquee names let consumers know what a single malt, blend, añejo tequila, and so on should taste like – and that organises the category and gives it direction. Other players can then innovate around that, and benefit the category as a whole.”

3: The rise of American whiskey

Historically, premiumisation in the whisky category has been spearheaded by Scotch, but the picture has changed dramatically in recent years, with American whiskey coming to the fore.

Between 2017 and 2022 in the US, according to IWSR figures, super-premium-plus American whiskey volumes grew at a CAGR of +18%, compared with a CAGR of +6% for super-premium-plus Scotch.

Although this growth is forecast to slow in the coming years as the volume base becomes larger, American whiskey volumes in the same price tiers are expected to expand at a CAGR of +8% between 2022 and 2027, ahead of Scotch at a CAGR of +3 %.

“American whiskey’s premiumisation activity used to be typically lower down the price ladder, but the category is now really playing in prestige and above – something that used to be the exclusive domain of Scotch,” says Lodewijks.

“In recent times, American whiskey has gotten progressively better at diversifying itself to satisfy a broader set of consumer needs. From Bourbon to Rrye to Tennessee, there is a broader range of flavours for consumers to choose from.

“Even within those individual categories, innovative use of wood and barrel types has further improved the quality of products, and added interest for consumers. This has levelled the playing field with Scotch.”

Outlook and go-to-market strategies

In the short-term, consumers are showing signs of trading down to find their personal quality-to-price ratio as a response to the higher cost of living. However, IWSR’s expectation remains that trading up will occur again once the economy rebounds and disposable income levels increase.

The growth of agave spirits and whisky at higher price points in the US shows the enduring importance and power of brands. Providing the consumer with credible ‘reasons to believe’ that a product is worth paying more for is and will remain essential.

An example of this is the growing trend of ‘barrel picks’ from retailers for both whisky and agave spirits, whereby retailers are visiting the distilleries and selecting barrels of specific brands for their retail store. Many are extra aged, but all are ‘single barrels’ which is another trend in itself.

“As the premium part of the market grows, product proliferation is inevitable,” says Lodewijks. “This means that not only does a brand have to have strong ‘reasons to believe’ in order to drive purchase, but it also has to have distinctive qualities to stand out from the crowd.

“As a result, marketing touchpoints now matter more than ever – and bartender advocacy will play a crucial role in the future, because the on-trade will always be a key channel for the creation and building of super-premium-and-above brands.”

You may also be interested in reading:

Home consumption vs the on-trade: have pandemic behaviours become entrenched?
Consumer confidence in the US remains broadly positive
The 8 drivers of change for beverage alcohol in 2023 and beyond

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post Why are agave and whisky winning the US premiumisation race appeared first on IWSR.

India’s constitution enshrines an ‘endeavour’ to prohibit alcohol, any implementation of which is devolved to the individual states. Whilst it would be naïve, therefore, to ignore this context or overtly challenge this ethos, India has evolved into a hugely promising market for beverage alcohol brand owners, with yet more enormous growth potential – but in such a complex, regulated and sometimes challenging country, detailed local knowledge is key.

Recent consumption growth in India has been both dynamic and broad-based: in 2022, spirits volumes climbed by 12%, beer rose by 38%, RTDs were up 40% and wine increased by 19%, according to IWSR figures; and, in all cases, value rose ahead of volume.

“The volume growth seen in India in 2022 was still in the nature of a recovery following the Covid-19 pandemic, particularly in beer,” explains Emily Neill, COO Research, IWSR. “All categories are offering strong double-digit growth in the context of a global market only registering single-digit advances.”

IWSR category forecasts also point to a positive outlook for all major categories in India in the years ahead: while global TBA (total beverage alcohol) volumes are expected to rise at a CAGR of only +1% between 2022 and 2027, the forecast figure for India’s spirits volumes is +4%, with beer at +3%, RTDs at +10% and wine at +7%. Value trends are forecast to follow a similar trajectory.

