Ready to re-think

The RTD category is currently in decline, but reports of its death have been exaggerated. Many feel the market is finding its natural level and that product innovation will unlock new opportunities, says Jonathan Goodall

In the beginning there was Hooch. Launched by Bass in 1995, this vodka and lemonade premix blazed a trail of innovation and its star shone brightly in a new Ready To Drink universe. In its wake came Merrydown’s Two Dogs and a whole new firmament of stars keen to follow Hooch’s awesome trajectory. This is the Big Bang theory of the creation of the RTD category, but sadly, after such an explosive start, this universe is now contracting and is littered with dead stars. Even Hooch burned out in 2003.

Only 10 years on from Bass’s Big Bang, does anyone remember Black Metz, Thickhead and Slamba, or even Smirnoff’s Moscow Mule and Bailey’s Glide? The demise of the latter two disproves any notion that big-brand spin-offs are the best equipped to survive. Retailers have been clearing their shelves of under-performing RTDs faster than wannabes are being launched so that now the top six brands – in ascending order, Reef, Red Square, Archers Aqua, Bacardi Breezer, WKD and Smirnoff Ice – now account for as much as  94% of sales of the estimated 250 RTD products available.

Indeed, the RTD category seems to be going full circle with unconfirmed rumours that Coors Brewers is looking to sell off its Reef brand in order to concentrate on its beer portfolio which now includes the speciality brands, Dos Equis and Sol. In other words, the company that bought Bass – and Hooch – the originator of the category, appears to be giving up on it. And looking at ACNielsen’s latest figures which show two year’s of double-digit decline for the category as a whole – down 15% in the off-trade, MAT September 05 – one could hardly blame them.

Theories abound as to why it’s all going pear-shaped for RTDs. They have hardly been the flavour of the month – a phrase which could have been coined for this category – with the government and industry regulators. The rather optimistic, innocent sounding word, “alcopop”, seems to have been airbrushed out of the drinker’s dictionary as RTDs have been subjected to what their brand owners would regard as punitive taxation. They were dealt a body blow in the form of a 65% tax hike in the 2002 budget, and tax currently stands at 30p for a 275ml bottle at 5.5% abv.

Bangs per buck

In seeking to adjust to this uneven playing field, many RTD brands have siphoned off the odd degree of alcohol as their shelf prices have crept upwards. This has invited criticism from various on-trade operators and there are signs that even the consumer is beginning to wise up to the bangs per buck ratio. A spot of research at my local revealed most RTDs to be priced at £2.94 offering 275ml at 5% abv. Why would anyone hell-bent on alcoholic oblivion – as The Daily Mail would have us believe most 18-24 RTD drinkers are – choose an RTD instead of the house-double Scotch or vodka and coke for £2.80? Why indeed?

A survey by CGA-Centro in the drinks business Trends Report 2006 revealed that young people are increasingly turning to shots or spirits with mixers to get their Friday-night kicks. At the same time, wine and premium beer consumption is rising – not to mention the one-brand assault on RTDs in the form of Red Bull (with vodka).

A general movement towards drinking at home has also damaged RTDs but the big brands have proved adept at launching take-home party packs and 70cl variants. Helen Tungland, public relations officer for Global Brands, points out, “The off-trade represents a key growth area for VK Vodka Kick as our on-trade success is now driving off-trade demand. Global Brands has therefore this year invested to support the off-trade side of business through marketing and promotions. All pack formats have been redesigned this year to give greater synergy and enhanced presentation in-store. 70cl packs in particular are showing excellent sales growth as consumers want bigger packs offering greater value. VK in 70cl bottles is currently up 60% year on year and has been in continuous growth for the past four years.”

You see? It’s not all bad news in the UK RTD market. I asked a number of brand owners for a few reasons to be cheerful, and this is what I got. According to Fraser McGuire, senior trade marketing manager for Bacardi Breezer, “The RTD category rose to great heights very quickly and maintaining that level was always going to be difficult. It’s no secret that sales of RTDs in the UK market are declining at a rate of approximately 18% year on year, however we think that as the category begins to consolidate the brands on offer, the market fluxes will even out and we will achieve stability.

“Over the past 12 months there have been reductions in distribution in the on-trade and shelf space for the off-trade and all these add to the rate of category decline. Now that these factors have started to stabilise we are expecting negative category performance to slow. RTDs continue to outsell both gin and whisky,”
he adds.

Levelling out
VK’s Helen Tungland says, “Reports of the demise of RTDs have been grossly exaggerated. We always predicted there would be a tailing off – you simply can’t expect double-digit growth forever. Even when the category was in its infancy several pundits were saying the category was faddish and would eventually go into freefall. The market will find its own level which I’m sure we’re approaching now. The reality is that RTDs represent a significant category, worth over £1bn a year.”

