Survival of the fittest in UK RTDs

Reports of the death of the UK market for ready-to-drink premixed spirits have been greatly exaggerated, according to the company behind one of the leading brands, WKD.

Karen Salters, marketing manager at Beverage Brands, has rubbished recent reports suggesting that consumer interest in RTDs is waning, highlighting instead a number of factors which she claims are driving further growth in a category already worth £1.3 billion a year, according to AC Nielsen figures.

WKD is the number two brand in this category, again according to Nielsen data, and Salters is clearly frustrated that media hype surrounding RTDs might have a negative impact on sales.

While she admitted that overall growth in the category had slowed over the last few months, she suggested that this should not come as a surprise - and certainly not as an indication that there is no future for RTDs.

"We are confident that the category is very much alive and kicking, and there's a real need to bring some perspective into what's happening in the market,"​ Salters said.

"With RTDs we have a category which has been around for almost a decade so it's now reaching maturity. You really can't expect the frenetic launch activity and phenomenal growth which takes place in the first years of any new category to be sustained indefinitely. What we are seeing now is the shake-out of brands and the slowing of growth which is natural in a category which has reached this stage in its development."​

More than just duty hike​

Media reports have frequently linked the supposed decline in the category to the government's decision last year to increase the duty payable on premixed spirits, but Salters suggested that it was naïve to view this as the only factor influencing the market.

"You aren't going to witness the sheer volume of product launches that have inundated the market over the last eight years. The stakes and cost of entry into the RTD market are now a lot higher - new brands will find it increasingly difficult to make their mark without a substantial marketing support and/or a real point of difference in terms of concept, flavours or packaging.​

"Within the plethora of existing products, a significant number of RTDs which have failed to establish a strong consumer franchise are dropping out in the inevitable shake-out of brands. The long-term players and leaders of the pack are emerging, and the fact that the top three brands collectively account for around three quarters of all RTD volume sales in the on-trade [according to Nielsen data] demonstrates just how wide a gap there is between these and other contenders in the market."​

The problem is, she said, that the tendency is to tar the whole category with the same brush - while many brands are disappearing, there is an equally large number of highly successful drinks which continue to improve. She cited figures for her own brand, WKD, which she claimed had grown well ahead of the category and continued to show the strongest performance amongst the top three brands.

Sales growth in the past was also driven by the fact that many RTD brands were unavailable in the on-trade. "RTDs are now in around 80 per cent of on-trade outlets, but only a third of outlets were stocking RTDs in the mid-1990s, so there was a huge distribution gap to be filled and a bigger opportunity for instant growth. Much of that has been achieved, and a bigger proportion of the growth is now going to come from increasing rates of sale,"​ said Salters.

She concluded: "RTDs are definitely here to stay and the future of the category is far from the rather bleak picture which is currently being painted. There's still going to be commitment, investment and development from the major players who have a big stake in the category's success, and we see a lot of the future growth coming, not from new-to-market brands, but from line extensions to existing successful brands, such as WKD Silver joining WKD Iron Brew and WKD Blue and Smirnoff Black Ice extending the Smirnoff Ice range.​

"The frantic pace and scatter-gun approach to product launches which have characterised the category since its launch are now giving way to the more measured and focused approach of an established category."​

Drinks industry analyst Pat Brazzier of P.A.S.H. Beverage Research agreed that the market still had plenty of life in it.

"Although the latest H M Customs & Excise statistics show that there has been a rise month-on-month from January to May, category sales are significantly less than in the corresponding period of 2002.​

However, Karen Salters is correct in saying that the April 2002 budget increase is not the only reason for the fall in sales. There has certainly been increasing competition from other drinks categories over the last two years, from both alcoholic and non-alcoholic drinks."​

Brazzier said that almost 60 per cent of the 110 or so brands (and the 400 or so variants) in the RTD category have been around for two years or more, with a further 23 per cent introduced during 2002 "which is interesting considering that the leading producers said that the 2002 budget increase was a tax on innovation",​ he added.

He also agreed that the me-too brands were those most likely to fall by the wayside, with the only major brands to disappear being Gordon's Edge and FCUK Spirit (which was enforced by industry regulator, the Portman Group).

"Sales may not be as high as they once were but the category is still of immense importance to the drinks industry,"​ he concluded.