Last month The Coca-Cola Company and Brown-Forman announced the launch of a new Jack & Coke ready-to-drink (RTD) product— but eager U.S. drinkers will have to wait. The new beverage will first launch in Mexico, sparking the question: as RTD growth spreads globally, where are major suppliers headed next, and what will they be looking for?
RTDs have exploded in recent years in the U.S., and the category is picking up elsewhere too. The countries of Australia, Brazil, Canada, China, Germany, Japan, Mexico, South Africa, UK, and the U.S. represent more than 85% of all RTD volumes worldwide, and alcohol data company the IWSR forecasts an approximate +15% compound annual growth rate (CAGR) from 2020 to 2025 for RTDs across those markets, compared to about +1% CAGR for total beverage alcohol during that same period. Cocktails and long drink RTDs, like Jack & Coke, are especially popular in countries such as Australia, Germany, Canada, and Mexico, with their popularity expected to continue.
The Coca-Cola and Brown-Forman announcement provides a glimpse of how larger non-alcoholic beverage companies are strategically partnering to build on their global brand equity. Coca-Cola has now built up a roster of mashups: launching Topo Chico Hard Seltzer and Simply Spiked Lemonade through its partnership with Molson Coors Beverage Company, as well as Fresca Mixed, a spirit-based ready-to-drink cocktail produced and distributed by Constellation Brands. PepsiCo has similarly partnered with Boston Beer Company for the launch of Hard MTN DEW. For these beverage giants, launching any new product has the potential to show growth, and the right market can maximize it.
“I think that for these large companies that are in that beverage industry, every year growth gets a little bit harder,” said Dale Stratton, Managing Director of strategic insights and data at Azur Associates. Stratton was previously the Vice President of Commercial Insights at Constellation Brands, working across their Beer, Wine, and Spirits divisions. “This is an area that they have zero share of, so any growth that they get out of this is just growth on the revenue side.”
As companies consider the next international market to jump into, distribution and production infrastructure are key components. Brands with local bottling and distribution networks have a leg up on newer or smaller companies who would incur dramatic costs establishing those capabilities.
“Both Coca-Cola and Brown-Forman have strong distribution muscle in Mexico,” said IWSR COO of the Americas, Brandy Rand. “They also already know the market and have production and supply infrastructure, as well as marketing experience to continue to develop the RTD segment in Mexico.”
Countries are then narrowed down by balancing market potential with production capabilities.
“They want to make sure that they are not going to run out of stock. So they figure out what’s the projection on the market, then they start narrowing that down to where they hit that sweet spot that is a big enough market that fits in the current capability of production,” said Stratton.
Companies will also be looking to launch in places where they can gather effective data and learnings. Beam Suntory is a leading player in the Japan RTD market with canned chu-hi -196° and other RTDs, and is using that experience to push other products into new countries.
“Something we’re really proud of at Beam Suntory is our east-meets-west advantage and we know there is much that we can learn from Suntory’s RTD leadership position in Japan,” said Heather Boyd, Managing Director of U.S. RTD at Beam Suntory. “Our U.S. team is working closely with our team in Japan to apply learnings and best practices for scaling our RTD capabilities to support our growth ambitions in the U.S.”
The company brought 196° to Australia in May 2021, expanded On The Rocks to Canada and introduced Canadian Club RTD products across Canada and Australia. The company will continue bringing its spirits brands into RTD products with both spirits-based RTDs and as malt-based beverages through its venture with Boston Beer Company, added Boyd.
For Jack & Coke, Mexico has promising demand indicators: alternative refreshing drinks to beer are in strong demand, and whisky is grabbing share from tequila in spirits, according to Rand. Plus, the size of the RTD market has nearly tripled in the last 20 years, and doubled in the last 10, according to IWSR data. Cocktails and long drinks account for roughly 50% of RTD volumes in Mexico.
“Urbanization, commuting hours and a search for convenience, the RTD segment has grown hand in hand with the development of the convenience retail channel in Mexico, are key trends in Mexico,” said Rand.
The Coca-Cola Company’s chairman and CEO has also mentioned that the company is planning to release further RTD cocktail lines in Brazil, which alongside Mexico is the largest beverage alcohol market in Latin America.
While Coca-Cola and Brown Forman are leveraging the success of a former Jack & Cola RTD iteration, there are factors to keep an eye on when bringing a global proposition into the market. As an example, former Anheuser-Busch InBev executive Felipe Szpigel recently merged high-end, RTD canned cocktail brand Five Drinks Co. into a new beverage venture platform called Better Drinks, which will bring several Brazilian brands into the U.S. But when launched in Brazil, the company tropicalized some of the cocktails to meet the unique palate expectations of consumers in Brazil.
“The RTD category is still a young category in Brazil and consumers are still adapting, learning and experiencing,” he said during an interview in April.
Local flavors and preferences can factor into a product’s success. RTDs are very much a category that caters to evolving consumer trends and must constantly adapt, said Rand.
While there are some universal flavors, there are flavor combinations and local fruits that make sense in certain markets as they fit into the cultural landscape. And while whiskey and coke might be a classic combination, that doesn’t mean everyone drinks it the same way.
“Not everybody builds their preference to the same ratio of those two ingredients,” said Stratton.
To gauge success, Stratton imagines spirit companies like Brown-Forman moving into RTDs will be looking at cannibalization in each market.
“If I’m a Brown Forman, I’m going to be tracking Jack Daniels sales— so if all I do is trade people who were buying Jack Daniels and buying a six pack of coke to a premixed version, and now I’m not growing my business, then I’m just cannibalizing my current business,” he said.