Author: Richard Woodard
Date published: 11 Sep 2007
Western market volumes are still dominated by white rum, but it is the higher-margin, premium-oriented golden and dark variants which have piqued the interest of international spirits companies. These offer much promise in mature markets, but more patience will be needed in the emerging BRIC economies, where cheap domestic alternatives and fierce competition from other spirits sectors will remain obstacles to growth.
Age discrimination in the West
Excluded from rum's biggest global market, the US, for political reasons, Pernod Ricard's Havana Club has had to make a virtue of this disadvantage, driving growth in other international markets such as Italy, Spain and Germany.
The company's thoughts on the future of the sector were made clear with the unveiling earlier this year of plans to build a EUR50m distillery in San José, Cuba, purely for the production of aged rums. This, it hopes, will secure it volumes of 5m cases by 2013, up from 2.6m cases in 2006.
Marketing Director Karine Lienhard says the company hopes to capitalise on recent market trends, which have seen golden and dark rum developing very quickly. “We don't see any reason for that trend to change,” she says. “We believe the future is mainly in golden and dark rum.”
Globally, the trend does not look that distinct. Euromonitor International charts a 17.9% volume rise in global rum sales to 119.7m 9-litre cases over 2001-2006, broken down into a 15.9% increase for white rum (to 37.1m cases) and an 18.8% increase for golden and dark rum (to 82.6m cases).
But strip out the huge domestic rum volumes of India and the Far East, focusing on the major value markets of the West, and the mist begins to clear. The US rum market grew by 30% to 23.4m cases over the same period, with white rum's admittedly healthy 27.9% increase outstripped by golden and dark's 33% hike.
The trend is still more distinct in Italy and Spain, key markets for Havana Club, the spirits category leader in the former and the number one premium rum in the latter. Rum sales in Spain rocketed by 53.4% to 4.5m cases over the 2001-2006 period, with white rum actually falling by 4.7%. However, golden and dark rum soared by 103.2% to 3.2m cases last year.
It is a similar story in Italy, up 64.4% to 2.2m cases over the same period, but with golden and dark selling 1.4m cases in 2006, up 88.5% on 2001 and dwarfing white rum's growth rate of 35% over the same period.
There are also signs that aged rum can benefit from whisky's woes in Europe. “Prospects within Europe are fantastic, with gold rum on the rise in nearly all markets, with a corresponding drop in most whisky sales,” says Peter Martin, regional manager for Appleton Estate.
What is more, he adds, with a swipe perhaps aimed at clear market leader Bacardi, a big presence in white rum is no guarantee of success in the aged sector. “You cannot suck the value out of a category with one brand execution and then expect to be respected with another quality expression within the same brand name. Therefore, companies and brands known for their quality within gold rums will deliver the best results.”
This emphasis on credibility and provenance is helping fast-growing international brands like Havana Club, which relies heavily on its Cuban roots and imagery to drive awareness, as well as smaller, emerging players like Elements Eight, a recent addition to rum's style bar set.
For Andreas Redlefsen, Commercial Director of Elements Eight Rum Company, capitalising on the premiumisation trends in Western markets is crucial to building a global presence. “Competition may be higher in these markets, but emerging markets tend to ape the trends of these and as a result they are key from a positioning and credibility point of view.”
He is especially optimistic about Spain, where he believes the premiumisation trend is only just beginning. “It is the 'standard' qualities in the gold rum section – Cacique, Barcello, Brugal – that are driving the growth. Premium gold rums are just starting – eg Havana Club 7yo – and I believe this is where the future lies.”
Euromonitor International projections reflect that optimism in volume terms at least, forecasting a fall for white rum of 3.1%, equating to 39,000 cases over the 2006-2011 period. But golden and dark rum should register a CAGR of 6%, adding just over 1m cases over the same period.
Meanwhile, Italy is forecast to post a CAGR of 3.3% for golden and dark, adding 239,000 cases, but only 1.7%, or 72,000 cases, for white.
The US is forecast to continue its recent trend of aged rums slightly outpacing white, the former posting a CAGR of 3%, or 1.65m cases in total, and the latter a CAGR of 2.8%, or 1.95m cases. With the higher margins promised by the golden and dark categories, it is an enticing picture for the likes of Appleton and Elements Eight.
Emerging markets, emerging difficulties
Whatever the promise of the more mature Western markets, the lure of destinations like Russia, India and China is one that cannot be ignored. But, while the potential for growth is undoubted, the difficulty in securing an early return on the sizeable investment required is even greater.
Lienhard sees potential for Havana Club, but acknowledges that growth will take time and require a lot of investment. The brand can at least benefit from Pernod's excellent distribution base, particularly in India and China, but will have to join an orderly queue behind brands like Chivas Regal and Ballantine's, which are likely to get more of Pernod's attention.
“I personally believe that it is difficult to build a premium rum market in countries that produce rum or where a majority of the population consume rum,” argues Redlefsen. “The reason behind this is that it is the 'spirit of the masses', so that anyone who becomes more affluent tends to switch to other, imported spirits such as whisky, vodka or gin.”
This creates problems with the huge volumes of domestic rum in India and, by extension, with cachaça in Brazil. Meanwhile, China is at the moment beset by a host of whisky, cognac and vodka brands with huge marketing budgets. It is hard for rum to make its voice heard, at least in the short term.
Rum's twin-track approach
The result of these trends is that golden and dark rum finds itself both the victim and beneficiary of circumstances. In more mature Western markets, it can step into the shoes of whisky in particular, chiming with consumers' lifestyle aspirations and desire for premium products.
However, in emerging markets it finds itself outgunned by the same brands whose sales it is taking in the West. As Scotch, vodka and cognac build volumes in the likes of Russia, India and China in particular, rum is a lower priority for multiple brand owners, while smaller companies cannot compete financially or in terms of routes to market.
Growth will come here, too, but it will take longer and cost more. For now, it would be better to concentrate on Europe and the US in the short to medium term.
For further detail about this article and other related findings, please visit Euromonitor International by clicking here.