Getting on down

Is the RTD category, well known for the speed with which it grew, in danger of declining just as fast? asks Chris Losh

IN MANY WAYS the RTD phenomenon has been defined by speed, with brands and trends appearing and disappearing with bewildering rapidity.  The sector is less than ten years old and worth over £1bn in the UK alone.

But now, some are beginning to wonder whether this most skittish of categories might itself prove to be something of a mayfly, being born, blossoming and dying in the blink of an eye. Certainly, after glorious early years, where double-digit growth was the norm, adolescence has proved rather more traumatic for RTDs, with market analysts ACNielsen reporting a fall in MAT sales to September of 14% for the UK.

And since this is one of the biggest and most trend-setting of RTD markets, there are worries –  s has so often been the case in the past – that what happens to Britain today could become a  category wide trend tomorrow.

The RTD industry is quick to dismiss the tumble in the UK as a temporary blip, but analysts are not so certain.  Canadean clearly sees this as the start of a global trend, predicting that growth in the top 24 markets in the world will slow to just 1% by 2006.

And, since much of this will be in smaller, younger markets, it doesn’t augur well for the established big beasts of America, UK and Australia.  The fall in the US is, at 5%, still fairly gentle (though it would be no surprise to see it accelerate), while Australia is simply seeing a slow-down in the breakneck growth rate of the last few years.

But the UK is another matter.  The dramatic fall of the last two years means RTD sales are now well below where they were in 2001.  If it’s a blip, it’s both big and sustained. 

Duty calls

There are three key problem areas for the category.  The first pain point is duty.  In 2002, the UK Chancellor Gordon Brown raised duty on s from £0.18 to £0.30.  

An increase of 65% it was the biggest tax rise on any alcoholic product ever, and reflected a desire not just to cash in on the uccess of a dynamic category, but also to be seen to be addressing the culture of underage  rinking, which many social commentators felt was spawned by the drinks themselves.

The UK market may have been the first to attack the category for social reasons, but it wasn’t the last.  The Danes recently announced a rise of DK1.00 to 2.75 on RTDs, while at the same time cutting duty on beer and wine.

Their reason? "To limit the consumption by children and teenagers".  Punishment by duty could be the start of a worrying trend for RTDs, and certainly, it is no mere coincidence that the highest UK growth figures for the drink were all pre-2002 and the lowest all after it.

The second pain point is not specific to the RTD sector, but one of social change; specifically the general decline in the power of the on-trade.  In the days when it’s possible to fly to dozens of European cities for the price of a night out, there’s a lot more pressure on consumers’ leisure spend.

"The on-trade is having to fight hard, and it is suffering," says Deborah Carter, brand  controller of WKD.  "It’s not just about RTDs but about how people spend their money.  The challenge for the on-trade is to make people want to come out."

Given that RTDs are aimed at the 18-24 age group, who, you might think, required encouragement to stay in rather than encouragement to go out, one might expect the category to be bomb-proof.

But even here there have been changes, says Carter.  "What we’re seeing is that this age group spends more time casual drinking than on high energy nights out.  They might have a few games of pool down the pub with their mates then go back and play Playstation," she says.

And certainly lower footfall through the doorways of pubs and clubs is bad news for this most on-trade-centric of drinks categories, which has been more about having a good time than a quiet time.

The third and final pain point is inevitable with any young category: a maturing of the market. Put simply, RTDs were never going to be able to maintain the doubledigit growth rate of the early years, and if the brakes in the UK and US have been applied a little more brutally than any would like, the industry was, at least, ready in the brace position.

As well as a slowdown in consumption, this maturing of the market has manifested itself in  general consolidation around key brands.  Whereas even five years ago, the category in the UK was considerably more fragmented, almost chaotic, it is now starting to settle down.

Six brands – Smirnoff Ice, Bacardi Breezer, WKD, Reef, VK and Archers Aqua – account for 84% of the total market, with all the remaining brands 1% or less.  "Retailers have rationalised their range," says Paul Flanagan, PR manager at Diageo, owners of Smirnoff Ice.

"There used to be loads of RTDs, but now retailers are focusing on just the five or six that sell." 

New consumers

Interestingly, if you compare the top 10 RTDs in 1999 with the top 10 in 2003, two (Metz and Smirnoff Moscow Mule) have disappeared altogether, while a third,  Hooper’s Hooch, was on its way out.

It’s hard to think of any other drinks category where a third of the top ten brands can disappear entirely in less than five years.  Diageo epitomises the ruthless attitude towards the category.

It turned its cash Mule into glue to make way for Smirnoff Ice when the former was category number three and Ice was just an upand- coming youngster, and Flanagan doesn’t rule out the same happening to Ice somewhere down the line.

"We’ll look at all our brands, and RTDs as much as any other, so it’s hard to predict who will be leading the category in five to 10 years time," he says.  "It’s all about being relevant to the target audience."

