Another independent canned cocktail maker boarded the “mother ship” last week when Constellation Brands announced the full acquisition of Austin Cocktails.
It’s a move that’s in-step with the other global beverage companies picking up fast-growing RTD producers — but observers in the industry caution that the deal may not be the harbinger future RTD acquisitions.
“Austin Cocktails to me probably really hit the sweet spot of what Constellation was looking for because they had a very strong initiative to go support female-owned businesses and female-started business, and they wanted something in the pre-mixed cocktail space,” said Dale Stratton, managing director of strategic insights and data at Azur Associates. Stratton was previously the VP of commercial insights at Constellation Brands, working across their beer, wine, and spirits divisions.
The acquisition follows a 2018 investment in Austin Cocktails as part of Constellation Ventures’ Focus on Female Founders initiative, which promises a $100 million investment in women-led startups by 2028.
The acquisition is one in a series of large beverage companies bringing RTD products into the fold. Last year, Diageo acquired fast-growing Far West Spirits which produces the Lone River Ranch Water, and Loyal 9 Cocktails, which makes spirits-based RTDs. Diageo’s portfolio also includes malt-based RTDs from Smirnoff, and spirits-based RTDs from Crown Royal and Ketel One Botanical Vodka. In 2019, Anheuser-Busch InBev purchased fast-growing Cutwater Spirits, a craft distilling venture that was originally born inside of Ballast Point Brewing & Spirits.
But for an independent RTD brand to be an attractive addition to a global company, it requires a unique consumer proposition combined with a benchmark of success, said Stratton, who cautioned that the proliferation of new spirit-based RTDs gives bigger companies a lot of brands to choose from. That means that current M&A by no means will result in a spending spree just because a brand is in the hot category.
“They would need to find something with a good base of consumers, a proven track record and a big enough sales history in the bag to make it worthwhile to bring them in,” Stratton said.
Founded in 2014 by sisters Jill Burns and Kelly Gasink, Austin Cocktails launched long before the explosion of the RTD segment, offering full-strength alcohol content (12-15% ABV) canned cocktails with premium spirits and natural ingredients.
“Austin Cocktails and its co-founders, Jill and Kelly, are at the forefront of understanding market trends toward premiumization. The quality of their drinks is unmatched in the ready-to-drink category,” Mallika Monteiro, Constellation Brands’ executive vice president and chief growth, strategy and digital officer, said in the press release.
But as companies look to augment their portfolios with RTD spirit-based products, execution is a major factor going forward, according to Ben Settle, director of consumer and retail investment banking at William Blair. The combination of recently relaxed regulations and taxes, plus a pandemic-spurred consumer demand for cocktails at home has created what Settle described as a massive catch-up in spirit-based RTDs, a previously under-invested bev-alc segment. But the rush has also created logjams in the form of booked up co-manufacturers who are licensed for distilled spirits and equipped for volume.
“You might have this great distribution but unless you have the supply chain to be able to get the product made, you can’t recognize those synergies and that growth,” Settle said.
Those capacity limits shed light on Diageo North America’s $110 Million recent investment in a manufacturing facility in Plainfield, Illinois, expanding the company’s production capacity by more than 25 million cases.
Partnerships with long-established brands may also emerge as a safer bet for global companies considering the build-it-or-buy-it dilemma. Later this year, Constellation will also launch Fresca Mixed, a spirits-based RTD line, through a licensing agreement with Coca-Cola, which owns the non-alcoholic, grapefruit soda brand.
Both Settle and Stratton agreed that global brands will continue to inch their spirits into the RTD space, pouring their own brand equity into the segment.
“A lot of these independent brands are using co-manufacturers and they have self manufacturing at scale. I think that’s a real advantage,” Settle said. “But what is special about you? I think just having a brand that started in the category isn’t necessarily special because there’s so much brand equity adjacent to the ready to drink cocktail.”
Austin Cocktails will be integrated into Constellation’s Fine Wine & Craft Spirits Division along with brands such as High West and The Prisoner Wine Company. Financial terms were not disclosed.