Increased investment by multinationals is transforming the rum sector which, according to a new report from just-drinks and IWSR, could be the next "hot" international spirits category. Ben Cooper reports.

Given that both Fortune Brands and Diageo were at one stage in the hunt for Absolut vodka, ending up adding rum brands to their portfolios, while Pernod Ricard walked away with the main prize, may seem scant consolation.

However, given the growth and potential in the category, a rum brand should perhaps no longer be seen as a consolation prize. According to a new report from just-drinks/IWSR, Global market review of international rum - forecasts to 2012, the rum market "has been displaying consistent and sustained growth" in recent years, rising by a compound annual growth rate of 1.7% between 2003 and 2007 to reach 120.8m nine-litre cases. Moreover, the report forecasts the market will grow to some 134.9m cases by 2012.

"Rum is widely tipped as the next hot international category," the report states. "Rum is undoubtedly substantial in terms of volume and breadth of markets, but has tended to lag behind other categories, such as Scotch, in terms of its international and premium development."

The growth potential is attracting increased investment from multinationals which, the report points out, is transforming the category. For many years rum was essentially a cottage industry dominated by Caribbean, Central or South American producers. Bacardi was the only truly international brand. But the entry of the major spirits multinationals into the category is providing much-needed investment, distribution and brand-building skills.

The increased investment has resulted in improvements in production methods, presentation and innovation, closing the gap between rum and other spirits categories. "Rum is now shedding its commodity image and is being recognised for the high-quality product that it has the potential to be," the report states.

One clear sign of development is that the sector is now seeing the kind of consolidation already witnessed in other spirits categories.

Fortune Brands' acquisition of Cruzan from Pernod Ricard for US$100m last October was just one of the significant deals during 2008. In February 2008, CL Financial, which owns Angostura rum, acquired Lascelles deMercado and Company, producer of the Appleton Rum brand, for around $900m. In the same month, Edrington Group acquired a majority participation in Dominican Republic rum producer Brugal Company. Diageo had acquired the global distribution rights to Zacapa in February.

As more big companies enter the rum category, the marketing investment behind brands is also on the up. "The ratio of advertising and promotions to net sales is growing ever higher, particularly in the US," the report states. "This growing critical mass of investment and so-called share-of-mind is helping to raise the image of rum and drive up overall category sales."

Even more encouraging, the report continues, is the premiumisation being seen in the market. While the low-price and standard qualities rose by 1.1 and 1.4% respectively on compound annual growth basis between 2003 and 2007, the premium and super-premium segments rose by 9% and 3.3% respectively. The premium share of the category has risen from 4.4% to 5.8% over that period, according to IWSR estimates.

There are a number of key factors driving growth in the rum market, the principal of these being rum's versatility. While rum is a mixable spirit used in many cocktails, aged 'sipping' rums appeal to spirits connoisseurs and are consumed much like older Cognacs or malts. And just like fine Scotch whiskies and Cognacs, rum brands have been able to trade successfully on their provenance. The exotic and glamorous nature of many rum-producing countries, and their increasing popularity as tourist destinations, has further bolstered rum's image. Meanwhile, the popularity of Latino culture in many markets has also had a positive influence on the sector, the report states.

Rum has also benefited hugely from the increasing popularity of cocktails. This trend is strongest in the US but is also evident in many cities around the world, the report states. Moreover, the cocktail route is not restricted to white rums. The report points out that dark rum brands are also looking to tap into the cocktail boom.

Another trend fuelling growth is the increasing popularity of flavoured spirits. "This [trend] is most apparent in the US and Caribbean, but is showing some signs of spreading beyond. Rum naturally lends itself to flavoured expressions. Brands such as Bacardi, Captain Morgan and Cruzan today derive considerable volume from their flavoured variants."

According to the report, the flavoured rum category in the US rose by a compound annual growth rate of 8.3% between 2003 and 2007 to reach 8.5m cases, though much of this growth came from Captain Morgan Spiced. In fact, spiced rums have generally performed better than fruit-flavoured rums, with some exceptions such as Bacardi Limon. Flavoured rums have also enjoyed success, from a smaller base, in Canada, the UK and Brazil, the report adds.

However, while flavoured rums clearly offer growth potential, some rum marketers are uneasy about an over-emphasis on the flavoured side of the business among some brands. While they provide a point of differentiation, offer potential for incremental sales and generate consumer and trade interest, there are worries that having too many new flavours can lead to dilution of a brand's image.

There is also concern that over-emphasising flavoured rums confounds efforts to promote rum as a premium, aged spirit. "Most premium rum marketers believe that flavours do not make natural bedfellows with their aged offerings," the report states. "They contend that the popularity of flavours has run contrary to their efforts to forge a more premium image."

Premium-orientated producers also point out that using flavours to provide differentiation is not necessary for rum in the way it may be for vodka. "Whereas products like vodka require flavours because there are otherwise relatively few points of differentiation. For rum producers that is not the case. There are other opportunities to broaden a portfolio through ageing, or barrel finishes."

While there may be something of a conflict between the two approaches, both appear to offer routes to growth, which in itself says something about the potential of the category and the opportunities on offer.