With a near infinite supply of whiskey, vodka, gin, and tequila on hand, the major spirits conglomerates — Diageo, Beam Suntory, Pernod Ricard, et al. — arrived in the burgeoning spirits-based ready-to-drink (RTD) market in recent years and have ruthlessly dominated the competition ever since.
Actually, that’s not true at all.
Instead, E&J Gallo’s High Noon is the dominant force in the spirits-based RTD world, accounting for 36 percent of off-premise sales for the prior three months, according to Wine & Spirits Daily, followed by Anheuser-Busch’s Cutwater Spirits, at 11 percent.
How, then, did a family-owned wine company and a beer conglomerate manage to elbow out the competition and push to the front of the spirits RTD line?
Spirits-Based Getting Its Turn
It’s unlikely that competitors from disparate drinks realms would bother with spirits-based RTDs at all if the category weren’t enjoying an explosive trajectory. While RTDs on the whole have soared to unprecedented heights, spirits-based expressions are now making up for lost time after a lagging start compared to the vast world of malt-based beverages. IWSR Drinks Market Analysis projects a 5 percent CAGR for RTD volume sales in the U.S. between 2021 and 2026. Looking only at spirits-based, the figure is 28 percent over the same period.
“Spirits-based RTDs are a key driver in the U.S., with the vast majority of the spirits-based RTD market falling into the premium and above price tiers,” says Brandy Rand, IWSR’s chief strategy officer. Spirits-based RTDs still only accounted for 8 percent of the RTD market in the U.S. in 2021, but they’ve been the quickest mover in the past several years, growing at a 59 percent CAGR from 2018 to 2021, outpacing malt’s still lofty 41 percent clip. Digging deeper into the spirits-based space, Rand notes that vodka-based RTDs have now moved past tequila, while whiskey is expected to see the fastest growth in the years ahead.
The premium price tier mentioned by Rand happens to align with a key regulatory factor involving spirits-based RTDs: the higher taxes they face. For instance, in an example provided by the Distilled Spirits Council of the United States, the federal excise tax for a 12-ounce can of a 6 percent ABV RTD beverage is 5 cents for malt-based and 15 cents for spirits-based, with state-level taxes increasing along similar lines. Those taxes may have been what kept spirits companies on the sideline while malt-based RTDs and seltzers swarmed the scene. Despite those higher prices, though, spirits-based is now making its move. “Consumer demand for premium ready-to-drink products will drive the category forward, with value growth outpacing volume growth,” Rand says.
Gallo Leans Into Its Portfolio and Sports Partnerships
Gallo is a powerhouse in the American wine realm, though its spirits portfolio shouldn’t be overlooked, either, with the outsized E&J Brandy, and brands such as Amaro Montenegro, Camarena Tequila, New Amsterdam, RumChata, and Dalmore. “Earlier this year, we unveiled Spirit of Gallo, the company’s award-winning spirits portfolio that has risen to become the fourth-largest spirits supplier by volume in the United States,” says Britt West, general manager and vice president of the aforementioned division.
That newly placed emphasis on spirits, combined with a deep, existing distribution network, has enabled Gallo to remain nimble while pouncing on new opportunities. “The winery as a whole has an extensive distribution network thanks to the existing size and power of other brands in the portfolio so adding yet another to the mix came as no surprise,” West says. “Layer on top of that a team not averse to pushing the limits of innovation and the net result is the opportunity to explore new spaces.”
As for High Noon, the vodka-spiked seltzer running roughshod over its spirits-based foes, one major source of success for the brand has been its partnership with Barstool Sports, which got underway in that frenzied first pandemic spring of 2020, when consumer behavior was shifting in all sorts of new and unexpected directions.
There is, perhaps, a unique kinship between the bros slamming RTDs and the bros consuming digital sports media. “What we found is that the demographics of adorers of each were very similar and, as a result, natural synergies emerged,” West says. “We are also on similar trajectories of growth and we have found that we are able to help one another continue to grow and expand our collective reach to consumers of content and RTDs in equal measure.”
According to Barstool Sports, its partners receive access to a top-5 publisher on TikTok, a top-10 podcast publisher, and an overall social media audience more than 171 million strong. Barstool touts that one in three of its fans made a purchase or used a promo code after hearing about a brand on its platforms.
Gallo has found a core message to relay to an audience of Barstool fans who value authenticity. “Today’s consumer values transparency when it comes to brands they are associated with so being able to tell them that High Noon is made with ‘real vodka’ and ‘real juice’ has resonated very well,” West says.
With High Noon and Barstool doing banner business, Gallo stablemate New Amsterdam Vodka Wildcard, a spirits-based RTD that debuted last November, is meanwhile following the well-worn ring walk to contender status by coming out swinging with an official UFC sponsorship. Wildcard is — in news that will surprise few — the “Official Ready To Drink Vodka of UFC.”
