DARK SPIRITS: The young pretender

As dark spirits return to strong growth around the world, rum is emerging as a challenger to whisky’s crown. Alan Lodge reports.

As if concrete evidence of a resurgence in dark spirits on a global scale was needed, half-year results announced last month by both Diageo and Pernod Ricard saw growth underpinned by whisky, while rum continues to be the fastest-growing spirits category in key markets across the world.

Indeed, a look at five-year growth figures for both categories might give reason to doubt whether the downturn occurred at all, with category value up in every major market bar Italy for whisky, and only Japan witnessing a decline in value for rum.

Elsewhere, some of the growth figures, both in terms of value and volume, are quite astonishing.

China (where else?) tops the pile by a country mile. Rum has seen volume growth of 285.8% from 2005-10, according to Euromonitor International, leading to a value rise of 400.8% over the period. Whisky, meanwhile, has recorded volume growth of 65.4% and value growth of 124.7% over the same period in the country.

Likewise, Russia has been a star performer over the past five years. Whisky has grown 85.5% in volume and 162.6% in value since 2005, while rum has shot up 101% in volume and 211.3% value.

Emerging markets such as India and Brazil continue to show robust growth, and it is easy to see why confidence is once again permeating the market.

Chivas Brothers reported last month that sales of its flagship Chivas Regal brand have risen 11% and recorded year-on-year double-digit growth in Asia, America, Africa and France in the six months to 31 December 2010. There was also strong growth in Russia and in duty free markets, with only marked declines in the economically troubled nations of Spain and Greece dragging the figures down.

Ballantine’s, which is Chivas’ highest-volume whisky brand at around 6m cases per year, returned to growth of 13% after suffering a dip in the previous year, while The Glenlivet, the second-biggest-selling single malt whisky in the world, put on a sales rise of 12%.

Christian Porta, chairman and chief executive of Chivas Brothers, said: “We have witnessed a strong performance across our portfolio in the first half of our financial year, with all our priority brands growing globally as they continue to be supported by consistent commitment, focus and investment.

“In line with our long-term strategy, our key emerging markets, such as Russia, Brazil, Mexico, China and India, and global travel retail, have seen our premium products grow strongly, while in more mature markets our brands have maintained robust performances.”

Diageo, meanwhile, reported that global sales of Johnnie Walker were up 10% year-on-year as the company’s overall Scotch sales grew 6% in the first half of the current financial year.

Drinking patterns

The question people are now asking is not “will people buy whisky?” but rather “where will people buy whisky?” Drinking patterns around the world have changed dramatically in the wake of the financial crisis, with drinkers increasingly enjoying their alcohol at home rather than venturing into bars, where they believe they will not get such good value for money.

With this in mind, have whisky companies altered their approach to attract new consumers? Is now the time to concentrate efforts on building a brand in the off-trade, or is it important to continue to maintain strong focus on the bar scene?

“Both the on- and off-trade remain very important in any given market,” says Chivas Brothers marketing director Eric Benoist. “The on-trade is not just about volume, but it is also about building brands, trial and recruitment of new drinkers. Indeed many markets, particularly Asia, remain on-trade-led and the on-trade continues to grow strongly. This growth is most notable in emerging markets and markets where ultra-premium and prestige Scotch whisky is strong.

“In the case of Europe, where off-premise is particularly important, Scotch brands generally need to continue to create and encourage more home drinking occasions and promote the brands in order to achieve this goal.”

Indeed, it is often viewed as a solid indicator of a brand’s success if it can achieve high penetration in both channels. With the marketplace becoming increasingly cluttered, only those brands that can affect consumer drinking behaviour both at home and in the pub can hope to achieve growth in both, according to Eileen Livingston, marketing controller for imported whiskies at Maxxium UK.

“The critical key to success for any brand is to build brand awareness and loyalty among consumers,” she says. “This can be done effectively in both the on- and off-trade. Successful brands are the ones that are able to transcend both on- and off-trade drinking occasions. To do this effectively, brands must inspire consumers with appealing serves and ideas, which they can enjoy out in the on-trade but that they can also recreate at home.”

The answer to the question of where people are drinking rum is now equally as blurred, but what is in little doubt is that the reinvigoration of the category is down to its success in the on-trade, particularly in cocktails, which have served not only to revamp the drink’s dated maritime image, but also to raise awareness of its versatility.

It is also continually bringing in new consumers as its variety of styles and flavours finds an ever wider audience. While white varieties may have been the basis for the boom in rum consumption through cocktails, people are increasingly opening their eyes to the potential offered by darker styles.

Sue Beck, senior brand manager at Halewood International, says: “Dark rum is seeing a halo effect from interest driven by golden and spiced rums. Bringing new consumers into the category via new styles of products is something that other spirits could perhaps learn from.

“Rum is now seeing younger consumers and enjoying a more unisex appeal than ever before, which will help safeguard distribution and sales going forwards. It’s also seen renewed interest via cocktails such as the Mojito – while this is often made with white rum, again, something outside the core category can drive growth within it.”

Beck does believe, however, that growth in the category cannot be sustained without the dedicated support of bartenders, suggesting that the on-trade is still much more of a growth-driver than the off-trade for the category as it continues to claw its way back up.

