Ready-to-drinks (RTDs) are one of the fastest growing categories in beverage alcohol, but between confusion of how to define the segment, obfuscation of base alcohols, and murky ownership structures of certain brands, it can be difficult for consumers to know what they’re buying and who’s making it.
Many consumers cite “authenticity” as a selling point when seeking out products, and RTDs are no exception. However, without a universal definition of this elusive term, any company can present themselves as “authentic” without clearly identifying any tangible characteristic. Similar to Anheuser-Busch InBev’s craft beer portfolio, the world’s largest beer manufacturer’s growth and innovation arm ZX Ventures is leveraging this cryptic term into a useful marketing tool for launching new RTD brands.
Dogfish Head co-founder Sam Calagione sees plenty of similarities between beer and spirits-based RTDs in how macro corporations are entering the space and why they are succeeding, despite the huge number of products already available. “The world’s biggest brewing conglomerates are impactful at getting their products placed in high profile locations in the high volume accounts because they have the market share and market power to do so,” he explains.
Cheryl Durzy, founder and CEO of craft spirits and wine distributor LibDib, agrees there is plenty of overlap between all of the beverage alcohol segments. “The macro vs. micro conversations I think are similar throughout all adult beverage categories,” going on to cite “unique,” “local,” and “authentic” as major consumer value points. “I think the malt beverage space has created an opportunity for cocktail RTD’s to join the ‘party’ and think differently when it comes to the uniqueness of their brand’s offerings and distribution strategies.”
The RTD “party” is projected to reach a $1.63 billion valuation in the next few years, according to a study by Grand View Research, Inc. Andrew Levy, head of strategic partnerships at Provi, an eCommerce marketplace for the alcohol beverage supply chain, breaks down how many products entering the space are small, independent brands and how many are part of a global portfolio.
“Just in 2021 so far, 343 different suppliers have sold a new RTD product on Provi. However, only 4% of those suppliers account for over 32% of the SKUs launched,” he says. “This is because large companies have the marketing budgets, operational capabilities and established routes to market that better enable them to essentially ‘flood the zone’ as new consumer trends emerge.”
This veneer of equal entry can provide competitive challenges to smaller brands — but occasionally, it also pushes them to discover surprising innovations. “It can be intimidating to compete on a micro level when the macro-backed entrants have seemingly unlimited budgets, connections, and a well-known brand name to lean back on,” says Allyssa Birth, brand manager for CanBee Cocktails, an independent RTD brand that launched in 2020. “The good news for us is that since there are so many options, savvy consumers are holding all brands — both big and small — accountable for taste and ingredients. … We feel there’s plenty of room for micro brands like ourselves to make a macro-sized splash in the marketplace.”
How Macro Companies Are Approaching RTDs
In a recent email newsletter, alcohol delivery platform Drizly identified some new entrants into the RTD space that continue to dominate its sales sheets. “High Noon went crazy last summer, but the (mostly) canned, ready-to-drink early adopters this year are popping tops from brands old and new like Drizly fast-movers Ranch Rider, Bacardi and Kahlua,” Drizly wrote.
Liz Paquette, head of consumer insights at Drizly, reports that Q3 2020 RTD sales were up 1,715% from Q3 2019. Furthermore, the sheer number of RTD brands for sale on Drizly nearly doubled between 2019 and 2020.
Many of these new releases come from familiar names in other corners of beverage alcohol, like Jim Beam. The Beam Suntory-owned bourbon brand branched out in early 2021 with two RTD canned cocktails: a classic highball and ginger highball. Tequila Cazadores is another big player in the spirits space that recently crossed over into RTDs and like Jim Beam, cites consumer convenience as a major part of its decision to launch.
“We saw it as an opportunity to … show people that you don’t have to sacrifice on quality and taste to get the convenience of an aluminum can,” says brand manager Ashley Campbell. “The RTD space is very popular and competitive, but we knew we could offer something better-tasting and higher-quality.”
Provi’s Levy sees this category expansion potentially affecting other beverage alcohol segments more than cannibalizing RTDs with an overabundance of options. “RTD wine and cocktails are intruding more into the off-premise cooler space and on-premise menu space previously used by only canned and bottled beer products,” he says. “While beer brands historically only competed with each other in these spaces, with wine relegated to the warm shelf or different coolers, RTD is shaking up the cold product assortment in these on-premise and off-premise spaces.”
Macro-sized companies embracing what was originally a micro-space is nothing new in beverage alcohol, according to Brewers Association chief economist Bart Watson. “[Generally], the large [beer] brewers are clearly more attuned to niches than they used to be and more willing to experiment outside of core beer than at any time since I’ve been in the beer business,” he says. “My sense is also that big wine and spirits companies were always a bit more aware of niches and small players and started acquiring small producers much earlier and more aggressively than the large brewers, but that’s anecdotal as much as based on hard analysis.”
Global brands have yet to mimic on the same scale what they did in beer — gobbling up small brands as part of their portfolios — but based on the sheer volume of big corporation-backed RTDs launching, it seems macro beverage alcohol is quicker to the draw than it has been in the past.
