PepsiCo is coming for The Coca-Cola Company’s co-branded canned cocktails, announcing a new partnership yesterday with Diageo-owned spiced rum Captain Morgan.
The ready-to-drink (RTD) cocktails, which made their debut exclusively in the U.K. yesterday, pair Captain Morgan’s Original Spiced Gold rum with zero-sugar Pepsi Max in both 8-ounce and 12-ounce cans. This is the Pepsi brand’s first foray into bev-alc in the U.K.
“PepsiCo is always looking for new opportunities to meet the changing tastes and demands of consumers by bringing new, innovative products to market,” said Natalia Filippociants, general manager of beverages at PepsiCo UK in a release. “Our partnership with Diageo brings together two drinks powerhouses who share the same passion for innovation.”
In the U.S., the soda giant has put its efforts into bev-alc via a different brand: Hard Mtn Dew, which transitioned from PepsiCo’s Blue Cloud Distribution to Boston Beer Company’s beer distributor network in February. PepsiCo shifted its ready-to-drink alcohol business model, moving to brand licensing and flavoring sales model and away from distribution. Since then, Hard MTN Dew sales have struggled, down 10.9% in the two weeks before September 7, despite performing better than the 15.3% decline in the 12-weeks.
The news follows a similar playbook to the rollout of Coca-Cola’s Bacardi Mixed, which will enter Europe and Mexico in 2025. Coca-Cola’s two previous RTD entries, one with Brown-Forman owned Jack Daniel’s and another Pernod Ricard’s Absolut Vodka, also tested abroad before launching in the U.S. In March, PepsiCo’s 7Up brand launched a RTD collaboration with Anheuser-Busch InBev in Canada, called Svns Hard.
For Diageo, which has faced a challenging year, the product represents another step into the main growth driver for spirits. The rise of spirits-based RTDs has lured Diageo to primarily leverage some of its higher-end brands into the space. But the company has also pushed Captain Morgan into RTD formats including a collaboration with Vita Coco and malt-based Captain Morgan Sliced, which debuted in February. Diageo is likely aiming to recruit a younger base into the rum brand’s fold, as Captain Morgan lost both category and spirits industry share in fiscal year 2024 (with sales -6%) primarily due to declines in the Captain Morgan Original Spiced line.
RTDs Still Growth Drivers, But Crossover Brands Face Headwinds
The move comes as all major categories except RTDs (volumes +2%) shrank from January to July 2024 in the U.S., according to data released this week from the IWSR. Spirit-based RTDs now account for over 16% of category volumes in the U.S., following strong gains in the period. While RTDs overall were up by 2%, spirit-based products grew 11%.
The Coca-Cola Company has certainly spread its wings into the RTD category more than its soft drink rival. While Jack & Coke was the first to sport the cola trademark, the company’s portfolio includes several brands managed by its bev-alc subsidiary Red Tree Beverages, Minute Maid Spiked wine-based cocktails, as well as several other products through licensing agreements with bev-alc companies: Topo Chico Hard Seltzer, Simply Spiked and Peace Hard Tea with Molson Coors; and Fresca Mixed with Constellation Brands.
But despite innovation this year in RTDs, the most mature crossover non-alc brand families (Coca-Cola, Sunny D, Topo Chico, and Vita Coco) are failing to cycle their initial launch sales. A recent report from Bump Williams Consulting’s (BWC) isolated 21 crossover RTD items that launched during the first half of 2023 or earlier; collectively, their dollar sales have declined by 50% versus a year ago.
Sales from brand families that have extended into RTDs (versus the new RTD brands such as High Noon) in general have slowed over the past year, according to the same report. The top 13 extension brand families represent 12.8% of RTD dollars, down 4 share points YTD versus last year. Among extensions, there are only three that are managing to grow dollar sales versus last year, and only one (Absolut) that has managed to gain share of the spirits- and wine-based RTD segment.