RTDS: Out of fashion?

As cider sales go up, RTD sales head ever further south. Have pre-packaged drinks had their day, asks Clinton Cawood. Or does the category just need some innovation and renovation?

The eighties were always an easy target for ridicule – the fashion, the music, the hair… And yet there was the underlying realisation that it would return one day, rebranded as “retro” and somehow transformed by the forces of time into something more acceptable. Desirable, even.

There are few better examples of this cyclical nature of trends (and the fickle nature of consumers) than the packaged drinks sector. In the past few years, RTD brand owners have shown considerable tenacity in the face of plummeting sales volumes. At the same time, a number of new players, either reckless or brave, have launched drinks into the category.

These cyclical trends are better illustrated when cider is taken into account as well. As Global Brands’s managing director Steve Perez says: “I think drinks categories come and go in waves, really. If you look at what’s happened in the cider market – it was in decline for years, then started to see some growth, and then spectacular growth. It’ll peak, and then we’ll be talking about a decline in that category again. The same thing happened to Mexican beers like Corona – they went out and then back into fashion.”

These comparisons warrant a word on definitions. While the drinks industry’s category definitions may not directly inform consumer decisions, they do have a practical impact within the trade. Hew Dalrymple, managing director of relatively new premium entrant West Eleven, comments: “The category has been in decline, such that all off-trade retailers have reduced the amount of space allocated to RTDs, while cider’s grown, and therefore increased in space. Most of this has come from RTDs. The thing that has also grown is not so much the alcopop category but the convenience RTD – the premixed drinks like Pimms and lemonade or gin and tonic.”

This just touches on the complex maze of acronyms and definitions within this category. The final category, according to Dalrymple, is the one that West Eleven operates in – one that is perhaps best defined as premium bottled cocktails. Dalrymple mentions a number of products in the category, both branded and own-label, available in the off-trade. But with its all-natural approach, Dalrymple believes that his range is the most premium offering available, while acknowledging “a couple of others who are being fairly entrepreneurial”.

One of these, Tapio, is very specific about the category it operates in. As owner Simon Hughes explains it, “I’ve moved away from the cocktail territory – that’s occupied by West Eleven. I’m positioned in the premium premixed spirit category, competing with the likes of premixed Pimms or G&Ts.”

Cider’s ascendance
Hughes, like Dalrymple, believes that cider’s resurgence has been at the expense of RTDs. He believes that it is part of “a broader consumer trend away from artificial, super-sweet drinks”. For Dalrymple, “the reason these drinks are not doing well is because the taste profile is simplistic and sweet. It worked five years ago, but people’s palates have changed. Drinks like beer are resilient because they’re relatively complex, so people’s palates don’t tire of them, whereas if you shove some sugar and alcohol and unnatural colouring in a drink it may appeal to begin with, but I think people tire of it quickly.”

One of the exceptions to the rule in the RTD category in the past few years has been WKD, which is still enjoying growth in the off-trade, according to Debs Carter, brands controller at parent company Beverage Brands. The reason for this success, she explains, is simple. “We’re very clear about what we want to do – our real core consumer is 18-25 years old. The wider a consumer group, the harder it is to speak to them – they watch a wider range of TV, and go to a larger range of pubs.” Carter continues: “We’ve kept the consumer at the heart of what we’re doing so that consumer awareness of the brand is high.”

For Lorraine Griffiths, managing director of Alcohol Brands, this has also been a key to success. “Manufacturers that genuinely innovate and have an understanding of consumer behaviour succeed in the RTD sector.” Griffiths has had success with two products: Baby Pink and Baby Blue. “We were told they had no future because they appeared to be positioned as an outright RTD, rather than a Jacques or Sabai,” she explains, adding that in spite of this, sales and distribution are increasing.

Griffiths returns to the issue of category definition, commenting: “The drinks industry often perceives brand development as part of the category management process. Consumers do not think like this. They are highly promiscuous in their choices and will buy what suits them, when it suits them. This is frequently based on fashion and peer recommendation.”

Category performance
As true as this may be, the industry does take category performance into account, and the profound decline in RTD sales has been well documented. According to Euromonitor International, volume sales of RTDs more than halved between 2002 and 2007, in all likelihood exacerbated by increasing consumer interest in categories such as cider in the last few years.