How Small and National Brands Are Now Competing
While global conglomerates are reacting more quickly to join the RTD craze than they have in other segments, mid-sized American companies are also joining the fray. Rogue Ales & Spirits is the 37th largest craft brewery by volume in the United States and the 46th largest brewing company overall, according to the latest Brewers Association report. According to Rogue’s director of business development, Steve Garrett, the company launched its first canned cocktails two years ago, but it was dabbling in spirits long before that.
“We began looking at the spirits-based RTD category about five or six years ago. It made sense due to our business model,” says Garrett. “We had already been distilling spirits for more than a decade, had been mixing and serving cocktails in our pubs and had a lot of practice putting drinks into cans and bottles, so it was an obvious next step to try our hand at canned cocktails.”
Since releasing its first canned cocktails, Rogue has expanded its line to provide more flavors, such as a Lemonade Iced Tea Vodka Soda. With a robust nationwide and global distribution footprint already in place, it was easy to use the existing outlets to reach consumers familiar with the Rogue brand.
Dogfish Head’s Calagione, whose brewery merged with Truly Hard Seltzer and Twisted Tea maker Boston Beer Company in 2019, says the Milton, Delaware-based craft brewery has also produced spirits as part of its larger offerings long before the canned cocktail craze hit, giving the company a strong position of pre-existing sales channels and fans.
“We have been dialing in our Canned Cocktail recipes for nearly 20 years since we started making cocktails in our coastal Delaware locations from our scratch-made spirits 19 years ago,” says Calagione. These mid-sized, independently owned companies find themselves in a unique position: They’re able to claim freedom from global ownership, but have more widespread access to consumers than many small or new companies, thanks to both longevity and pre-existing strong shelf placement.
LibDib’s Durzy believes the capacity for RTDs has yet to be hit, even with plenty of deep-pocketed competitors. “RTD innovation with small companies is happening at warp speed,” she says, explaining that the evolution of access of direct-to-consumer channels continues to be a boon for companies of any size to connect with consumers.
Breaking Down Cost, Value, and Authenticity
Volume is one way global conglomerates can shave their margins to the bare minimum, often undercutting indie brands at face value. But Laura Johnson, founder/CEO/head of product at You & Yours Distilling, believes that a higher price tag can actually increase sales.
“Seeing as the quality of the alcohol source (real spirits distilled by us) and the ABV (7.5-8%) are far superior to those of seltzers and the like, we command a slightly higher price tag (around $14.99 for a 4-pack). We don’t mind, as this sets us apart and gives the consumer a clue as to the increase in quality,” she says. Comparatively, despite its larger pre-existing position in the spirits space, Tequila Cazadores’ RTD canned cocktails typically run along a similar price structure. Campbell echoes Johnson’s belief that quality should be accessible, but not cheap. “At this price point, we can ensure we offer an authentic, 100% Agave Tequila cocktail at an affordable price,” she says.
Due to the sheer volume of consumers switching to RTDs, Johnson isn’t worried about big players putting small makers like her out of business. “Simply put, we’ll never truly compete with big brand entries into the space (i.e. the various RTDs you see from Absolut, Ketel One, Bombay, etc.) nor brands with endless capital and resources (Cutwater, High Noon, etc.),” she says. “However, we feel our advantage is something the so-called competition cannot achieve: brand story and authenticity, as well as our full control over the production process. … We entered into the RTD space out of a purely personal desire for the product. Not because we felt like chasing a trend or capitalizing on a particular moment in time.”
That brings us back to authenticity. “What makes us different from the big guys? Simple, we are authentic,” says CanBee’s Birth. “Large brands are, in many instances, too far removed from the customer to have this connection.”
Where Do RTDs Go Now?
“The burgeoning role of DTC for RTD brands does allow for a broader and more diverse ecosystem of brands,” says Levy. “DTC can enable a supplier to quickly open new markets and collect valuable customer data which they can then use to build out a distribution network,” — good news for emerging brands. But he adds a caveat: “It is still difficult for DTC, as an alternative go-to-market strategy, to effectively compete at scale with the market penetration and growth potential that an established wholesaler can offer … for the vast majority of RTD brands, which are projected to increase to 24% of total alcohol sales by 2024 according to IWSR, the resources available through a traditional wholesaler are just too invaluable.”
Even as new sales avenues evolve, it’s likely a slew of acquisitions and partnerships are on the horizon, similar to craft beer mergers and small breweries “selling out” to Big Beer. Earlier this month, Canteen Spirits announced a distribution agreement with AB InBev as part of its Beyond Beer portfolio. “This partnership will allow the brand to leverage Anheuser-Busch’s expertise in logistics and distribution while continuing to grow at an expedited pace,” reads Canteen’s statement in part.
Regardless of who partners with who or how quickly global companies launch or acquire smaller RTD brands, Calagione believes that elusive word “authenticity” will continue to attract customers.
“I think that experience, authenticity and quality are the most critical distinction points that will guide consumers to their purchase decisions,” he says. How brands choose to interpret and embody that mysterious term continues to capture consumers’, as well as the industry’s, attention.