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Straight Up Payments

Your one-stop shop for food and beverage B2B payments, news, and trends. Serving up bite-sized chats every other Thursday.

Episode 2

The Rise of Ready-to-Drink

Explore the rise of ready-to-drink: what it is, where it is going, and how this impacts beverage categories.


 

Podcast 2 V3


Transcript

Amanda: (00:01)

Welcome to Straight Up Payments, your one-stop shop for food and beverage B2B payments, news, and trends. I'm your host, Amanda Edelman.

Amanda: (00:17)

Today, we're exploring the rise of ready-to-drink, what it is, where it's going and how this impacts beverage categories as we know them. I'm joined by two guests, Damien Pottinger and Trey Curry, account executives from iControl. They have firsthand experience with ready-to-drink and will be sharing their insights from two different perspectives, sales and category management.

Amanda: (00:43)

What is ready-to-drink?

Trey: (00:46)

Ready to drink is a relatively emerging kind of segment within the alcohol landscape. So it's really just all the packaged beverages that are individually packaged and ready for immediate consumption. And in there we've got a couple of different segments, so it encompasses all the seltzers that we see out in the market today, and it really encompasses all the malt and fermented sugar beverages that have been around since the early nineties. Then the new products that are starting to creep out into the market are the ones that are a little bit more innovative with some more featured and benefit-added solutions with spirit-based ready-to-drink offerings and wine-based ready-to-drink offerings. It's for immediate consumption and customers can grab it on the go.

Damien: (01:38)

Yeah, and to add to what Trey said there, it's defining where they land within the market is really happening in front of our eyes right now. They've been around for a few years, popularity waned, they've been around for quite a long time. Popularity has come and gone, but what we're starting to see is some real solid players on an ongoing basis making an impact in the industry, and we're seeing consumers with their buying power moving toward it. There are a lot of reasons that drive that but really, ready-to-drink is a prepackaged cocktail, really, you can take it anywhere with you and that's a big component to making a choice when you're a consumer in this market.

Amanda: (02:17)

Damien, you mentioned the popularity of ready-to-drink right now. What is driving the popularity in the US today?

Damien: (02:24)

Excellent question, I'm glad you asked. Really, we're seeing a lot of factors driving it and we may not cover all of them today, but a lot of it has to do with the way consumers are consuming and their power of choice. COVID is a big one. Obviously it's had an impact, both positive and negatives, but when we're talking about ready-to-drink offerings at least for at-home consumption, it's going up for obvious reasons. Less folks were, in the height of the pandemic, able to get out, get in front of their folks, go out to on-premise retail locations where they typically consume like bars, restaurants, places like that. A lot of that has shifted. Consumption has shifted back into the home, and we're seeing a big shift that way. It's not just in the home. You can take it a ready to drink anywhere that you like. That's the kind of the beauty of it.

Damien: (03:10)

I used the example of a golf course, you think about that. You're carrying beers out on the golf course or you're a bar cart moving through a golf course. Prior to having it ready-to-drink option, really, you were pretty limited in what you could offer to beers or maybe seltzers or canned products, but there weren't mixed cocktails or really a lot of offerings that you could offer. Again, this is just one example but now with the ready-to-drink, you could have a gin and tonic, you could have a vodka of soda, you could have a rum and Coke out on the golf course right alongside a canned beer selection. There are a lot of folks who would rather choose something like that, maybe a malt-based or a spirits-based drink rather than filling up on beer or maybe you just wanted another option to have.

Damien: (03:55)

Really, it's a lifestyle and consumer shifts as well. We're seeing a lot of folks shifting and it has to do with buying power. I am an older millennial and I find that we represent a big chunk of purchasing power, or the largest chunk of purchasing power in the alcohol industry and our dollars spend and our dollars will spend where we want to spend them. That's happening quite a bit in the industry that decisions are being made, shifts in long-held traditions and paradigms in the alcohol industry are really shifting toward consumer-driven decisions, experiential consumption, things like that, basically taking the experience with you and that's a big component.

Amanda: (04:31)

Wow. So do you think that ready-to-drinks will surpass other alcohol categories?

Damien: (04:36)

I think we both got some answers for that, but absolutely. Statistics and data is showing growth and adoption happening. Is it going to supplant beer as the category? Almost certainly not, but it would be a product that could really carve out some of the existing beer business. I think beer suppliers would be remiss to not be looking at those types of options, those types of offerings in the products as consumers' preferences change and shift and evolve. That's a major component. To put it simply, do I think it's going to surpass it and blow out beer? No, I don't think it's going to happen but do I think it's going to be something that almost all suppliers, if you're a major supplier would want to be aware of and have a finger on the pulse of? Yes, absolutely.

Trey: (05:26)

And I'll echo that and say, is it going to be bigger than beer like Damien said? Maybe, maybe not, but already including seltzers, it's already bigger than the spirit segment. So we're seeing a growth rate of about 12% over the next five, six years into 2028 expected for the ready-to-drink category, which in the next year or so will make it bigger than total wine from a market standpoint.