Favourable demographics and a knowledgeable consumer base

Demographic factors underpin this growth: India’s drinking age population is relatively young and increasingly affluent. The country’s median age was 25.7 in 2012, versus 35.2 in China and 37.0 in the US, and will be 37.2 in 2050 (with China at 48.7 and the US at 40.0). Each year another 15 to 20 million citizens reach LDA age (source: UN World Population Prospects).

By 2050, India’s working age population is predicted to top 1.1bn (versus 790m in China and 255m in the US) (source: UN World Population Prospects). Between 2021 and 2031, it’s estimated that another 283m people will join India’s middle classes (source: ICE360 household survey).

Generational attitudes show a greater interest in alcohol among younger LDA Indians, according to IWSR consumer research. While older (40+) drinkers are moderating their consumption, millennials are over-indexing significantly on nine out of the top 10 drinks categories, including beer, wine, Champagne, and a number of spirits segments.

Beyond demographic factors, the intrinsic nature of the country’s beverage alcohol market is also advantageous. “One of the key attributes of the Indian market is that demand is configured in a western way,” explains Jason Holway, IWSR Senior Market Analyst. “If you compare it to, say, China, where baijiu dominates spirits volumes, Indian consumers already drink whisky, brandy, rum, vodka and gin.

“So, on a purely practical level, if you’re looking to encourage more or better consumption, domestic demand for these products already exists – the biggest volumes in each spirits categories are for Indian made foreign liquor (IMFL). In many other emerging markets, you first have to convert consumers to your product before you can take them up to premium, higher-priced brands.

“The main function of an international brand in this context is to be aspirational – but, in India, you don’t have to tell people as much about how or when to use your product. They already know that.”

Again, the quality of local products is improving all the time, meaning that Indian whiskies and gins, for example, are credibly moving up the price ladder and becoming increasingly aspirational to local consumers, increasing competition.

IWSR consumer research also reveals a heightened interest in moderation. “India will almost certainly be a key market in any reconfiguration of TBA globally to no/low-alcohol” says Luke Tegner, Consulting Director – Rest of World, IWSR. “But, in an extremely price-sensitive market, pricing itself will be a challenge. Whilst lowered excise rates should permit no/low products to be attractively priced against their alcohol inclusive equivalents, they are likely to remain much more expensive than many soft drinks.”

A fragmented and complex market landscape

While the scale of the opportunity in India is clear enough, so too are the challenges and barriers to growth – above and beyond the obvious issues of high import and excise tariffs.

India’s beverage alcohol market is very fragmented and extremely complex, Tegner cautions. “The levels of bureaucracy are phenomenal and, whatever you do, you have to do on a state-by-state basis,” he explains. “You can’t do things nationwide, so you really need a well-connected, knowledgeable importer and distributor. You certainly don’t want to try to do it all yourself.”

Logistics need to be planned at a local level; it’s easy to lose sight of the sheer size of some of Indian states. The size of Maharashtra’s population, for example, is equivalent to that of Japan, while Karnataka’s rivals that of the UK.

Local challenges, meanwhile, include labelling – which will often specify that a product can only be sold in a certain state – and maximum retail pricing, which can destroy margins, especially at a time of rising costs.

The conformation of the market also complicates the establishment of a viable ecommerce channel in India – something which would seem to be an obvious benefit, given the widespread use of mobile technology and the cheapness of data.

In a country where the legal drinking age varies from 18 to 25, having chain of custody proof of age technology is likely to require “massive investment which may do little more than just increase unit costs”, warns Holway. He also points out that the consumer need is already being met via informal ‘quick commerce’, where a purchaser simply calls a liquor store and arranges local delivery for cash.

However, the fragmentation of India’s beverage alcohol landscape could also prove beneficial to market newcomers, who can start small and expand their market presence progressively.

“The advantage here is that you don’t have to be nationwide and launch everywhere straightaway,” says Holway, who advises prioritising key regions/cities, such as Maharashtra, Haryana, Delhi/NCR, Karnataka, West Bengal, Tamil Nadu and/or Goa.

