Rumble in the jungle

The spectre of low cost rums from Brazil and Venezuela flooding the market means that Caribbean producers must build brands to save their future, says Dave Broom

RUM IS A strange beast. Some 1.2 billion litres of the spirit were sold in 2002 but as a category it has remained strangely invisible.  This might sound absurd given that Bacardi sells close to 20m cases a year, but the fact is Bacardi’s success has been built on selling itself not as a rum but as a brand in the purest sense.

Bacardi drinkers don’t drink rum, they drink Bacardi.  If it isn’t behind the bar, the belief has been, it is unlikely they will turn to another rum – they’ll drink vodka.  Is there any need to sell Bacardi as a rum when the next nearest international brand, Captain Morgan, sells a mere 5m cases a year?

Put it this way – it’s just as well for Bacardi that the Filipino brand Tanduay (14m cases a year) or the leading Brazilian cachaca 51 (claiming 25m cases a year) haven’t broken out of their domestic markets.

But that’s rum in a nutshell.  Rum is made up of a major brand which hasn’t sold itself as a rum, a handful of smaller international brands and a mass of brands – some with enormous sales – which are restricted to their home markets.

It is this lack of a genuine international challenge to Bacardi’s hegemony that has left rum in the intriguing position of being a major spirit in volume terms but a category which is largely ignored.

It could be argued that there is not a real rum market in the commonly understood meaning. Until now, that is.  According to Impact’s figures, global sales grew by 14m cases between 1995 and 2001.

This has been generated by a significant upswing in sales in India, while the markets have revived in the US and continental Europe – in Italy and Spain in particular where rum is  beginning to exert pressure on whisky.

Vitally, this is being driven by brands – Cruzan and other flavoured/spiced rums in the US and Havana Club in Italy and Spain (it outsells Bacardi in the former) are two examples.  Bacardi’s twitchiness over Havana Club and its rediscovery of its rum credentials, not to mention the pushing of its Bacardi 8 speaks volumes about the manner in which the market is evolving.

What we are seeing is a general trend to premium and a slower shift from white to gold/aged, though as Robyn Gollop- Knight, Mount Gay’s international marketing manager, points out, not every market is behaving in the same way.

"In North America the craze for flavoured rums [Cruzan, Bacardi and Morgan Spiced] is evident. In Europe, however, the movement is a shift away from lowend dark rums to premium/gold." 

It is this shift to premium which excites Charles Shive, marketing manager for Appleton at Brown-Forman America, who argues that the growth of the premium segment is built on the inherent quality of the products rather than because, as he put it, "it’s the shiny, new thing".

The UK has been slower off the mark than other countries, finding it hard to slough off the old, dark Navy image.  That said, the rise of bar culture has given a boost to aged and premium brands, with Havana Club, Mount Gay and Appleton all benefiting.

Although, the gold category still has only a 13% share of an off-trade dominated market that totals some 1.9m cases (IWSR figures). White (ie Bacardi) has an impressive 62%.  "Rum’s growth is now being driven by premium, especially in the ontrade," says Huw Pennell, marketing director of Mount Gay’s distributor Maxxium UK.

"New drinkers coming in with no preconceptions of what rum is, and existing rum drinkers who want the category to be exciting are switching from dark to gold.  The opportunity is there to reinvent the category."  There is a wider issue at work.

The rum industry has been ringfenced by a series of protective measures.  Europe has kept the Caribbean market afloat through a system of subsidies, guaranteed minimum prices and quotas known as the Lome Agreement.

The French have additionally protected their DOM rhums (from Martinique, Guadeloupe and La Reunion), while the generous tax breaks given by the US to rums made in Puerto Rico and the US Virgin Islands has made it extremely hard for other Caribbean rums to break in.

Though the EU has subsequently given the Caribbean rum industry a €70m grant to help restructure itself and create a Caribbean rum marque, the ending of the Lome agreement has brought with it a fear that low cost rums from major sugar producing countries, such as Brazil and Venezuela, could flood the European market.

In addition, for all the talk of premium brands, rum is still heavily reliant on bulk shipments, the very segment that will be most pressurized by Brazilian rum post- Lome.  "I don’t envisage an end to bulk," says Gollop-Knight.

"Those who can produce with low operational costs are likely to survive.  However, it will  signal an end, or certainly a challenge, to many producers who are forced to compete with larger, more efficient producers on a free market."

The message is clear. Get branding or go under. For Richard Seale, managing director of Barbadian producer R L Seale it’s about time rum woke up. For him, the reliance on bulk is a cultural problem, which typifies rum’s (and the Caribbean’s) subservient approach to business.

"Rum has been looked down on, even here in the Caribbean," he argues. "The result is that there has been no investment in distilleries.  We have to believe that this isn’t a sub-standard spirit but a world-class one.

We should never be in that situation in 2003 where 90% of the industry is foreign-owned and all the value is added externally.  You cannot be committed to brands and also supplying bulk.

