09/05/2024

RTDs in Mexico continue to show growth potential

IWSR data shows that Mexico’s RTD market is set for expansion, driven by brand owner investment, favourable demographics, and a large beer market from which to steal share.

Mexico’s RTD market is well-placed to benefit from the flavour boom that has swept through the country in recent years – and tequila-based RTDs are poised for a resurgence on the back of falling agave prices.

Despite pressure on consumer spending amid a worsening economic backdrop, RTD volume growth in Mexico continued – building on the strong gains recorded in 2022, when category volumes rose by +12%, according to IWSR data.

“Despite hefty price hikes due to the rising cost of raw materials, volume growth for RTDs in Mexico continues,” says Jose Luis Hermoso, Research Director for Central and South America, IWSR. “The category remains buoyant and is expected to continue to grow, driven by favourable demographics, expansion of the convenience retail channel, and strong investment from multinationals. These companies are now fully committed to developing the RTD category in a market that is increasingly mature.”

IWSR forecasts show that RTD volumes in Mexico will grow at a CAGR of +5% between 2022 and 2027; however, the category will still represent less than 2% of TBA (total beverage alcohol) sales at the end of the forecast period, leaving ample headroom for future growth.

Thanks to their accessibility, RTDs appeal particularly to the younger legal drinking population, with 64% of category consumers either Millennials (47%) or Gen Z (17%), according to IWSR consumer research.

The value equation

For brand owners, category margins are tight and the barriers to entry are high, with longstanding RTD brands benefiting from their large volumes and maintaining market share. Local production is essential to keep costs down.

Despite this, RTDs are relatively expensive in Mexico; on a per-serve basis, only wine costs more. “RTDs are generally double the price of beer per serve, and there is almost no innovation happening at the value end of the RTD market,” says Hermoso.

“In the current context of squeezed disposable income and downtrading, new propositions at lower price points could appeal to some drinkers, luring them away from full-strength spirits and other more expensive options.”

Agave trending

Tequila-based RTDs lead the category in Mexico, preferred by 67% of RTD consumers (versus 51% for vodka-based RTDs and 45% for whisky). But, despite tequila’s status as a national icon, brand owners have been deterred from launching RTDs using the spirit by soaring agave prices and huge demand for tequila in the US.

But this is changing now, in line with general market trends, says Hermoso: “High agave prices have discouraged innovation in tequila-based RTDs, while benefiting spirit bases that are cheaper to produce, such as vodka,” he explains.

“The cost of agave is now falling, bringing more innovation in tequila-based RTDs, which continue to be in demand. This may lead to more activity in the value price segment.”

Demand for seltzers waning

Hard seltzer launches had dominated the RTD innovation space in Mexico in recent years, but this is waning as the segment suffers from the non-rotation of items on-shelf. Too much supply – and too little demand – has resulted in unsold stock nearing its expiry date.

Despite high levels of investment from big companies and evidence of consumers being open to trialling the products, hard seltzers simply haven’t taken off in Mexico, with IWSR forecasts predicting a steady decline in consumption between now and 2027.

“Some hard seltzer brands have exited the market because of poor sales,” says Hermoso. “This RTD sub-category remains largely misunderstood by the vast majority of Mexican consumers.”

Flavour explosion, mojito opportunity

The Mexican market has seen a flavour boom in the recent past, not only in RTDs, but also in the full-strength spirits category, with rum, vodka and even brandy getting involved. This has spurred a wave of innovations, with 85% of new RTD product launches between mid-2002 and mid-2023 fruit-based.

“Among leading RTD brands, the grapefruit-based paloma cocktail remains the most popular, encouraging brand owners to include a grapefruit version in any new product development. Citrus-flavoured drinks like the margarita are also in demand.”

However, NPD activity is lagging well behind the stated demand for mojitos. Despite a strong preference for the cocktail among Mexican consumers, only 8% of RTD cocktail launches were mojitos between mid-2022 and mid-2023 – compared to a combined 50% share for palomas and margaritas.

A format that fits

Single-serve RTDs remain the single most preferred packaging format – mentioned by 33% of RTD consumers in Mexico – but there is growing interest in larger formats that offer greater value for money.

Multipacks and larger formats are preferred by a combined total of more than 50% of RTD consumers surveyed in IWSR research. “These larger formats help to reduce the price per litre of RTDs, and are doing better than single-serve formats in the currently challenging economic conditions, which have squeezed disposable incomes,” explains Hermoso. New Mix and Vina Real, for example, have well established 2L PET formats on sale in the convenience store chain Oxxo.

Multinational investment continues

The Mexican RTD market continues to see investment, from internationals as well as local players. In May 2023, Diageo and FIFCO partnered to launch Smirnoff Smash for the Mexican market. FIFCO is also investing in its Seagrams Escapes and Bamboo RTD lines. Meanwhile local players Kosako and newcomer +Kool are also investing in the category.

Continued brand owner investment – alongside flavour innovation, larger formats and favourable consumer demographics – is driving a positive outlook for Mexico’s RTD market.

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