“Some of these regions are cheaper and easier to become involved in,” Holway adds. “And one of the reasons why it’s good to be in these places is the recent improvement in the quality of retail, with high-class, duty free-style stores popping up in big metropolitan areas such as Mumbai, Hyderabad and Chennai. These have mainly been in Tier 1 cities to date but establishment in Tier 2 cities is already on the horizon.

“So, however you approach the Indian market, you must be selective and build slowly – you don’t need to have a presence everywhere from the very beginning.”

You may also be interested in reading:

How is Gen Z approaching beverage alcohol?
Home consumption vs the on-trade: have pandemic behaviours become entrenched?
India emerges as a key volume driver for beverage alcohol, whilst China’s growth softens

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post How do you tackle the Indian beverage alcohol market? appeared first on IWSR.

The emphasis of the US RTD market is shifting from volume to value, as consumers gravitate to more premium products with fuller flavours and higher ABVs – particularly in the cocktails and long drinks space.

A saturated malt-based hard seltzer segment will retain the largest share of the overall RTD category over the next five years, but its recent volume declines are set to continue as consumers increasingly turn their attention to cocktails/long drinks, FABs and hard teas.

A maturing RTD market in the US

Latest data from IWSR shows that although the US RTD market was flat last year, ending a period of rapid volume growth, it rose in value by 6% due to a combination of inflation and premiumisation, reaching US$18.2bn.

IWSR forecasts now predict a period of moderate growth for the maturing category, with volumes set to increase at a CAGR of +1% between 2022 and 2027, and value rising more rapidly to reach US$21.1bn by 2027. This outlook is largely due to a bifurcation in the market, where malt-based seltzers are in decline, ceding volume to spirit-based hard seltzers, ready-to-drink cocktails and FABs.

The increasing maturity of RTDs in the US is also reflected by the decline in the number of new entrants: according to IWSR consumer data, the proportion of current RTD drinkers who entered the category three or more years ago has now reached 81%.

However, frequency of consumption is increasing, with 45% of RTD drinkers consuming them every week in 2023 – up from 38% in 2022.

“Volume is down but value is growing in the US RTD market,” says Marten Lodewijks, Consulting Director – Americas, at IWSR. “The price per serve of RTDs is rising, with high-strength cocktails and spirit-based hard seltzers viewed as higher-quality trade-ups, driven by demand for premium ingredients.

“RTD cocktails have become more premium and sophisticated, which is driving growth in spirit-based products.

“Meanwhile, the hard seltzer market has reached saturation point, and consumption will not see the highs of 2021 again. The declines are largely attributable to consumer fatigue, product overload, life getting back to normal after the pandemic and people consuming less alcohol in general.”

IWSR data shows that the consistent launch of new hard seltzer products generated significant growth until 2021, when a saturation of new products reduced the incremental volume of each new launch for many brand lines.

Further significant developments in the US RTD market include:

RTDs gain in share of servings

Despite the hard seltzer decline, RTDs are continuing to capture a larger slice of the total beverage alcohol (TBA) market in the US. In 2018, RTDs’ share of TBA servings stood at 2.7%; by 2027, it will have reached 7.9%.

“RTDs are expected to take share of servings from beer and wine as they are increasingly consumed at outdoor events and concerts, dinner parties and during other recreational activities traditionally dominated by beer and wine,” notes Lodewijks.

“Rising RTD cocktail consumption is likely to take quite a bit of share from spirits, but spirits’ share of TBA servings will increase as the category’s performance remains much stronger than that of RTDs in the on-trade.”

Thanks to inflation, all beverage alcohol categories registered price increases in 2022, but RTDs saw the largest annual rise – just over 6% – as the category continues to premiumise.

NPD focuses on premiumisation cues

This premiumisation trend is manifesting itself in a number of ways, including a new focus on spirit-based RTDs, fuller flavours and higher ABVs.

