New research by IWSR shows the RTD category is expected to hit $40billion in sales by 2027 across 10 key markets including Australia.
This outlook marks a slowdown from previous years, with growth of +12% in volume between 2022 and 2027, primarily due to declines in hard seltzers in the US.
The trends driving growth will include the consumer desire for higher ABV products, premiumisation, the rise of long drinks and the enhancement of products with functional ingredients.
The 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$33.9billion 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,” IWSR said.
“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.
IWSR Head of RTD Insights Susie Goldspink said: “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.
“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.
“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.”
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 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,” said 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, IWSR said 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.
The most recent include the launch of Jack & Coke, a collaboration between the Coca-Cola Company and Brown-Forman.
Brown-Forman CEO Lawson Whiting told analysts in August that the Jack Daniel’s and Coca-Cola RTD launch had been the most successful launch in Brown-Forman history in the United States, having achieved the second highest level of off-premise distribution across the portfolio, only behind Jack Daniel’s Tennessee Whiskey.
Last week the Coca-Cola Company announced it would release an Absolut & Sprite RTD in 2024.
The Coca‑Cola Company Chairman and CEO James Quincey said: “We are expanding in the alcohol ready-to-drink space, including products that use select brands from our core portfolio. We are excited about our new relationship with Pernod Ricard and look forward to the introduction of Absolut & Sprite.”
According to IWSR, 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.