“UFC has a long history of being an influential and impactful partner and we look forward to helping grow their fanbase with vodka consumers who are up for anything and excited by the unexpected,” West says.
When larger competitors or more obvious category leaders are barring the door, the drinks market has shown time and time again that a key partnership — particularly one with clamorous, digital-consuming, social audiences — can pay huge dividends in a tiny fraction of the time that a traditional advertising or promotional plan would.
Cutwater’s Canning Prowess
While Gallo built upon its network and its perhaps underrated spirits acumen, California’s Cutwater Spirits had an even stronger advantage to capitalize on the RTD market. During an early March 2020 visit to Cutwater’s facility in San Diego, what was on display wasn’t just a distillery and tasting room, but a canning colossus. That expertise, forged first through the team’s background with Ballast Point — which sold to Constellation Brands for a cool, though later regrettable, $1 billion — gave Cutwater a unique position as a distillery with production prowess tied to the needs of the then still nascent RTD explosion.
Cutwater deploys specific pieces of gear others may have glossed over, such as a counter-pressure canning line that helps solve the problem of low carbonation that many RTDs have. “This all comes from our beer background,” Cutwater founder Yuseff Cherney told me at the time. “We knew a lot of the pitfalls.”
The distillery also wields a high-tech sensory laboratory that powers deep analysis alongside ongoing flavor development, and helps it further apply its beer-world knowledge base to its current RTD emphasis. “Using the science and sensory similarities between beer and spirits, as well as listening to honest consumer feedback, has made Cutwater nimble in its innovations and ability to adapt to consumer demand,” says Gwen Conley, Cutwater’s director of quality and innovation.
This genre-blending capability helped create the potential synergy and opportunity that led to AB InBev’s acquisition of the distillery in 2019. “At Anheuser-Busch, we’re focused on evolving our portfolio to meet changing consumer demand and preferences,” said Fabricio Zonzini, Anheuser-Busch’s president of Beyond Beer. “That’s why we’ve evolved our portfolio to offer category-leading brands like Cutwater Spirits and NÜTRL Vodka Seltzer.”
Yussef further saw that getting people comfortable with the higher price point for spirits-based RTDs was a similar play to convincing consumers that the financial upgrade to craft beer was a worthwhile one. “Craft beer pushed the envelope of what people expected to pay for beer,” he says.
Seltzer Comes Full Circle
Consumer tastes are shifting enough toward quality in terms of ingredients and flavor that even the major seltzer players are entering the spirits-based scene to ensure they also have a foothold in that emerging space. Look no further than Truly and its October launch of Truly Vodka Seltzer. (And who makes Truly? Another brewing giant, of course: Boston Beer.)
“Truly’s entry into spirits-based seltzer is all about pushing the category and drinkers forward through experimentation and premiumization,” says Matt Withington, Boston Beer Company’s director of marketing for Truly and emerging brands.
Even as Truly dips its toes into spirituous waters, Boston Beer on the whole is cognizant of where each of its constituent brands falls into the consumer matrix. Adding a product extension is only worthwhile if it doesn’t cannibalize what already exists under the same umbrella. “We work diligently to ensure that each of our brands plays in its own white space, offering unique benefits to its specific target drinkers,” says Sam Calagione, founder and president of Dogfish Head, which merged with Boston Beer in 2019.
“A perfect example is the complementary interplay of Truly Vodka Seltzer and Dogfish Head’s Canned Cocktails,” Calagione says. “Both are rooted in the spirits-based RTD category, because that’s where the drinker is going, but because each product offers different benefits and drinking experiences, they appeal to two very different drinkers.” He believes that Truly drinkers are going for easy refreshment at sessionable ABVs, while Dogfish Head provides a fuller-flavor, higher-strength option that’s more in line with what a consumer might get at a bar or make at home.
As consumers change gears, new brands emerge, and existing companies fight to compete on shifting battle lines, an evolution is even being seen off-premise with how stores display, stock and acquire cross-category products. “Total Wine just recently created a buyer specifically for RTDs — it doesn’t matter if you are beer, wine or spirits,” says Justin Fenchel, CEO and co-founder of BeatBox, the somewhat wacky wine-based RTD currently taking the world by storm. “I think you’re going to see a lot of larger chains move towards the idea of, ‘We need to catch up and we’re doing our consumers a disservice if we only think of things in the traditional wine/beer/spirits format.’”
It’s the type of thinking that gets a wine or a beer conglomerate to the top of the spirits-based RTD charts, and gets a hard seltzer to switch its own script and dive into spirits, too. “The next generation is choosing from a wide range of innovations on the shelf, namely flavored malt beverages, spirits-based seltzers, and canned cocktails,” Boston Beer’s Withington says. “It’s where we expect to see the most growth.”