“Premiumisation makes investment in RTDs attractive,” says Chris Budzik, Market Analyst, IWSR. “This increasing emphasis on value could occur both within sub-categories – such as a shift from malt-based hard seltzers to higher-priced spirit-based alternatives – and across different sub-categories, getting consumers to transition from FABs to cocktails/long drinks.”

The shift in the market has led to increased NPD activity within the cocktail/long drinks space, but in the context of slowing innovation overall. New cocktails and long drinks are now launching at almost three times the rate of hard seltzers, accounting for more than 60% of RTD launches in the first half of 2023.

Meanwhile, most new product launches in the RTD space have a mid-range ABV, of 3.0-5%, but high-ABV innovation is accelerating: new products over 7.5% ABV now account for more than 30% of NPD, with 25% of those launches sitting at 20% ABV or higher.

Agave gains in popularity as an RTD spirit base

Although vodka remains the most popular RTD spirit base, agave is gaining fast: 41% of consumers name tequila as their favourite RTD base, up from 35% in 2022; among LDA Gen Z RTD consumers, the figure is 60%. This is mirrored in the overall spirits market is well: volumes of agave-based spirits increased by +12% in 2022, and are forecast to grow by volume CAGR of +11%, 2022-27.

“The flavour profile of agave plays well in both full-strength cocktails and light, refreshing hard seltzers,” says Budzik. “A convergence of taste, convenience and consumer appeal means agave-based RTD products are in prime position to continue to carve out a significant niche in the RTD landscape.”

The on-trade increasingly embraces RTDs

Retail remains the dominant channel for RTDs – accounting for 88% of recent consumer purchases – but the on-trade is showing signs of growth, with 39% of consumers buying RTDs in the channel in 2023, up from 35% a year ago.

LDA Gen Z consumers buy RTDs in bars and restaurants more than any other age group, and the increasingly significant cocktails/long drinks segment is more closely correlated with on-trade occasions.

“The data suggests that there is strong potential for RTDs to continue to grow in the on-premise, giving brand owners an opportunity to expand away from saturated retail channels,” says Lodewijks.

RTS leans to premium-and-above price segments

Launches of ready-to-serve (RTS) products have decreased in the first half of 2023 compared to 2022 – and sales volumes have also declined over the past two years. Recent launches are predominantly in the premium-and-above price segments.

The sub-category is weighted heavily towards higher-ABV cocktails and long drinks – particularly pre-mixed margaritas, tropical cocktails and other classics – and offers a number of formats to suit different occasions, from 10cl single serves to shareable 75cl bottles.

Note to readers

IWSR defines eight sub-categories of ready-to-drink (RTD) products:

• Cocktails/long drinks Drinks that reflect well-known cocktails (mojito, negroni, mule, cosmopolitan) as well as common mixed drinks containing a base spirit and a non-alcoholic mixer (for example, gin and tonic or vodka and soda), where the base alcohol is clearly identified.
• Hard seltzers Composed of a blend of carbonated water and alcohol, in some cases with added fruit flavour; typically malt-based but can also be wine- or spirit-based. In contrast to long drinks, the alcohol base is not defined.
• Hard coffees Alcoholic coffee drinks; can be cold-brewed or creamy.
• Hard teas Alcoholic tea drinks.
• Hard kombuchas Alcoholic fermented drinks made with sweetened black or green tea; often blended with natural juice.
• Wine spritzers/coolers Drinks that mix wine with carbonated water or sodas, or fruit juices.
• Flavoured alcoholic beverages (FABs) This sub-category covers all other RTDs, including the likes of Smirnoff Ice and Bacardí Breezers, as well as local brands.
• Ready-to-Serve (RTS) Drinks in the cocktails/long drinks sub-category that contain 10% ABV or more and are offered in larger formats (500ml+) designed for sharing.

You may also be interested in reading:

How big is the slowdown in the US beverage alcohol market, and how long will it last?
Home consumption vs the on-trade: have pandemic behaviours become entrenched?
Global RTD category will hit US$40bn by 2027, driven by growth in cocktails/long drinks and premium products

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post Growth drivers for the US ready-to-drink (RTD) market shift as malt-based hard seltzers reach saturation appeared first on IWSR.

