Growth slows for RTDs

16 November, 2023

As the rate of growth declines, premiumisation and cocktails take the lead in a still-healthy sector. Eleanor Yates reports.

IWSR Drinks Market Analysis has released its RTDs Strategic Study 2023, which revealed the RTD category is expected to grow by 12% in volume between 2022 and 2027, achieving $40bn by 2027 across 10 key markets.

The growth has slowed down however, as the IWSR predicted last year that the category would grow by 24% in volume from 2022 to 2026.

The report found that growth will be driven by cocktails and long drinks, along with products that sit in the premium-and-above price bracket, marking this slowdown from previous years due to declines in hard seltzers in the US.

“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 Susie Goldspink, head of RTD insights, IWSR.

“Although the pace of innovation has slowed, the effectiveness of launches has improved, as producers are more strategic and targeted in their product launches,” adds Goldspink.

The report 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.

Across the 10 key markets, growth expectations for RTDs have halved over the past year to a forecast volume compound annual growth rate (CAGR) of 2%, between 2022 and 2027. Excluding hard seltzers, RTD volumes will grow at a CAGR of 5%, 2022 to 2027.

New product development is evolving as the category matures, with the pace of innovation slowing from its 2021 peak which saw more than 3,000 new RTD products launched, compared to the first half of 2023, which slowed to just over 1,000.

Innovation is skewing to premium price points due to trends such as spirit-based hard seltzers which use named spirits categories and premium ingredients in RTDs. Despite the impact of the cost of living crisis on consumer incomes, the report also found that seven out of the 10 markets covered in the report registered double-digit volume growth for premium-plus RTDs in 2022, indicating room for growth for higher-priced products.

Japan on the rise

The US is the largest RTD market, however Japan is expected to add the most volume moving forward, while the US sees its growth rates drop 1% volume CAGR, 2022-2027. Even with this slowdown in the US, the US and Japan will remain the largest RTD volume markets over the next five years, led by growth of flavoured alcoholic beverages (FABs) in Japan and cocktails, long drinks, FABs and hard tea in the US.

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

The global category for RTDs remains fragmented however, with individual product types dominating in some countries, such as hard seltzers in the US, cocktails and 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. 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,” adds Goldspink.

With the continuing shift from lighter to fuller flavours, brand owners are increasingly focusing on products with higher abvs, with IWSRʼs research showing that 32% of RTD consumers consider alcoholic strength when selecting a product.

The trend has historically been for RTDs to sit between 4% and 5%, Goldspink says. However, “now, a number of brands are offering products north of 8% abv, with several players actively relaunching existing products at new, higher strengths.

“Ready-to-serve product launches are typically cocktails with higher abvs. 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,” Goldspink continues.

The report also found that consumers are willing to spend more for spirit-based RTDs and “alcohol base is now the joint-second most important factor in RTD selection”, mentioned by 34% of consumers, especially those in Brazil, Mexico and South Africa.

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

The IWSR also found that vodka remains the most popular RTD spirit base, as ginʼs decline in popularity has opened the way for tequila to move ahead of it in the rankings.

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