RUM: Sailing around the world

Rum has been hailed as the next hot international spirits category, an argument based on its high mixability as a cocktail base, its references to exoticism and a glamorous lifestyle, its relevance to the much-vaunted Latinisation trend and its potential for expansion to non-core audiences through the introduction of flavoured and spiced variants. Spiros Malandrakis, alcoholic drinks analyst at Euromonitor International, reports.

According to Euromonitor International’s latest findings, rum has posted healthy 2% total volume growth over 2008-2009 in the middle of one of the most protracted financial contractions in recent memory. Will the category live up to the hype?  

Emerging markets

Rum has posted a consistent CAGR of 4% in total volume terms over 2004-2009, primarily driven by its rapidly advancing penetration rates in India, the US, the Philippines, Latin American markets and parts of Western Europe. The focus and drivers in each region have nevertheless been completely different.

India holds the top slot as the biggest rum market in the world, accounting for an estimated 362 million litres in 2009, although appearances can be deceiving. In fact, stripping away locally made dark rum, India is little more than an also-ran on the global rum stage. In 2009, for example, India accounted for almost one quarter of all the dark rum consumed in the world.

White rum, in contrast, barely got a look in, accounting for less than 2% of local consumption. In short, unlike vodka, the rum category in India is rooted in tradition and can offer very little in the way of aspirational credentials. It is not a generalisation to say that dark rum is, first and foremost, a product consumed by India’s middle- and older-aged men.

Like locally made whisk(e)y, it has old-school liquor connotations and, for some, is synonymous with alcohol excess and consumption through traditional, often dark and dingy, liquor stores – the very outlets that to this day fuel a major slice of the country’s retail spirits sales. Dark rum is, therefore, a throwback to a past that fits uncomfortably with the emerging fashionable social circles of cities such as Mumbai, New Delhi and Bangalore.

In this context, although both white and dark variants are expected to post buoyant 7% total volume CAGRs over 2009-2014, this will translate into an increase of two and 146 million litres, respectively, in actual terms, underlying the massive gap between the two segments. Going forward, the key issue will be whether imported brands, and specifically white rum formats, can leverage a more significant upside. Age-old adversaries Bacardi and Havana Club, in particular, will be hoping they can.

The parallels to the Philippines, accounting for an estimated 157.2m litres in 2009 in total volume terms and holding the third slot in the global volume rankings, are staggering. Domestically produced economy variants also dominate sales in the category, while aspirational consumption is directed towards imported spirits.

This fact sheds some light on the inherent limitations faced by the category, which is expected to witness a positive albeit slower total volume CAGR of 1% over 2009-2014. It has to be said, however, that there is long-term potential for imported spirits and rum in particular in both India and the Philippines when proposed and expected duty reductions eventually take place.

In other words, Euromonitor International believes that the focus on lower-end locally produced products is putting a dampener on the excitement over the potential of emerging markets that produce rum or where a majority of the population consume rum, including the category’s Latin American cradle.

Rum’s establishment as “the spirit of the masses” in these markets is hence leading upwardly mobile young urbanites to look for status symbols and a validation of their affluence in imported spirits such as whisk(e)y, vodka or gin. And in a world where premiumisation has lost its former glory and momentum, this is severely limiting the potential for trading up.

Western markets

On the other hand and stripping out the huge domestic rum volumes of India, the Far East and Latin America, value has been the primary driver of the mature Western European and North American markets.

Premiumisation, the Holy Grail for growth and preferred escape route from looming issues of maturity and stagnation, buoyed sales in the US, Canada, Spain, France, the UK, Germany and Italy between 2004 and 2009 and during the optimistic outlook of a pre-recessionary world. Trading up was hailed as a guarantee of infinite growth and became the seemingly unmistakable base for bullish expectations and investment.

This increased investment resulted in improvements in production methods, presentation and innovation, closing the gap between rum and
other spirits categories, with rum hence managing to shed its commodity image. Anecdotal information suggests that as more big companies entered the rum category, the marketing investment behind brands also increased.

And it worked, according to Euromonitor International. All major Western markets not only managed to secure healthy total volume CAGRs over 2004-2009, but, most importantly, manufacturers succeeded in solidifying value growth, which in most cases surpassed volume growth by a long way. In the US, rum posted a 4% volume CAGR and a 5% value CAGR over 2004-2009; in the UK, the category witnessed a 2% volume CAGR and a 3.5% value CAGR, while Italy posted a 3% value CAGR compared to a 1.5% volume CAGR.

Premium brands such as Mount Gay, Appleton and Bacardi Oro managed to secure a loyal following while at the same time spearheading an interest in aged variants and signalling a shift from casual, flamboyant cocktail consumption to “sipping”. Provenance and brand credibility became key drivers as the category mimicked trends witnessed within the whisk(e)y segment to appeal to older audiences beyond cocktail-thirsty millennials.

According to Euromonitor International’s latest findings, niche audiences of such premium products have managed to retain their support for the category in 2009, although the dawn of a new era of frugality and inconspicuous consumption will severely limit their potential for growth over the short and medium term.

In this context, and while positive growth rates are indeed forecast for both North America and Western Europe, which are expected to post respective 1.4% and 2.2% total volume CAGRs over 2009-2014, rising unemployment levels, plummeting consumer confidence and the subsequent shift towards off-trade channels that favour standard and economy products signal a change of direction for the previously dominant premiumisation trend.

A key indicator of this new direction, private label sales in the UK, Germany and Spain have witnessed a resurgence over 2009, underlining the importance of economy offerings along with premium variants, with polarisation replacing premiumisation as the new buzzword over the short to medium term.

Spicing up the offerings

Flavour sophistication, a trend whose success was thoroughly tested within the vodka category, also offers huge potential for rum, primarily focusing on the US market for the time being. Spiced rums, such as Captain Morgan and Sailor Jerry’s flavoured extensions, have generally performed better than fruit-flavoured rums, with some exceptions such as Bacardi Limon, while anecdotal information suggests massive success for the recently introduced Lamb’s Black Sheep spiced extension.

On the other hand, while flavoured extensions can and have been incremental to growth through extending rum’s appeal beyond its core audiences, they also attract criticism from advocates of the premium, aged positioning for the category which believe that such developments undermine their efforts.

Premium-oriented producers also point out that using flavours to provide differentiation is not necessary for rum in the way it may be for vodka as ageing or barrel finishes can instead provide for a distinctive drinking experience. Manufacturers should hence bear in mind that overexposure to flavoured variants can dilute a brand’s image and eventually lead to consumer bemusement and saturation.
 
And a bottle of rum

Euromonitor International anticipates a 3% total volume CAGR for global rum sales over 2009-2014, broken down into a 0.7% increase for white rum and a 4% increase for dark rum. With premiumisation no longer being the primary vehicle for growth in developed – and financially challenged – economies, and barriers to overcome in revamping its image in emerging markets, the category may hold potential, although it is by no means comparable to or about to replace vodka.

Extending the spectrum of offerings to include lower-end variants along with brands that command a genuine story that justifies their premium positioning and price will become key in maintaining audiences in the beleaguered markets of Western Europe and North America.

On the other hand, investment in promotional and advertising campaigns in emerging markets with a long history of rum consumption and embedded perceptions regarding its commodity nature will become increasingly important. And, what is more important, successfully altering perceptions in those markets will open the floodgates for the category to take over the world.

Spiros Malandrakis, alcoholic drinks analyst at Euromonitor