Volume growth within the U.S. alcoholic RTD market has moderated since last year, but the category rose rapidly by value and is expected to continue to grow from $18.2 billion to $21.1 billion by 2027, according to a new report from IWSR Drinks Market Analysis.
The findings cover all ready-to-drink products including spirit-based cocktails and long drinks; malt or wine hard seltzers; hard teas, kombuchas and coffees; wine spritzers; FABs and ready-to-serve (RTS) products.
Here are five takeaways, including what the frequency of consumption looks like as the category matures, how RTDs will take share from spirits, and what premiumization actually means for ABV, flavor and beyond.
Volume Down, Value Up as Category Matures
After a period of rapid growth, the IWSR now predicts a period of moderation for the category with volumes set to increase at a CAGR of 1% between 2022 and 2027. That’s after flat volumes and a rise in value by 6% last year. The outlook is largely due to a bifurcation in the market, where malt-based seltzers are in decline, ceding volume to spirit-based hard seltzers, ready-to-drink cocktails and FABs.
The maturity of the segment is also made apparent by the decline in the number of new entrants: according to IWSR consumer data, the proportion of current RTD drinkers who entered the category three or more years ago has now reached 81%. Consumers are also drinking RTDs more frequently, with 45% of RTD drinkers consuming them every week in 2023 – up from 38% in 2022.
RTDs Gain Share in Serving
But RTDs are still continuing to capture a larger slice of the total beverage alcohol market. In 2018, RTDs’ share of total beverage alcohol servings stood at 2.7%; by 2027 it will have reached 7.9%.
“RTDs are expected to take share of servings from beer and wine as they are increasingly consumed at outdoor events and concerts, dinner parties and during other recreational activities traditionally dominated by beer and wine,” said Marten Lodewijks, consulting director of the Americas for IWSR in the report.
RTD cocktail consumption is likely to take “quite a bit of share from spirits,” he added, but spirits’ share of total beverage alcohol servings will increase as the category’s performance remains much stronger than that of RTDs in the on-premise.
Premiumization: Higher ABV, Fuller Flavors
Due to inflation, all beverage alcohol categories registered price increases in 2022 according to the report, but RTDs saw the largest annual rise (just over 6%) as the category continues to premiumize.
But what does “premiumization” mean for RTDs besides the shift to spirits? Fuller flavors and higher ABVs, according to the report. While innovation is coming at a slower pace overall, cocktails and long drinks are now launching at almost three times the rate of hard seltzers, accounting for more than 60% of RTD launches in the first half of 2023.
As for ABV, most new product launches in the RTD space have a mid-range ABV of 3% to 5%, but high-ABV innovation is accelerating: new products over 7.5% ABV now account for more than 30% of new product development, with 25% of those launches sitting at 20% ABV or higher.
As overall launches of RTS products have decreased in the first half of 2023 compared to 2022 (and sales volumes have also declined over the past two years), recent launches are predominantly in the premium-and-above price segments. The sub-category is now weighted heavily towards higher-ABV cocktails and long drinks – particularly pre-mixed margaritas, tropical cocktails and other classics.
The Rise of Agave
It should come as no surprise that agave is one of the RTD bases benefitting from fitting into lighter, refreshing seltzer drinks and full-strength cocktails.
Although vodka remains the most popular RTD spirit base, agave is gaining fast: 41% of consumers named tequila as their favorite RTD base, up from 35% in 2022. Among Gen Z RTD consumers, the figure is 60%. That mirrors the rise of agave spirits in general.
On-Premise Picking Up
Off-premise remains the dominant channel for RTDs – accounting for 88% of recent consumer purchases – but the on-trade is showing signs of growth, with 39% of consumers buying RTDs in the channel in 2023, up from 35% a year ago.
Of those consumers, Gen Z buy RTDs in bars and restaurants more than any other age group.