In this openness to change, the category reflects the needs of its target audience, where things move in and out of fashion fast.  "It’s about lifecycles," says Warren Langley at Coors, and brand manager of Hooch in its heyday.

"Typically brands have peaked after four or five years. It can be fickle."  Not only that, but marketing to 18-year-olds presents major difficulties.  The very streetwise edginess that appeals to the MTV/Playstation generation means brands need to sail rather close to the wind to attract their attention – something which frequently brings them into conflict with industry watchdog, The Portman Group.

"Some marketing is still very dubious," says Sophie Davison, a spokesman for Alcohol Concern.  "The sweet taste, use of cartoon images, psychedelic lettering and gimmicky ‘trendy’ nature are appealing to teenagers."

Given the über-importance of marketing in the business success of RTDs, it’s perhaps not surprising that larger companies are coming to dominate the category.  But simply throwing money at a product is far from being a guarantee of success.

Bacardi Breezer and Archers have both lost ground this year according to ACNielsen (the former by over 30%).  The reasons for this are many and varied, but one common aspect seems to be that both have specifically targeted women.

And while ads or promotional activity that target men don’t necessarily alienate "ladette" drinkers, it’s hard to get young men to drink what they see as a female drink.  All of which might explain why only two brands in Canadean’s topfive, VK Vodka Kick and WKD saw growth in the last twelve months, and both have actively targeted men.

There, though, the similarities end.  VK’s marketing budget has gone on supporting bars and clubs, associating itself directly with a car and clubbing culture and subsequently displayed growth of 22% this year.

WKD has run high-profile (and sometimes controversial) TV ad campaigns.  "Because we simply haven’t had the budgets that the large multi-nationals play with, our marketing really has had to be very cost-effective, unique and unusual to make the impact that we have," says Helen Tungland, VK’s brand manager.

Certainly, as a brand, it has punched well above its weight.  WKD’s success is impressive almost for the opposite reason.  Coming from a much higher sales base, it has sustained its positive performance for a decline in the power of the on-trade.

In the days when it’s possible to fly to dozens of European cities for the price of a night out, there’s a lot more pressure on consumers’ leisure spend.  "The on-trade is having to fight hard, and it is suffering," says Deborah Carter, brand controller of WKD.

"It’s not just about RTDs but about how people spend their money.  The challenge for the on-trade is to make people want to come out."  Given that RTDs are aimed at the 18-24 age group, who, you might think, required encouragement to stay in rather than encouragement to go out, one might expect the category to be bomb-proof.

But even here there have been changes, says Carter.  "What we’re seeing is that this age group spends more time casual drinking than on  high energy nights out.  They might have a few games of pool down the pub with their mates then go back and play Playstation," she says.

And certainly lower footfall through the doorways of pubs and clubs is bad news for this most on-trade-centric of drinks categories, which has been more about having a good time than a quiet time.

The third and final pain point is inevitable with any young category: a maturing of the market. Put simply, RTDs were never going to be able to maintain the double-digit growth rate of the early years, and if the brakes in the UK and US have been applied a little more brutally than many would like, the industry was, at least, ready in the brace position.

As well as a slowdown in consumption, this maturing of the market has manifested itself in a general consolidation around key brands.  Whereas even five years ago, the category in the UK was considerably more fragmented, almost chaotic, it is now starting to settle down.

Six brands – Smirnoff Ice, Bacardi Breezer, WKD, Reef, VK and Archers Aqua – account for 84% of the total market, with all the remaining brands 1% or less.  "Retailers have rationalised their range," says Paul Flanagan, PR manager at Diageo, owners of Smirnoff Ice.

"There used to be loads of RTDs, but now retailers are focusing on just the five or six that sell." 

New consumers

Interestingly, if you compare the top 10 RTDs in 1999 with the top 10 in 2003, two (Metz and Smirnoff Moscow Mule) have disappeared altogether, while a third, Hooper’s Hooch, was on its way out.

It’s hard to think of any other drinks category where a third of the top ten brands can disappear entirely in less than five years.  Diageo epitomises the ruthless attitude towards the category.

It turned its cash Mule into glue to make way for Smirnoff Ice when the former was category number three and Ice was just an upand- coming youngster, and Flanagan doesn’t rule out the same happening to Ice somewhere down the line.

"We’ll look at all our brands, and RTDs as much as any other, so it’s hard to predict who will be leading the category in five to 10 years time," he says.  "It’s all about being relevant to the target audience."

In this openness to change, the category reflects the needs of its target audience, where things move in and out of fashion fast.  "It’s about lifecycles," says Warren Langley at Coors, and brand manager of Hooch in its heyday.

"Typically brands have peaked after four or five years. It can be fickle."  Not only that, but marketing to 18-year-olds presents major difficulties.  The very streetwise edginess that appeals to the MTV/Playstation generation means brands need to sail rather close to the wind to attract their attention – something which frequently brings them into conflict with industry watchdog, The Portman Group.