“New consumers are coming into rum all the time, looking for something different but often without a clear idea of what they want or how they want to drink it,” she says. “This is a great opportunity for bartenders to up-sell and increase value as well as volume.

“Bartenders need to help consumers into the category through recommendations, simple ideal serves and new drink ideas which will help consumers access the right rum and achieve a drink that they will come back to again and again.

“Simply putting a brand on shelves and expecting it to sell is unlikely to work unless brands have massive ATL budgets; most brand recognise the benefit of seeding in the on-trade first.”

Incredibly versatile

François Renié, communication director at Havana Club, says that the multitude of ways consumers witness rum being used in the on-trade is inspiring them to try new things with the drink. “Rum is incredibly versatile,” he says. “Consumers can choose from white to dark aged rums, then drink it straight, over ice, or blended with a variety of flavours in long drinks and cocktails.

“We don’t underestimate the effect the on-trade has on the popularity of rum. Bartenders are strong supporters of the category and have a significant influence upon consumers. Rum is very inspiring for bartenders due to its versatility, its authenticity and its heritage.”

In the UK alone, dark rum grew 8.2% in volume over the past year. Golden rum is still the fastest-growing spirits sector, growing at 27% volume, with 80% of the volume being sold through multiple grocers, which are growing ahead of the market at 35% volume.

One major driver of fresh interest in the category, however, is the newest style of rum to hit the market – spiced.

The likes of Sailor Jerry, Lamb’s Spiced and Morgan’s Spiced have opened up the category to a whole new generation of flavour-seeking younger consumers who were perhaps still under the impression that rum was a dated drink that their grandfathers used to enjoy in times past. The vibrant branding and heavy marketing of these products made them truly “trendy” among younger drinkers.

“I think [spiced rums] are a stepping stone into the rum category for many consumers,” says Nick Gillett, commercial director of Coe Vintners and specialist spirits distributor Mangrove. “I think once people have the idea that rum is palatable, even interesting, and a complex spirit, the more they will experiment.”

They are not, however, just a fad for those returning to the rum category. “Spiced rum is more popular with younger consumers and women than traditional dark rum, so it is almost certainly here to stay,” opines Hi-Spirits chairman Jeremy Hill.

There is little doubt that spiced rum is viewed as being far more accessible to the new consumer than established, traditional rum varieties. Its impact on the overall category renaissance must not be underestimated, even though the purists may sneer at a “polluted” product that has strayed far from rum’s original roots.

“All our research shows that consumers are coming into the rum category via spiced,” says Halewood’s Beck. “Consumers can be daunted by dark spirits. They may not know how to drink them or fear that they will be too strong. Spiced rum is lighter and is perceived as more approachable, especially for females, and is proving a way into the rum category for many consumers.

“For this reason, the growth of the category should be hailed as a good thing, but brands should also use it to help extend people’s interest into dark rum, and potentially other dark spirits, which people may not have tried and written off as not for them.

“The interest in golden and spiced rum has had a halo effect on white and dark rum, with sales volumes increasing across the sector as consumers widen their repertoire.”

Despite a consumer backlash over a reformulation in early 2010, which saw the flavour greatly altered, Sailor Jerry has posted volume growth of 46% in the past year and, while some fans may have deserted the brand in the wake of the new liquid, First Drinks believes it is now more male-friendly – hence the increase in volumes.

James Stocker, marketing controller for First Drinks, says: “There’s no doubt about it: some people were not happy with the new recipe, but through research we found out that men thought the original liquid was too sweet.

“Men would generally have one and then move on to something else, so we scaled the sweetness back. The character of the drink remains the same and we think that men now drink a lot more of it.”

It would have been unthinkable as little as five years ago, but with the explosion in rum growth around the world, is whisky is danger of losing its crown as the world’s top-selling dark spirit?

“Dark premium rum is a dynamic category globally and in markets like Spain, it is seen as a fashionable spirit showing more growth potential than whisky. However, in other markets such as Latin America and Asia, whisky is seen in this light, so it is impossible to generalise,” says Renié at Havana Club.

True, rum is coming from a very small base and, in value terms, whisky still brings in much more money. But looking long-term, there is certainly scope for rum to make up ground.

“I think whether it can overhaul whisky or not is irrelevant,” says Beck. “Either way, rum is in growth and has been for some time. There’s nothing to suggest across the three types of rum that this isn’t sustainable.

“Rum is a flexible product and used widely in cocktails, can be drunk neat but is also great for simple serves. This means it has a universal appeal in some form or another, and also works across a range of outlets who cater for different consumers.

“For this reason the trade should be considering how to continue the growth and how to take lessons from rum and use them in developing other categories.”

As mentioned, the gulf in both value and volume terms between the two categories is vast. However, while it may not happen in the next five or even 10 years, rum’s resurgence presents a clear threat to the whisky category, particularly if the trend for super- and ultra-premium releases captures the imagination of the Asian market in much the same way whisky companies have done. The overwhelming consensus is clear: rum is only going to keep on growing.

Alan Lodge, taken from the March 2011 edition of the drinks business