Damien: (05:53)

Another big driver, I think, a big component that's helping here too is healthy decisions or health-conscious decisions and/or having more choices. I've seen recently, I think it was hibiscus honey lemon or honey melon flavored seltzers. I've seen ready-to-drink with flavored-based spirits ingredients. You think ... I'm making this one up, but let's call it bubble gum vodka, things like that. There are consumers that are choosing with their buying power to pursue those types of choices. 10 to 15 years ago, they were not around. Again, as consumer buying power shifts, suppliers need to be aware of that. That's a big component to the RTD coming on the scene. It's not anyone specific component, there's a lot of factors driving it. I think choice, I think variation in flavor, and variety in flavor, making healthier choices or perception of healthier choices, those are all really important components for consumer when they're looking for an alcohol to choose.

Amanda: (06:58)

I didn't realize that flavor plays such a pivotal part into this, something big and bold to have in this. Is this only related to alcohol or does this come to outside of alcohol as well?

Trey: (07:11)

So the flavor is going to be something that's going to drive typically anything you see in the TBG segment, especially these days with, like we talked about, younger consumers coming into the market. We talk about millennials and even Gen Z being used to having more choices and more flavors to pick from as they look for products out in the marketplace, so that's been a differentiator so far so the market's probably a little bit saturated right now in terms of how many different types of flavors. I think you'll start to see some of the manufacturers that are out there start to refine some of their strategies a little bit. There are going to be key flavors that, regardless of who the manufacturer is or the offering, that is going to be front and center of consumers' minds. But I think what we'll start to see is a little bit more of a fine tune and rifle approach to some of those flavors.

Damien: (08:01)

There's an element of doing more with less, whether it's less labor, you have less staff, you have less products that you could offer, you have less customers coming through. You really want to maximize where you're investing every dollar. If you've got a quality product that sells well, is moving well from a velocity standpoint, as well accepted from a flavor standpoint, you don't have to reinvent the wheel to come up with new products by infusing it with new flavors, coming out with new options, coming out with new sizes. Variations, even within we'll call it the hierarchy of the ready to drink category, it'll help drive options and ultimately allow a retailer to do a bit more with whether it's the golf cart girl, or if it's the folks out at a bar or restaurant who are running on a short staff, it allows you to do more with less. That's important in this in today's market to get more of out of every dollar that you're putting in and growing and maintaining your market share and your business.

Amanda: (08:57)

How is the ready-to-drink market evolving now?

Trey: (08:59)

I think it's a couple things, really the premiumization and the innovation is really what's driving most of the growth in the market. I think what you'll start to see is more of a development of some of the base spirit offerings than the wine based offerings. We talked about some of the malt flavors, or some of the malt brands have been around that are more sugar added into them. They've been around since the early nineties so as consumer shifts and behavior starts to change in the marketplace and people are more concerned with better for you options, having a differentiator, whether it's an added benefit or less sugar, less alcohol, that starts to become more of a premium as consumers start to look for different choices. We're seeing a lot of that driving the market.

Trey: (09:47)

We've also talked about cost-effectiveness for the overall segment. If you have one to two bartenders serving ready to drink cocktails, they can basically crank out 3, 4, 5 times what a single bartender could in an on-premise location in terms of having to make the drink using all the ingredients, there's less waste so there's less shrink involved. Really those are two huge things that are so starting to drive the segment.

Amanda: (10:16)

So where can you find ready-to-drinks?

Trey: (10:19)

Retail is the big driver in terms of the overall market in terms of on-premise or off-premise, but you look at a lot of the supermarkets and hypermarkets and the big banners like Target, Walmart, and a lot of the club stores, that's where you're seeing a lot of the volume being driven in the industry. But I think as this whole category starts to evolve a little bit more and more players come into the fold, you're going to start to see it evolve more in on-premise as well. It's something to think about for restaurant operators or anybody that operates in the on-prem segment to start to understand what's really driving these consumer needs and the market. It'll start to kind of proliferate into the on-prem segment as well.

Damien: (11:04)

Absolutely. When you're talking about products to consume in the on-premise, there's a big component, and it's not exclusive to the on-premise, but the experiential experience along with the consuming of the said product is really important and commanding market space, commanding shelf space, commanding that eye of the consumer, as they're moving through the aisle to make a decision, having a product that stands out, whether it's health, conscious, whether it's exciting new flavors, fantastic packaging, we're seeing all of that. One of the big components that is driving it is they're bringing in the value-added benefits to kind of mirror what Trey had talked about earlier. There are benefits to consuming here to the consumer, but also back to the supplier as well and they're well aware of it. They're able to bring quality increase or maintain the perceived level of quality or uniqueness or exclusivity without sacrificing on flavor, on giving up on price points.

Damien: (12:07)

Essentially their mean, it's a tool that allows the supplier to really bring value front to back and an increased value without having to make sweeping changes or start over type changes with the products from a, whether it's marketing and analysis or breakdown of data flowing through that you're using to make that or client and customer feedback, it gives the suppliers a tool to remain relevant, remains at a high quality, remains at a high price point, but offer a nice wide selection. It's just really ultimately a big piece of doing good business and selling a lot of products like that is meeting consumers where they want to be met, essentially meeting consumers where they are. On-prem is growing and that experience component is growing. You can only imagine trying to run out to a patio or run out to a bar. If you've got a bar that's now half of your patrons are outside, shaving a few seconds off of each server, adding a few dollars to each ticket is really important, and it's a tool that these suppliers can use to kind of get into consumers' mouths, into their pockets, into their pocketbooks. That's what we want. That's what they want them doing.

Amanda: (13:14)

Thank you. Thank you so much for sharing this today. Thanks for joining us for Straight Up Payments. I'm your host, Amanda Edelman. We'll see you next time. Cheers.

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