"Low Alcohol” and RTD: Taking a Defensive or Offensive Position in Your Product Strategy
Modern wineries find themselves at a crossroads in 2022. On the one hand, they can stick with what they know: marketing to an aging demographic of classic wine drinkers. Or they can adapt their product strategy to include no/low-alcohol and RTD options to attract new customers.
Wineries across the country could confidently call 2021 a positive year for the industry. While it wasn't groundbreaking, it wasn't detrimental either. Certainly, nobody could predict the frequency or severity of widespread food and beverage industry shutdowns in the face of the Covid-19 pandemic. Initial Covid concerns then intensified with different variants, while ongoing climate issues also hindered the industry. Wildfires, smoke, and droughts harmed yields, thus damaging overall sales, forcing some winemakers to rethink their product strategy. However, as restrictions eased and tasting rooms, hotels, and restaurants reopened, viticulture sales leveraged newfound opportunities.
As Covid-related pressures subsided, new challenges also emerged. Rising wages and declining workforces—coupled with ongoing supply chain issues —made passing products from distiller to consumer more difficult. Property insurance, especially in areas susceptible to wildfires, went up. Those same fires also led to water rationing in the western United States. Still, the wine industry found a way through, proving its resiliency through alternative marketing strategies and the adoption of new products. Rising trends in low-alcohol and ready-to-drink (RTD) beverages are undeniable. Wineries would do well to consider how to capitalize on these trends in 2022 and evolve their product strategy to change with the times.
Are Low Alcohol and Ready-to-Drink (RTD) Beverages Poised to Dominate the Market?
If wineries want to grow in 2022, they must stop relying on older generations to bolster their bottom line. The path to success involves attracting younger, multicultural consumers to the market. These generations (millennials and Gen Z) tend to purchase more spirits, beer, and spiked seltzers than they do wine. That, or they're abstaining from alcohol altogether, according to data from Wine Intelligence.
The data shows that self-moderation is on the rise in mature markets. According to Wine Intelligences data, one-third of regular wine drinkers said they're cutting back on alcohol consumption. Those drinkers were predominantly on the younger end of the spectrum, between the legal drinking age (LDA) and 35 years old. Those over 55, meanwhile, said they were less likely to change their drinking habits.
Given these trends, modern wineries find themselves at a crossroads in 2022. On the one hand, they can stick with what they know: marketing to an aging demographic of classic wine drinkers. Or they can adapt their product strategy to include no/low-alcohol and RTD options to attract new customers.
Low Alcohol Beverages
A recent Harris poll posed a simple question to its participants: "If you were invited to a party and asked to bring an alcoholic beverage, what would it be?"
Those over 65 preferred wine (49%), whereas younger age groups—for example, 21-24-year-olds—listed wine as their least likely option. While one study alone can't say "young people don't drink wine," it's indicative of real-world changes that a successful product strategy should consider.
At a Beverage Alcohol Webinar, Nielson reported significant dollar growth (37%) in non-alcoholic beer, wine, and spirits. Given those numbers, it's no wonder emerging no/low brands like Eins Zwei Zero Riesling and Stella Rosa Peach are capitalizing on the market.
According to a recent IWST study, the no/low category should grow 31% by 2024. As reported by Forbes, these trends stem from rising health and wellness concerns, most likely exacerbated by Covid-19. While 14% of Americans reported drinking more wine in 2020 on account of the pandemic, 23% reported drinking less, according to data from Wine Market Council. Speaking on the matter, Group VP for Albertsons’ Wine, Beer & Spirits Division, Curtis Mann, said that "the low calorie/low alcohol segment is being driven by customers looking to cut back on their alcohol consumption. It may be for caloric reasons, health reasons, or just because they want to drink less." The data seems to back up his claims.
While many are trying to cut back on their alcohol consumption, others are looking for more convenient drinking methods. Since 2018, ready-to-drink beverages (RTDs) have grown the fastest among major beverage categories. Furthermore, predictions have them accounting for 8% of all beverage alcohol by 2025. Brandy Rand, chief IWSR operating officer for the Americas, points out that "RTDs are still growing at higher rates than spirits, wine, and beer, signaling a major shift in consumer interest in this category across all demographics.
For a long time, malt-based beverages dominated the RTD market. However, those trends may change as more spirit-based drinks appear in coolers. Rand went on to say that spirit-based RTDs are expected to see annual volume growth of 33% in the US.
Spirit-based RTDs have several legislative hurdles to overcome if they want to corner a larger market share. Many states prohibit the sale of spirit-based products, including RTDs, in grocery stores, convenience stores, and gas stations. Additionally, wine and spirit-based products are taxed higher than malt-based products. Thankfully, much of that legislation is under review in a handful of states. Extensions on early-Covid cocktail-to-go laws in many states should provide an open door for RTDs in the future.
Statistics and Trends
Winemakers must adapt their product strategy to leverage new market research and capitalize on growing trends. A recent Fact.MR report predicts that non-alcoholic wine consumption will improve as demand increases, at a growth rate of 10.4% CAGR through 2031.
Sparkling no/low wine sales, in particular, are predicted to increase, while still no/low wine may decrease. However, flavored no/low wine sales should increase on the whole, with no/low grape wine forecasted as the preferred product in the coming years.
