Why California convenience stores could be the next big market for pre-mixed cocktails
California lawmakers are entertaining the possibility of making it easier to find premade cocktails on store shelves.
Today, ready-to-drink beverages that are beer, malt or wine based such as White Claw may be sold at stores. But RTD spirits drinks like Gallo’s High Noon, which is vodka-based, can only be sold in stores with a spirits license.
“I think with the popularity of these products skyrocketing, consumers want choices. Small mom and pop stores that traditionally only are able to sell wine and beer would like to sell these,” said state Sen. Bill Dodd, D-Napa, said of the RTDs with hard alcohol. “These products are in the same wheelhouse as wine and beer in terms of low alcohol and ready to drink. They have less alcohol by volume than wine and some beer, and less sugar on average.”
Dodd's bill, Senate Bill 277, is expected to be heard this month by the Senate Governmental Organization Committee, which Dodd chairs. The legislation would broaden the RTD rules to make it so businesses with only a beer and wine sales license, like gas station mini-marts and small grocery stores, could sell cans or bottles of premade spirits cocktails that have 10% or less alcohol by volume and are in containers no larger than 16 ounces.
Premixed cocktails have been around for a while, but surged in popularity during the height of the pandemic. People wanted a margarita, gin and tonic, or Bloody Mary but didn’t want to or couldn’t go out, nor did they want to make the drinks themselves.
RTDs were the solution.
Even with bars and restaurants fully open, they continue to gain market share. So much so that premixed cocktails was the fastest growing spirits category by revenue in 2022, up 35.8% in one year to $2.2 billion from $1.6 billion, according to the Distilled Spirits Council of the United States (DISCUS).
Adam Smith, vice president of government affairs for the council, told the Journal that malt beverage or beer based RTD is 90% of the market. Spirits RTDs accounted for 13% of the total RTD market volume in 2022, compared to 8% in 2021, according to DISCUS.
The council’s data shows that beer and wine RTDs are available at more than 28,000 stores in California. Spirits RTDs with similar or lower alcohol-by-volume levels may be bought at roughly 14,000 outlets.
Richard Williams, corporate wine, beer and spirits buyer for Santa Rosa-based Oliver’s Market, isn’t worried about losing sales if more stores are able to sell spirits RTDs.
“I have no competition fears,” he said. “Smaller convenience stores operate on a higher profit margin and much lower buying volume.”
His dilemma is deciding which RTD to carry.
“The biggest problem we have with RTDs is there are too many of them. RTDs are probably the single biggest growth area in the industry, that and canned wine,” Williams told the Journal.
The four Oliver’s locations in Sonoma County do more than $200 million in sales a year, with Williams’ department responsible for $20 million of that total.
“Mainly we have to start thinking about space,” Williams said.
Oliver’s carries 16 RTD brands, though a single maker could have a half dozen lines. Williams said because the quality is outstanding deciding which product to carry can be a challenge.
Drizly, which is the largest online marketplace for alcohol in North America, reports that in 2021 it had more than 450 RTDs on its site, which was a 45% increase from 2020 and a 170% increase over 2019.
Distillers want change
Arthur Hartunian, owner of Napa Valley Distillery, is a huge proponent of SB 277.
“We do see it as a great thing because it allows distillers to expand their reach and the potential locations where their products can be sold,” Hartunian said. “We have been making RTDs since 2012; we were one of the first distilleries in the country to make them. We call them ‘straight from the bar’ because it's the same exact ingredients we use to make them at the bar.”
Napa Valley Distillery has 17 RTDs in a bottle. Not all would qualify to be sold at more locations under the proposed law because of alcohol content, but Hartunian is confident the recipes could be modified to comply with the 10% ABV mandate.
Hartunian estimates 50% of his spirits sales are RTDs, with the other half being cocktails made at his Napa bars.
In a perfect world, he would like to see the law expanded to allow spirits RTDs to be sold at restaurants that have only beer and wine licenses. That idea, though, is not part of the bill as currently written.
The law in question could be a boon for Zaddy’s in Petaluma, which makes three gin based RTDs that would fit into the bill’s criteria. Their first release was in 2020, with the other two coming a year later. Every year they produce 2,000 gallons of each flavor.