All you are doing is perpetuating the situation – and shooting yourself in the foot."  But bulk remains an important element for many companies.  "We will try and hold onto our bulk business as well as building our brands," says Laurie Barnard, CEO of St. Lucia Distillers which supplies rums for a number of European own-label brands.

Though while he talks up the tailor-made service his firm provides, he does accept that in a margin-driven business the temptations of cheap Brazilian spirit may be too tempting for many European supermarket buyers.

No surprise, therefore, that St Lucia Distillers is also looking to the branded and niche product sector.  At the end of the day it is the strongest brands which will survive post-Lome. As Peter Martin, Wray & Nephew’s European regional manager, points out, the consumer couldn’t care less about trade agreements.  "It is the brands which are king," he says. 

"Not the politics or tariffs that surround the base products. If we manage our brand franchise properly the fiscal issues are irrelevant."  It’s a good point echoed by Seale who argues that the dependency on subsidies has helped perpetuate a cap in hand attitude which has ultimately damaged the industry.

"Sugar production evolved as a basic raw material and unfortunately rum has followed that lead," he says.  "This has ended with large volumes being produced, but all the value being added outside the Caribbean.

The industry is facing globalisation and hasn’t done sufficient with the product to understand the reality of business.  Instead it has developed into one which needed protection and has been overreliant on subsidy."

The issue, therefore, isn’t just branding pure and simple, but rum’s image.  "Rum has had its image stained throughout the past centuries by a bad reputation or by low-quality local production in countries that do not grow sugar cane," says Charles de Saint Vincent, head of international sales at Havana Club.

"The need is now for a few premium brands to improve the image of rum and put an end to stereotypes that slow the market’s growth," he argues.  "What is certain is that in all markets, a few key brands drive or will drive the rum market. Havana Club is such a brand.

It has, for instance, contributed to the emergence of a true rum market in Italy."  What is also evident is that it will be the firms who realise this sufficiently early who will be the greatest beneficiaries.

"We decided to take the branded route 12 years ago," explains Yesu Persaud, chairman of Demerara Distillers Ltd (DDL).  "We started at the top end with 15-year-old to prove that we could make a drink comparable to Cognac or malt.

We knew rum was being sold as a commodity and that it was only going to be a matter of time before the subsidies disappeared."  "The world is changing," says de Saint Vincent. "You can’t remain static, hence the expansion of the firm into brands and distribution. Bulk is still a major contributor to our business, but brands now account for 30% of our business, having started from zero.

We have to be in brands to survive and to grow.  That is rum’s greatest challenge." Branding is just one part of the issue.  Firms also need to be able to sell their brands and that means having access to an international distribution network.

Or, in the case of firms such as DDL and Angostura/CL, they create their own.  The latter is a classic example of the changes taking place in the international rum market.  For years the firm was heavily reliant on bulk. Indeed, until 1997 it was a Bacardi subsidiary.

Seeing the way in which the market was evolving and the need for strong brands it has not only created the new Angostura range of aged rums but also acquired several other firms to give it a premium portfolio.

(Todhunter/Cruzan is a subsidiary; it has a stake in St Lucia Distillers and owns Burn Stewart and Hine.)  Now it is in the process of tying up distribution deals.  Angostura has financial muscle; Mount Gay can rely on Maxxium where it lines up alongside Absolut, Plymouth, Remy-Martin, Famous Grouse and Macallan; DDL has its own network, as does Wray & Nephew.

There are, however, a mass of smaller rum distillers in the Caribbean and further consolidation seems likely.  "Undoubtedly it will happen," says Bernard Bain head of marketing for Angostura/CL in Europe.

"It will come from two directions: from existing rum companies who mistakenly feel it is to their advantage to acquire additional rum producers, and more legitimately, by established owners of other spirits acquiring rum distillers – the latter being the source of any real threat to existing rum brands."

Can smaller distillers survive in this changing market? "Being part of a multinational distribution network puts us in a better position," says Robyn Gollop- Knight.  "However, with rum becoming more popular, smaller distillers who produce quality premium rum brands will be able to carve a niche for themselves."

The key, as distillers such as Richard Seale and Laurie Barnard appreciate, is differentiation, niche marketing and establishing a new quality tier.  St Lucia has 21 products ranging from premium aged rums to RTDs on its portfolio and Barnard is planning even more. "Small distillers can survive and prosper provided they focus on brandcreation," says Barnard.

"This allows them to exist in spite of the actions of larger companies.  The secret to success is finding strong distribution and being flexible to market demands.  Such distillers must create their marketing plans with knowledge of market requirements, not in spite of them."

Rum has reached a half-way house.  The old days of subsidies and overreliance on bulk are in the past, a new future in brands is emerging.  "Rum has the potential to stick if it remains true to its origins," says Huw Pennell.

"It needs years of good solid progress to reinvent the category."  At last, it seems as if firms are now committed to the mission.