"Some marketing is still very dubious," says Sophie Davison, a spokesman for Alcohol Concern.  "The sweet taste, use of cartoon images, psychedelic lettering and gimmicky ‘trendy’ nature are appealing to teenagers."

Given the über-importance of marketing in the business success of RTDs, it’s perhaps not surprising that larger companies are coming to dominate the category.  But simply throwing money at a product is far from being a guarantee of success.

Bacardi Breezer and Archers have both lost ground this year according to ACNielsen (the former by over 30%).  The reasons for this are many and varied, but one common aspect seems to be that both have specifically targeted women.

And while ads or promotional activity that target men don’t necessarily alienate "ladette" drinkers, it’s hard to get young men to drink what they see as a female drink.  All of which might explain why only two brands in Canadean’s top-five, VK Vodka Kick and WKD saw growth in the last twelve months, and both have actively targeted men.  There, though, the similarities end.

VK’s marketing budget has gone on supporting bars and clubs, associating itself directly with a car and clubbing culture and subsequently displayed growth of 22% this year.  WKD has run high-profile (and sometimes controversial) TV ad campaigns.

"Because we simply haven’t had the budgets that the large multi-nationals play with, our marketing really has had to be very cost-effective, unique and unusual to make the impact that we have," says Helen Tungland, VK’s brand manager.

Certainly, as a brand, it has punched well above its weight. WKD’s success is impressive almost for the opposite reason. Coming from a much higher sales base, it has sustained its positive performance for a number of years – a product founded on something of a gamble.

"We launched in 1996, and we were male-centred from the start – the first brand to do that," says Carter.  "It took time for RTDs to become acceptable to guys, but now there’s no stigma attached."

Product development Whether big or small, with sales on the increase or on the way down, one thing on which just about all agree is that innovation is the key to the category’s overall success.

"It’s about keeping your brand fresh," says Carter.  ‘"New [flavour] variants is one way, but new ads and packs is another.  You have to keep your offer relevant – that’s how you sustain the brand.

We’re thinking already of 2006 and 2007, so it’s hard to see how the category will look in a few years time."  It is indeed, but two trends that may well be worth keeping an eye on for the next 12 months are milkbased and wine-based RTDs.

Both are still small at the moment, but that’s not to say they will remain so.  Bizarre as the idea of milkbased alcohol drinks might sound, it’s the kind of quirky idea that has as much chance of success as any – particularly if it meets with general disapproval from the older generation.

"Milk-based RTDs entered the market 18 months ago and certainly seem to be securing ridge space," says Tungland, whose GBL International has added cream-based extensions and smoothies to its Corky’s brand as well as a Mudshake line.

Wine-based RTDs, meanwhile, have found it tough, with several brands – among them oomira Coast, launching and dying pretty quickly.  There is a feeling though that this is not so much a bad concept as a good concept that debuted at the wrong time, and that, with more careful marketing, opportunities now exist.

SHS is in the process of taking Slinky to market, a wine, fruit and water offering at the obligatory 5.5% abv, and aimed at a very specific consumer.  "It’s a transition product, for whenever a girl goes from a girl to a woman," says brand manager, Alison Gray.

"I don’t see our girl having a Slinky one day and a Chardonnay the next – I don’t think she’s there yet."  Certainly Slinky’s proposition is different from that of the more laddish Bliss, but the latter has the advantage that it is out there and listed.

Slinky is fighting with the general problem of trying to launch into a declining market, when retailers are cutting listings not looking to take on more products."  "One of the difficulties of innovation is that brands don’t happen overnight," says WKD’s Carter.

"No wine and milk-based RTDs have broken through yet; you have to give products time."  Indeed, future success might well come not at traditional RTD level, but in a new hybrid category somewhere between RTDs and spirits.

Many companies are putting significant time into developing 20% abv products and Diageo recently spent big to acquire Ursus Roter – a 20% abv flavoured vodka, and surely more of a draw than the straight vodka that came with it?

Rémy Red is, as brand manager Andy Hannah puts it, "a dip into an emerging category. Yes, it’s a famous name, but our job is to educate the trade and consumer that this is a very different proposition.  It’s all about mixability and flexibility."

If mixability and flexibility are to be the watchwords of the next decade, then RTDs, which score zero out of ten for both, could well be in trouble.  Of course, the category isn’t going to disappear entirely – it’s simply too big for that, and while mature markets stagnate and decline, new ones (Germany and Italy are good examples) burst into life.

But what is true is that RTDs appears to be a category that reaches maturity relatively quickly, and is showing signs of falling out of favour almost as fast.  So, with fewer and fewer new arrivals, it is up to the established players to find ways of sparking off a revival at a time when everything from duty levels to social disapproval is against them.

RTDs remain, as it always has been, a fast moving area.  It’s just that now, for the first time, the direction it’s starting to move in is down.