Neilson data pointed to a handful of reasons why RTDs are poised to capitalize on emerging market trends. According to a 2019 survey, 55% of respondents said they preferred RTDs because they were “an easy way to enjoy a cocktail.” Other reasons included RTDs' light and refreshing nature while maintaining a reasonable ABV.
Getting Into the Trend: Low Alcohol and RTD Beverages
There's no arguing the growing trends in the no/low and RTD beverage market. The once-blossoming wine market is decreasing, and winemakers must rethink their product strategy to capitalize on these new trends. Thankfully, the no/low and RTD doors are wide open for winemakers in time to capitalize on global health-conscious shifts. What strategies can winemakers adopt to harness these trends?
For starters, brand strategy is key to increasing no/low wine sales. In the past, no/low wines have missed the branding bar; one set relatively high by craft beer companies. A Wine Intelligence study asked wine drinkers why they'd consider swapping their preferred bottle for a no/low option. While over 33% cited health reasons, only 3% said it's because they wanted someone to see them consuming it. These findings indicate that people weren't necessarily ready to "show off" their no/low wines.
Recent no/low trends also beg the question, "What is considered low-alcohol?" Unfortunately, differing international definitions add layers of confusion. In the UK, alcohol content is not specified in the definition, whereas in the US, of course, it's between 7-24% ABV. A 2006 trade agreement between the US and UK established "wine" to have an ABV between 7% and 22% to manage these differing options, further muddying the distinction regarding what "low-alcohol" wine truly is.
The hard seltzer craze, exemplified by White Claw's tremendous growth in 2019, brought a heightened consumer focus on lower ABV and calorie counts. As defined, hard seltzer is sparkling water with alcohol added to it, making it easy for winemakers to hop on the trend. For example, think of E&J Gallo's Barefoot Hard Seltzer (4% alcohol and 70 calories) and Barefoot Spritzer (5.5% alcohol and 150 calories).
Thinking Outside the Box (Or the Bottle): Key Product Strategies for 2022
While recent trends are unmistakable, not all wineries are ready to capitalize on them. The ultra-competitive market for wine and spirits calls for increased flexibility for your product strategy and execution. As the country moves into uncertain and inflationary times, actionable financial and marketing planning has never been more critical.
Here are a few key strategies wineries can implement in 2022:
Understanding Social Media
Maintaining a social media presence doesn't mean posting as much as you can. If your content isn't engaging, users will scroll right past it. Keeping your finger on the pulse of emerging trends, especially those in no/low and RTD beverages, helps you cultivate engaging content amid a bottomless sea of creators. Furthermore, strong SEO practices will guide your posts through the algorithms more efficiently than those of your competitors.
Targeted Ad/Social Media Campaigns
People are more likely to scroll past your social media campaigns when they look like classic advertisements. Offer users something of value to get them to click. Remember, the ultimate goal of your targeted ads is to build out your mailing list and customer base. You can send email blasts about new product lines and promotions after.
Good content hinges on good storytelling. How wineries tell their story can make or break their business. Let's take one of the most classic story frameworks, The Hero's Journey, as an example. Don't position your winery as "The Hero," overcoming all odds to reach their goals. Instead, position your customers as the heroes of their own stories. With this new focus, your winery becomes the companion or the wise seer, there to guide customers on their journey to a fuller, well-lived life.
Ongoing supply chain issues make it more expensive and more time-consuming to package wine by traditional means. Wineries are turning to lighter bottles and alternative packaging like cartons, tin cans, and refillable containers to get their product from vineyard to store. Sustainable packaging also serves as a significant selling point for environmentally conscious buyers.
How Can Wineries Assess Whether Low Alcohol Wine Is a Viable Revenue Stream?
You already have the tools and equipment to make wine, but the machines required to extract alcohol can get expensive. While wineries can sometimes use existing machinery, doing so would decrease the production of existing products.
Wineries can also sometimes save money on no/low and RTD beverages because of tax laws surrounding alcoholic drinks. Alcohol is exposed to state and federal excise taxes, whereas non-alcoholic beverages aren't. However, non-alcoholic beverages often cost as much or more than their alcoholic counterparts for increased expenses during distillation and flavoring.
According to IWSR, the no/low market is currently valued at $10 billion across ten key global markets. With the no/low market projected to boom even more in the coming years, the right product strategy can spell success in 2022. Still, wineries will have some investments to make. It’s time to evaluate what machines and techniques to invest in—and whether you can afford them. For example, vacuum distillation and spinning cone columns use low-temperature means to extract alcohol. However, both require expensive machinery. To avoid higher costs, wineries might instead consider turning to reverse osmosis to filter out alcohol.
Your trusted financial partner can play a crucial role in assessing no/low wine as a profitable revenue stream for your business, how to plan for capital investments to expand production, and to understand the impact to your cashflow and your balance sheet.
Evaluate Your Product Strategy For 2022
A profitable product strategy in 2022 can't ignore rising trends in no/low and RTD beverages. To survive, they'll either have to pivot towards the no/low trend or bolster their existing marketing to attract new and younger customers, potentially both.
These pivots come with their associated costs, demonstrating the need for a trusted financial partner. If you're ready to capitalize on this quickly-growing $10 billion industry, reach out to FirstBank & Trust today and speak with a commercial banker with deep wine and spirits industry insight.