Hard seltzer’s growth has slowed, and you’re a wine company trying to reach younger consumers—what do you do?
“The Wine Group is a leading player in the US wine industry, and adding an agave-based wine brand is a natural fit for our company,” Cate Hardy, CEO of The Wine Group, said in an email. “It allows The Wine Group to immediately leverage its wine expertise while simultaneously diversifying and gaining a leadership position in the rapidly growing ‘fourth category,’ which includes ready-to-drink brands.”
Hence The Wine Group’s deal last week with MPL Brands, best known for its Rancho La Gloria canned margarita cocktail. Financial terms were not disclosed, but The Wine Group says it made a “minority investment” in MPL Brands and will become the company’s sales and production “partner.”
In this, The Wine Group gains access to one of the fastest growing parts of the RTD market, which includes everything from hard seltzer to hard coffee, tea, and kombucha to canned cocktails and flavored beverages like Smirnoff ice. It has grown so quickly over the past couple of years that most analysts have given its own grouping—what Hardy referred to as a “fourth category,” after beer, wine, and spirits.
And, says data from the IWSR Drinks Market Analysis, despite hard seltzer’s setback this fall, the category remains strong. The consultancy expects RTD sales to double worldwide by 2025, with canned cocktails forecast to increase at a rate of 9 percent each year (though the U.S. is also seen as a key market for flavored beverages). That compares to an estimated 1 percent annual growth rate for all alcohol.
All told, says the October 2021 report, RTDs are expected to account for about 8 percent of world alcohol sales by 2025, up from 4 percent in 2021. Currently in the U.S., based on value, beer (36 percent) is followed by spirits (33 percent), wine (22 percent), all RTDs (8 percent), and cider (1 percent).
Christian Miller of the Bay Area’s Full Glass Research says that he sees RTD cocktails and the like as still growing strongly, while seltzer has slowed (though is still growing). The gain in RTD market share has come from losses among the biggest beer brands, while his data shows that wine is mostly treading water—wine costing more than $12 is up, as are small formats like 375 mL cans and, increasingly, smaller 187 mL packages. Meanwhile, wine costing less than $10 is down. Miller says there is some debate among analysts whether RTDs have hurt beer or wine more.
The next question: What about those younger consumers? Are RTDs a way to reach them? That will be crucial for wine brands over the next several years, according to Sydney Olson, a food and drink analyst for Mintel, writing in the company’s 2021 wine report. Wine brands must embrace emerging styles, formats, and usage to keep the category relevant with younger consumers, she wrote.
The answer for The Wine Group in regards to younger consumers is yes, Hardy said in her email.
“TWG seeks to reach consumers across a range of demographic characteristics, including age. We know that several brands in our portfolio engage with younger consumers, including Franzia and Cupcake. Rancho La Gloria is also winning with younger consumers.”
Which, according to the IWSR data, seems to be the case—up to a certain point. Interestingly, canned cocktail drinkers are a mix compared to other RTD drinkers. Hard seltzer and flavored alcoholic beverage drinkers tend to be younger, while hard coffee and tea, meanwhile, skew male.
“There are various types of RTDs—essentially there is a type of RTD for every taste which makes RTDs appealing to all demographics,” says Brandy Rand, COO of the Americas at IWSR Drinks Market Analysis. “A hard tea drinker may be different than a hard seltzer drinker or a wine spritzer or pre-mixed cocktail consumer. The variables are vast, which is why the category is booming.”
They key here is flavor, she says: “Demand for flavor and refreshment—these are the top reason why consumers drink RTDs. RTDs are meeting unmet consumer needs. Elements related to packaging and dietary benefits are also somewhat important, but ultimately the product has to taste good.”
Also important: younger consumers tend to cross category lines more readily than their parents and grandparents, says Rand. “They drink different things depending on the occasion, and may drink across categories within the same occasion. Because of this, one glass of wine may be replaced with a hard seltzer or a light beer may be replaced with a pre-mixed cocktail.”
All of which would seem to point to a profitable direction for The Wine Group.
Jeff Siegel is an award-winning wine writer, as well as the co-founder and former president of Drink Local Wine, the first locavore wine movement. He has taught wine, beer, spirits, and beverage management at El Centro College and the Cordon Bleu in Dallas. He has written seven books, including “The Wine Curmudgeon’s Guide to Cheap Wine.”