Rum fights back against ‘challenging’ market

Europe’s rum consumption fell by 1.5 million litres between 2009 and 2014, driven almost singlehandedly by the Spanish market, but has the potential to “regain its footing” within the next three years, according to Rabobank’s Q4 spirits report.

During the five years from 2009 to 2014 rum consumption in Spain dropped by 13 million litres. Conversely, consumption throughout the rest of western Europe increased by 12 million, somewhat counteracting the former’s negative drag.

Rabobank attributes Spain’s drop in rum consumption to its lack of interest by younger consumers, with the spirit appearing to have fallen out of fashion. This, it said, has been driven in part by the recession meaning younger consumers are drinking less, but also by the increasing popularity of “shots instead of cocktails” among this demographic.

“Beyond the challenges from the younger generation, rum also appears to be suffering from its lack of premium positioning”, said Stephen Rannekleiv, senior wine and spirits industry analyst at Rabobank. “Many Spanish consumers tend to be trading up to more premium drinks, preferring “less but better”, which doesn’t fit well with rum’s current positioning as more of a party drinks”.

Despite an overall decline, which can be largely isolated to Spain, Rannekleiv said that a slowdown in the rate of rum’s decline in Spain and ongoing growth of the spirit in major markets such as France and Germany meant that it expects western European rum sales “to turn positive within three years”.

In the US, craft distillers are continuing to dominate showing solid growth across all spirits categories. However their success and perceived threat to major distillers has been “greatly exaggerated”, says Rannekleiv, and their benefits to the spirits industry as a whole underestimated.

“Craft distillers are enjoying exceptional growth rates – a trend we expect will continue – but their threat to major distillers has been overblown”, he said. “The top 17 largest spirits companies in the US actually gained share over the past few years. Craft distillers are generating excitement and helping to expand the spirits market, but it is the innovative second tier companies (by size), such as Proximo, Gallo, Brown-Forman and Luxco, that are really gaining market share”.

In Asia, Chinese consumption of imported spirits was said to have stabilised following austerity measures, however Rannekleiv warned that difficulties would continue due to the volatility of the country’s stock market and its recent devaluation of the yuan – the largest in two decades.

“The full impact of this volatility when it comes to consuming imported spirits is still unclear, but the risks appear to skew to the downside”, said Rannekleiv. “In India, we have seen volume declines due to a growing focus on premium, away from value brands. Shelf prices have also been impacted as a result of a rise in taxes on alcohol.”