IWSR: Can RTDs Save Premium Vodka Brands?

The volume compound annual growth rate (CAGR) for premium and above-premium vodka in the US market has steadily decreased since 2015, dropping -3.1% from 2015 to 2019, and -3.5% in 2020 alone, according to the market research firm IWSR Drinks Market Analysis.

With IWSR predicting the segment’s CAGR to drop an additional -2.4% from 2021 to 2025, vodka brand owners have been tasked with figuring out where premium vodka fits in a post-COVID-19 marketplace.

So, what is IWSR’s solution? Ready-to-drink (RTD) canned cocktails.

Other hard liquors such as bourbon, scotch, tequila and rum have “maturity-related” pricing, which consumers understand creates a premium along with different tastes and flavor profiles. However, vodka lacks that aging element.

“The differing taste profiles between standard and premium vodka brands are so nuanced that the average consumer doesn’t feel the need to trade up to premium-and-above offerings,” IWSR research director Adam Rogers said in a recent blog post.

The advantage vodka boasts is “neutrality in flavour,” which IWSR said makes it poised to be the go-to base for RTDs — a segment that has been gaining traction alongside the hard seltzer segment.

Of the RTD products launched in the U.S. in 2020 — including spirit-based and malt-based beverages — spirit-based RTDs accounted for 40% of SKUs, with vodka holding the largest volume share, according to IWSR. In addition, 51% of RTD consumers in the U.S. claim that vodka is their favorite base for RTD offerings.

“The increase in hard seltzers has propelled the vodka category to showcase products that can offer a similar taste, but with a more premium alcohol base,” Rogers said. “Through RTD brand extensions, premium vodka brands have revived interest in the vodka-and-soda, while offering more convenience in packaging and [service]. This also keeps consumers invested in the brand across different occasions.”

RTDs can also act as a gateway to premium brands for consumers, according to Alex Tomlin, SVP of marketing at Bacardi North America, told IWSR.

“RTDs are a great way to convert people to the spirits category, with proprietary research showing that 65% of RTD drinkers [are] new to the brand, with a large number of those drinkers going on to purchase the spirits brand later,” he said.

RTDs have grown at 15 times the rate of hard seltzer on Drizly, according to the e-commerce alcohol marketplace in its 2021 Consumer Report. IWSR predicts RTDs (including hard seltzers) to grow from 10% to 20% volume share of total beverage alcohol by 2025, surpassing wine’s share by the end of 2021.

“The growth of RTDs and the growth of hard seltzers has really been a bit of a unicorn, a game changer when we start talking about really being a permanent or a new category that’s really changed the dynamic of total beverage alcohol in the U.S. market,” Brand Rand, chief operating officer for the Americas for IWSR, told Brewbound in a recent Data Club. “If I’m a spirits company and I know that my target consumer is drinking hard seltzers, then I want to create an opportunity for them to stay within the branded experience.”