Unless you were off these past months, you will have noticed the rush on Ready To Drinks (RTDs) such as Lo No alcohol, canned cocktails, CBD etc... RTDs are taking by storm the alcohol beverage industry as proven by double digits growth (IWSR). If you are a wine of a spirits producer, this seems to be the right moment to launch an RTD ? WRONG. Don't do it unless you can meet following 3 conditions.
RTD's have 2 differences vs. wines and spirits that require meeting specific conditions to play with success. The first difference is a much lower gross profit per unit. This means that in oder to make the same gross profit than (e.g.) spirits, one needs to move much more volumes of RTD, with the adequate logistics and production capabilities.
The second difference, is the expiration date. Wines and spirits are seldom used to the idea of "best before" dates. In fact, it often is the contrary with very old releases and romantic stories on vintages... In RTD's, the products have to rotate fast to avoid the issues of expiration that so many FMCGs are familiar with. Hence the importance of the 3 conditions below to succeed in RTDs.
- A strong brand to start with: RTDs need to build volume to generate the gross profit required to reinvest in the business. A strong brand with established distinctiveness and equity will help drive the acceptance and volumes. This why so many spirits, like Smirnoff, line extended into RTDs. If you dont have a strong brand in your category, think twice or find a way to driver equity quickly, like partnering with a celebrity.
- The ability to invest ahead: not only RTDs need to scale up volumes, but they also need to drive off-take and rotation. To achieve this, and RTD brand needs media (on and off line) and promotions, which in turn often translate in important marketing budgets and investing ahead. We see many brands launching RTD with initial media bursts, but these will have to be sustained in the future, and not many Spirits and Wines players are used to this cash flow type.
- The ability to produce at scale: the minimum order quantities (MOQ) in RTDs must be considered with care, especially in this items of cans high demand. It is not rare to see MOQs of several containers, so unless you know you can secure oder for these quantities, stay away from this category.
Does this mean RTD's are not for you ? Certainly not, and success stories such as White Claw and Fever Tree (although not strictly RTD, but playing in the alcool space), show there is always space for innovations. However, these brands also succeeded because they struck strong insights and where from the start supported by volume drinks professionals.
Last, there is one category which often meets the above mentioned conditions: beers. Indeed beer players have big brands (or know how to build partnerships at scale), they have the cash to invest ahead and to produce at scale. No wonder that Heineken and AB Inbev are investing heavily in RTDs. This also means that playing in RTD's means expanding a competitive set to new categories such as beers and therefore one needs to be able to resist to this competitive pressure.
We hope that we did not discourage you from branching into RTDs. After all, this is a very exciting category and many will not want to miss the train. But if you want to build a strong brand, rather than launch whatever in an opportunistic fashion and see "if it sticks on the wall", do contact us, you will not regret it : our innovation team has contributed to build many of the most iconic drinks brands and we have the expertise to position and market your brand for success. [email protected]