The RTD category is expected to grow by +12% in volume between 2022 and 2027, hitting $40bn by 2027 across 10 key markets. This growth will be driven by the key cocktails/long drinks sub-category and products that sit within the premium-and-above price bracket. This outlook marks a slowdown from previous years, primarily due to declines in hard seltzers in the US.

These findings are part of the IWSR RTDs Strategic Study 2023, which analyses trends in 10 markets – Australia, Brazil, Canada, China, Germany, Japan, Mexico, South Africa, the UK and the US – accounting for 83% of global RTD consumption with a total value of US$33.9bn in 2022.

Growth expectations for RTDs across the 10 key markets have halved over the past year to a forecast volume CAGR of +2% between 2022 and 2027. However, excluding hard seltzers, RTD volumes will grow at a CAGR of +5%, 2022 to 2027. Over the same timescale, cocktails/long drinks will see their share of RTD volumes across the key markets grow by 4 percentage points, to command a quarter volume share of the RTD category by 2027, while that of hard seltzers will shrink by 11 percentage points.

“Growth is slowing in an increasingly mature global RTD category, but opportunities persist in the cocktails/long drinks space and for premium-plus products that prioritise consumer-forward cues such as RTD base, ABV and flavour,” remarks Susie Goldspink, Head of RTD Insights, IWSR.

As the category matures, new product development is evolving, with the pace of innovation slowing from its 2021 peak: in that year, more than 3,000 new RTD products were launched, but in the first half of 2023, that slowed to just over 1,000.

Innovation is increasingly skewing to premium price points, thanks to trends such as spirit-based hard seltzers; using named spirits categories and premium ingredients in RTDs; and enhancing products with functional ingredients.

“The premiumisation trend is moving in a variety of directions, from premium formats to a shift in ingredients and added functionality – all aspects that offer a point of differentiation to consumers,” says Goldspink. “Although the pace of innovation has slowed, the effectiveness of new launches has improved, as producers are more strategic and targeted in their product launches.”

Despite the impact of the cost-of-living crisis on consumer incomes, seven out of the 10 markets covered in the report registered double-digit volume growth for premium-plus RTDs in 2022, suggesting that there is still plenty of headway for growth for higher-priced products.

Other findings from the IWSR RTDs Strategic Study 2023 include:

China becomes an increasingly important RTD market, while the US and Japan remain the largest

While the US is the largest RTD market, Japan is expected to add the most volume going forward as the US sees its growth rates drop to +1% volume CAGR, 2022-2027. Despite this slowdown in the US, both the US and Japan will remain the largest RTD volume markets over the next 5 years, led by the growth of FABs in Japan, and cocktails/long drinks, FABs and hard tea in the US.

China is also expected to become a more significant market, growing by a volume CAGR of +6%, 2022-2027, driven particularly by the FAB sub-category.

The global RTD category remains highly fragmented, with individual product types tending to dominate individual countries: hard seltzers in the US, cocktails/long drinks in Australia, Mexico and Germany, and FABs in Brazil, Japan, China and South Africa.

“Individual markets have local tastes and dynamics, with different categories, flavours and bases trending in different places,” says Goldspink. “This means that a one-size-fits-all approach will not be effective – instead, brand owners need to be agile and tailor their product mix to localised developments.”

Consumers expand their RTD repertoires

Recruitment of new entrants into the RTD category is slowing as the category matures, but IWSR research shows that consumers are drinking more frequently, consuming more on the same occasion, and exploring a greater number of sub-categories.

In 2021, 24% of RTD consumers were new to the category (defined as having entered it in the past two years); by 2023, that figure had fallen to 13%, suggesting that the category is reaching maturity.
However, the proportion of RTD consumers drinking RTDs more than once a week increased from 39% in 2022 to 43% in 2023, according to IWSR data.