Griffiths disagrees, however. “There is strong evidence running contrary to accepted wisdom that says that a significant percentage of bottled cider drinkers were not formerly consumers of RTDs. Research shows that younger drinkers in particular switched to flavoured bottled cider from large volume lagers.” She adds: “Flavoured ciders are RTDs, and many of them even taste the same as their forerunners such as Smirnoff Ice. What this tells us is that consumers buy based on brand proposition, not drink category.”

Anthony Mills, head of marketing for South African cider brand, Savanna, believes, however, that “globally, RTDs have fallen away a lot, and I think that cider’s taken a big chunk of that.” Carter at Beverage Brands adds, however: “I’m sure there’s an element of lost RTD volume to cider, but in reality there were some consumers that migrated to wine, to spirits, and some to beer.”

Magners, the cider widely accepted to have been the driving force behind the resurgence of the category, certainly would have taken some of this market share, considering the immense increases it was posting in its first years in the UK market. As marketing manager Scott Fairbairn points out, there was an element of good fortune involved. “Some of the timing was fortunate for cider – it happened when RTDs were on the wane. RTDs had only been around for 10-15 years, however. For cider it was a renovation, whereas with RTDs it was about innovation.”

Renovation
This idea of renovation is linked to the idea of consumer trends being cyclical. Mills acknowledges that “things come in trends, and retro things come back into fashion. It’s the same in drinks as well, but there’ll always be a core cider drinker.”

The other end of the public opinion scale, it seems, is equally subject to these fluctuations. While negative perceptions of the cider category are all but a thing of the past now, the image of the RTD category is a tarnished one. Hughes explains: “It looks like RTDs took up the image of cider, with the tramps, etc. It’s got a real image problem. My personal experience with the on-trade, with bar staff and owners, is they’ll look at Tapio, see it’s prepackaged, and immediately think alcopop. A lot of people simply don’t want it in their fridge because it looks like an alcopop.”

Fortunately for Hughes, and much like a number of other brands in the broader category, Tapio has fared better in the off-trade. “In Selfridges, for example – when it’s on the shelf, consumers can see it, pick it up and see why it’s unique. Behind a bar, if there’s no awareness it’s difficult to get into a consumer’s repertoire.”

As Hughes puts it, “Quite unfairly, RTDs have been the scapegoat of the alcohol industry, seen as the cause of the downfall of the youth of today. That’s going to have an effect – it’s going to make people self-conscious about drinking it. Just five years ago, that was cider. What goes around comes around…”

Perez at Global Brands also believes the situation to be an unjust one. “It’s very unfair that RTDs have got a lot of the blame for binge drinking, as opposed to cider. The reality of it is that if you go around to the back of bike sheds, you’re more likely to find empty PET cider bottles. When something’s not right in society, people blame something they don’t know and don’t understand.”

He firmly believes that “there are lots of young, over-18 drinkers and voters who go out and enjoy drinking an RTD because it’s low in alcohol and doesn’t get you as drunk as a half-litre bottle of strong cider. And a lot of these people will be alienated by politicians blaming them for the ills of society.”

The bottom line
When it comes to negative perceptions of the category, Carter is pragmatic. “At the end of the day, consumers don’t read the trade press, or some of the other papers that aren’t as complimentary about RTDs,” she says. “They buy brands, because they like our advertising or the promotions we do. That’s what’s important. If people were rejecting RTDs, we wouldn’t be where we are. We wouldn’t be in growth.”

For WKD, recruiting new consumers has been essential. “Drinkers at 25 are starting to look at other categories,” observes Carter. “You’ve got to be careful as a brand – you dilute that positioning by trying to hold onto those drinkers. More important is to recruit new drinkers.”

With his different offering, Hughes is understandably targeting a different audience with Tapio. One of these target groups, he explains, are “lapsed RTD drinkers who have matured and moved onto cider or wine, but are familiar with the concept of RTDs and have been happy with it – they’re definitely a potential market. With Tapio, I’ve moved on with them – changed the offering to be in line with what they’re into now.”

When it comes to West Eleven, Dalrymple places more emphasis on occasion than target market. For example, “When people come home on a Friday night – rather than get their Californian rosé or bottle of lager out, for that treat they’ll get a passionfruit Mai Tai. It’s about broadening people’s drinks portfolios – broadening the depth of what they drink.”

In addition to this increasing drinking repertoire, the endless fluctuation in consumer trends and perceptions seems set to continue  – as inevitable as the return of the shoulder pads and neon leg warmers of yesteryear. 

db © September 2008