What’s Next for Pre-Mixed RTD Cocktails?

Ready-to-drink (RTD) beverage alcohol consumption has grown 104% in the past two years, according to NIQ, but how are trends shifting for spirit-based RTDs, and what are the next big opportunities for producers?

After a meteoric three-year rise – from $3.2 billion in 2018 to $8.9 billion in 2021 – sales of ready-to-drink (RTD) cocktails and hard seltzers leveled off in 2022, according to Circana’s State of Beverage Alcohol industry report. Those malt-based seltzers, in particular, have struggled to keep momentum, dipping from $4.7 billion in sales in 2021 to $4.4 billion towards the end of last year.

That’s because, despite a slight slowdown in premiumization this year, consumers are still trading up and driving long-term growth in categories like tequila and bourbon, as well as RTDs. More consumers are adapting a “less but better” philosophy, which bodes well for those spirit-based options. In 2022, the volume sold of premium RTDs rose 38%.

While overall growth may have leveled off, the thirst for new canned boozy options has not dried up. When seltzer brands like White Claw and Truly launched, they were among a limited set of options that helped jumpstart sales. Now, the mass proliferation of RTD offerings makes it difficult for consumers to stick to one product or type, and brands are trying to keep up.

“RTD has such a fast rate of innovation, I think the last time I checked 20% of the dollars comes from innovation,”

said Andrew Esstman, Director of RTD strategy for Beam Suntory at NIQ’s 360 conference this summer. “You can’t just launch a product and forget about it, RTDs are different from a spirit offering, they are products that people are buying every day so you really have to be agile.”

But as RTD brands and producers from outside the adult beverage category experiment with different types and formats of spirit-based offerings, the producers know that the biggest opportunity lies beyond innovation: it’s channel proliferation, accessing those accounts where they haven’t yet been able to go.

After Vodka and Tequila, What’s Next?

But don’t discount innovation. There’s plenty of room for new varieties. With tequila and vodka battling it out to be America’s favorite spirit, it’s no surprise that the two are also most frequently mixed into RTDs. Vodka and tequila-based RTDs make up 77% of total dollar sales (60% and 17%, respectively), according to an analysis of NielsenIQ data from 3 Tier Beverages. The top seven cocktail types under cocktail RTDs are all vodka and tequila based, and six of the top 10 SKUs in cocktail RTDs are variety packs, all tequila and vodka based.

Leading brands High Noon and Cutwater have maintained their hold on the segment; dollar sales for the two brands have grown 75% and 39% YoY in the last 52 weeks ending July 15. Like other brands, High Noon recently jumped on the opportunity to appeal to a growing audience of tequila drinkers. The company launched its tequila seltzer in March, with the goal to reach the tequila-first customer.

It’s not the only brand to enter the category this year: Molson Coors expanded to spirits with Topo Chico Spirited and Boston Beer Company is also testing its spirits-based Truly Tequila Soda this summer.

The increase in RTD tequila and vodka brand families reflects how quickly the category as a whole has grown: since the start of 2021, vodka-based brand families have gone from 139 to 261, and tequila bases have more than doubled from 60 to 135, according to 3 Tier Beverages.

The quick proliferation of products has bled into whiskey, gin, and rum-based RTDs too, which make up 34% of total brand families available in the market, even though they only bring in 18% of total dollar sales for cocktail RTDs. However, the distribution growth of RTDs with those bases points to openings on the shelf.

​​”If I look at rum or whiskey or gin, they’re all still growing dollar sales by an impressive amount and they’re all growing their distribution a ton,” said Stephanie Roatis, a consultant at 3 Tier Beverage.

Weighted distribution for vodka and tequila-based RTDs only increased by 3 and 3.8 points respectively in the last 52 weeks, less than RTDs with rum (6.5) American whiskey (7.5) and Canadian whiskey (18) bases.

“These aren’t necessarily taking away dollar sales from the other alcohol basis, but rather shelf spaces are opening up for other placements and things outside of vodka and tequila are taking its place,” Roatis said. “I just think the category is still expanding.”

For example, whiskey and cola (+86%) and gin and juice (+122%) are outpacing total category dollar growth, and big brand names are finding running room off of those different spirit bases. One of the brands driving whiskey and cola is Jack Daniel’s & Coca-Cola canned cocktail, which launched in the U.S. in May and combines two of the world’s most recognizable beverage brands in one packaging. Heineken also recently launched a spirit-based portfolio extension for its Jamaican beer, Red Stripe Rum Drinks.

But innovation in RTDs isn’t just about what’s inside the bottle. While 60% of the 20 most popular products released on Drizly in April, May, and June came in a single-serve format, other ready-to-drink (or pour) formats are picking up.

RTD growth was 7% over the last 52 weeks (as of May 13) in off-premise channels, but the premium plus ready-to-serve segment clocked 105% growth, or $298 million in sales. One of the most popular new offerings on Drizly sits in that category, Jennifer Lopez’s recently launched Delola Spritz, a group-sized spritz variant in a 750-ml bottle.

Delola has been joined by other ready-to-serve premium debuts, including Grey Goose’s Martini and William Grant & Sons’ Milagro Margarita.

Battle for the C-Store

With recent premiumization and home-premise trends, innovation in the premixed cocktails space represents the opportunity to meet consumers looking to treat themselves in a more affordable fashion.

“RTD is skewing much heavier to the Friday wind-down occasion, and that’s where the bulk of the opportunity will be,” said Jon Berg, VP of Beverage Alcohol Thought Leadership at NIQ.

But first, availability has to ramp up. Legislative efforts are heating up in an effort to increase those opportunities.

Lobbying for legislation that expands the reach of spirits-based RTDs, as well as the reduction of states’ excise tax rates on them, is a priority for industry trade groups like the Distilled Spirits Council of the U.S. (DISCUS), which has argued that products with similar ABVs, regardless of the alcohol base, should be treated equally.

Much of that effort is to provide spirits-based RTDs with access to the convenience and grocery channels, which in some states restrict spirits or high ABV products.

“The C-Store channel is the one to watch,” said Berg. “This is where the Beer business ‘lives’ and it’s where RTD gets some of its biggest consumer pull through.”

As it stands, only about 20% of C-stores are able to sell spirits, he added. Until spirits-based RTD’s can get on a level “availability” playing field with beer and malt-based RTDs, obstacles remain high – but so does the overall opportunity. As laws shift, the SKU rationalization process could change overnight, impacting C-stores the most.

“In other words, the sales threshold to stay on the shelf might take out brands that otherwise thought they were meeting expectations,” said Berg. “RTD is still the wild west, at least for a while.”