29/01/2024

How Australia is reinvigorating its RTD market

IWSR analyses the growth drivers and outlook for Australia's evolving RTD landscape

Australia’s mature RTD market has delivered strong growth in recent years, thanks to a ceaseless process of reinvention encompassing premiumisation, innovation and an array of contrasting consumer trends.

The third-largest RTD market in the world, the country has one of the highest per capita consumption rates. Australia’s RTD scene boomed in the 1990s and 2000s, was hit by tax hikes post-2008, but has since bounced back strongly.

Enjoying continuous volume growth since 2018, RTDs in Australia grew by +7% CAGR, 2018-2022, taking a 13% share of the total beverage alcohol market.

“This is a sizeable, mature category that is being reinvigorated by the refreshment and premiumisation trends,” says Sarah Campbell, APAC Head of Research, IWSR. “The RTD category is dominated by dark spirit-based drinks that have come under pressure in the face of moderation trends. This has led to the launch of more zero-sugar and soda-based variants, keeping interest in the category alive.”

Innovation focuses on moderation trend

As innovation continues, RTDs are expected to continue to take share from other segments, particularly as a result of new products that successfully leverage health and moderation cues.

“IWSR consumer data suggests RTDs are primarily stealing share from beer,” says Susie Goldspink, Head of RTD Insights, IWSR, “but there are interesting differences in age groups, with the LDA Gen Z cohort most likely to replace spirits with RTDs, and Boomers most likely to replace wine.”

Cocktails and long drinks dominate the RTD category in Australia with nearly 70% of volumes, but the segment is losing share to FABs and hard seltzers and recalibrating as a result – having recently seen strong investment in light spirit offerings, rather than its traditional dark spirit base.

Meanwhile, FABs are reinventing themselves, surfing a wave of contrasting and apparently contradictory consumer trends: lower-calorie, higher-ABV, light and refreshing products on one hand; brightly-coloured, very sweet and low-ABV drinks on the other.

“FABs currently have multiple sweet spots,” explains Campbell. “It is crucial for brand owners to acknowledge that ‘moderation’ has numerous guises: for some, it means cutting down on alcohol; for others, it’s about fewer calories.”

Meanwhile, hard seltzers are expected to continue to grow off a small base between 2022 and 2027, but far more slowly than in the past few years as recruitment and consumption stabilise.

“The hard seltzer segment is maturing rapidly, and is already replicating many of the NPD trends seen in the US, with recent launches focusing on higher ABVs and fuller-flavoured offerings,” says Campbell. “The segment is expected to plateau, sustained by ongoing flavour innovation.”

Pricing strategies

RTDs’ ongoing premiumisation trend is reflected by category pricing: on a price-per-serve basis, they are considerably more expensive than other categories – partly a reflection of the fact that spirit-based RTDs (which dominate) are taxed at the same level as spirits.

Standard-priced products still dominate the RTD category, accounting for more than 75% of sales by volume and value. However, the premium segment has expanded from 8% of sales in 2018 to close to 12% in 2022, with new launches strongly weighted towards higher price points.

“Both the cocktails/long drinks and FAB sub-categories have seen the emergence of premium products – from higher-ABV variants to RTS offerings that replicate bartender-made cocktails – providing shoppers with a clear quality ladder to trade up through,” says Campbell.

Considerations for the future

Before now, this pricing dynamic has failed to deter Australian consumers, who have been prepared to pay a premium for the convenience that RTD products offer. But, with much innovation coming in the spirit-based RTD space, which attracts the highest levels of taxation, there are concerns that this might change in the future.

IWSR consumer research from November 2023 (Bevtrac 2023 Wave 2) showed that alcoholic products were one of the top FMCG categories where Australians were spending less, and recalled spend on RTDs had declined significantly since the first wave in July.

“As excise rates continue to escalate (two increases at 3.7% and 2.2% in 2023, in line with CPI), there is the risk that the headline price of RTDs could become too high for some shoppers, forcing them to trade down within RTDs, or into other categories with a lower price per serve,” explains Campbell.

“There is early evidence of some RTDs being reformulated with lower ABVs, or offered in smaller pack sizes, in an attempt to maintain headline pricing. With RTDs having an already high price per serve, such changes look inevitable to avoid price ceilings and maintain the category’s recent dynamic growth.”

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