Meanwhile, 63% of consumers reported that they drank two or three RTDs on the same occasion – and 58% said they now consume from a repertoire of three or more RTD sub-categories.

Innovation is driven by higher ABV products

As the shift from lighter to fuller flavours continues, brand owners are increasingly focusing on products with higher ABVs, with IWSR research suggesting that 32% of RTD consumers consider alcoholic strength when selecting a product.

“Historically, the trend has been for RTDs to sit between 4% and 5% ABV,” says Goldspink. “Now, a number of brands are offering products north of 8% ABV, with several players actively relaunching existing products at new, higher strengths.”

Apart from the influence of alcohol strength, other factors that are important to RTD choice include flavour, alcohol base, type of cocktail/long drink, and price. Interestingly, there are signs that consumers are becoming less influenced by brand: only 29% said brand was important to their choice of RTD.

In this respect, RTDs could be moving in the same direction as craft beer: as the market becomes brand-saturated, consumers feel overwhelmed and base their purchasing decisions on other factors, such as flavour or ABV.

However, recent co-brand launches from marquee names could counteract this decline, offering the reassurance of a trusted name and restoring the importance of branding in RTDs.

Ready-to-serve products present a growing opportunity for premiumisation

Ready-to-serve products are fuelling the premiumisation of RTDs, although launches have tailed off after a post-pandemic peak. The concept is most popular in the US.

The segment has a range of formats, and offers a practical cocktail solution to on-trade venues that lack the time and skills to create their own mixology offer.

“Ready-to-serve product launches are typically cocktails with higher ABVs,” explains Goldspink. “Brands are often available in multiple sizes, giving consumers a choice between a single serve or a bottle to take to a party, cutting into wine gift occasions.”

Consumers say they are willing to spend more for spirit-based RTD

Alcohol base is now the joint-second most important factor in RTD selection – mentioned by 34% of consumers and especially important in Brazil, Mexico and South Africa.

While malt- and wine-based RTDs registered volume declines in 2022, falling by -4% and -3% respectively, spirit-based RTD volumes rose by +5%, and up to 25% of RTD drinkers are willing to pay more for a spirit-based RTD over a malt-based one.

Vodka remains the most popular RTD spirit base, but gin’s decline in popularity opens the way for tequila to move ahead of it in the rankings.

Note:

IWSR defines eight sub-categories of ready-to-drink (RTD) products:

• Cocktails/long drinks: Drinks that reflect well-known cocktails (mojito, negroni, mule, cosmopolitan) as well as common mixed drinks containing a base spirit and a non-alcoholic mixer (for example, gin and tonic or vodka and soda), where the base alcohol is clearly identified.
• Hard seltzers: Composed of a blend of carbonated water and alcohol, in some cases with added fruit flavour; typically malt-based but can also be wine- or spirit-based. In contrast to long drinks, the alcohol base is not defined.
• Hard coffees: Alcoholic coffee drinks; can be cold-brewed or creamy.
• Hard teas: Alcoholic tea drinks.
• Hard kombuchas: Alcoholic fermented drinks made with sweetened black or green tea; often blended with natural juice.
• Wine spritzers/coolers: Drinks that mix wine with carbonated water or sodas, or fruit juices.
• Flavoured alcoholic beverages (FABs): This sub-category covers all other RTDs, including the likes of Smirnoff Ice and Bacardí Breezers, as well as local brands.
• Ready-to-Serve (RTS): Drinks in the cocktails/long drinks sub-category that contain 10% ABV or more and are offered in larger formats (500ml+) designed for sharing.

You may also be interested in reading:

How big is the slowdown in the US beverage alcohol market, and how long will it last?
Home consumption vs the on-trade: have pandemic behaviours become entrenched?
India emerges as a key volume driver for beverage alcohol, whilst China’s growth softens

[pardot-form id=”9040″ title=”Industry Insights Sign Up – WP embedded”]

The post RTD category will hit US$40bn by 2027, driven by growth in cocktails/long drinks and premium products appeared first on IWSR.