A spokesman for Diageo, which owns Smirnoff Ice and Archers Aqua among others, estimates the RTD on-trade to be worth £800m and the off-trade £300m, which adds up to £1.1 billion. “The RTD category delivered 60% of the £10 billion sales value from [total] new drink innovations in the last five years,” says the spokesman. “Globally, RTD remains an important category for Diageo representing 6% of Diageo’s total volume and around 10% of net sales,” he adds.

Diageo concedes that this is a tough category and suggests it is becoming “a two or three brand race”. Smirnoff Ice is still the Daddy with 4.9m cases and a 29% volume share (MAT May 2005, ACNielsen). It suffered a 14% volume decline (MAT March ‘05, ACNielsen), but this was a slower rate of decline than the total RTD market which was down 18% over the same period.

“WKD is a reason to be cheerful,” chirps Karen Salters, marketing director, at Beverage Brands. “It’s the only brand in the top five showing any growth and it’s currently growing at 1%.” ACNielsen confirms this claim. But why should WKD be bucking the trends? “Because it’s our bread and butter,” says Salters. “We are 100% focused on it and not sidetracked by a larger portfolio. We have the hunger of an independent company.” Fighting words, indeed.

But to instil brand loyalty among the Crazy Frog generation (my definition, not Salters’) is expensive, and the big brands have had to spend big. The Have You Got a WKD Side? campaign is obviously hitting the mark, but Beverage Brands spent £25m above and below the line in 2005. “It brings water to my eyes,” Salters confesses.

Meanwhile, Diageo is currently making its biggest investment in Smirnoff Ice since its launch in 1999 with a £15m campaign based around its Uri character, the biggest fan of Smirnoff Ice. A “text & win” on-pack offer for headphone hats is a significant part of the drive.

But if the aforesaid Crazy Froggers are such high maintenance would it not be an attractive proposition to appeal to a more mature audience? Maybe the original Hoochers who would now be in their 30s? Vin & Sprit has just entered the fray with a dollop of Scandinavian dourness. Absolut Cut, distributed by InBevUK, has a grown-up, citrusy flavour aimed at “the next generation” of RTD consumers and it comes in the same distinctive bottle shape as its illustrious parent brand. “We have no plans to glamourise the drink in advertising,” says Eva Kempe-Forsberg, Vin & Sprit’s vice president of marketing. Indeed, the brand’s website (www.absolutcut.co.uk) offers “an interactive art experience” whereby visitors are encouraged to write storylines for characters and scenarios shown on-screen. This incitement to blogging is certainly a far cry from WKD’s Pluckin’ Good Christmas campaign which involves giving away Christmas pudding-shaped bikini tops for the girls and “full-on turkey heads” for the guys.

The other big players are lining up with less sugary spin-offs to appeal not just to the more mature drinker, but to the calorie-conscious. In May last year, Diageo launched Archers Vea, a low-sugar, 45 calorie, variant of its popular Archers Aqua brand, aimed at 20 to 30 year-old women. Global Brands thinks that a heavier fruit content for its Coast range is the way forward, but the big news among the love-handle literate is Bacardi Breezer Half Sugar which basically does what it says on the label. Available in grown-up flavours – Zesty Lemon, Crisp Apple and Refreshing Raspberry – it has already sold 6.5m 275ml bottles since its launch last May. “It now accounts for 30% of total Bacardi Breezer volume,” says McGuire.

If you thought these brand extensions represent a radical departure from the sweet-products-aimed-at-young-women strategy you’d be wrong. In fact, what the best-performing brands, Smirnoff Ice and WKD (and VK) have in common is that they have always been targeted – shock horror – at young men, being positioned as alternatives to bottled beers. Diageo is currently launching Slate 20, a blended bourbon RTD which is certainly meant to be one for the boys. According to Lavinia Leung, Diageo’s GB innovation manager, “We believe there is a real opportunity to boost the RTD category. From our experience with the Australian market, dark-spirit RTDs are seen as more masculine with 70% of drinkers being male.”

Conspiracy theory
This is where I smell a conspiracy. A recent on-trade survey in The Publican found that 93% of RTDs are drunk by young women, with only 1% drunk by young men – presumably, the remaining 6% are consumed by middle-aged hermaphrodites. Even if you find this claim somewhat dubious, just ask yourself, have you ever seen a bloke drinking an RTD? Is it possible, therefore, that the marketing departments of the most successful RTD brands are knowingly pumping money into promoting to men while being fully aware that the vast majority of their consumers are women? Helen Tungland of VK, which is actively involved in football sponsorship, says, “By marketing our products to females you automatically alienate males as the product becomes ‘feminine’, whereas females are not put off by a product which targets men and has a masculine feel.” This elliptical approach is very similar to that of the Yorkie chocolate bar which proudly proclaims, “It’s not for girls”.

Might I suggest, for a strategy that undoubtedly seems to be working in the struggling RTD category, if it ain’t broke, don’t fix it.  db January 2006