Research in Focus - Rum Sector Reaping the Premiumisation Dividend
Could rum producers be rolling out the barrel in 2011?
Following the trends seen in categories such as vodka and Tequila, rum marketers are optimistic about the potential for premium and super-premium rums. A new just-drinks/IWSR report suggests with good reason.
Premiumisation is a projected growth driver in many spirits categories but, according to a new just-drinks/IWSR report, the trend is likely to have a particularly transformative impact on the rum sector.
According to the just-drinks/IWSR Global Market Review of Rum – Forecasts to 2015, both the premium and super-premium tiers of the rum sector are relatively underdeveloped and far smaller than those of other categories such as vodka, whisk(e)y and brandy. But, premium rum sales are growing as a proportion of the rum market, which in itself is expanding.
While the rum sector as a whole achieved a compound annual growth rate (CAGR) of 3.4% between 2004 and 2009, premium-and-above sales grew by 9.8% on a CAGR basis. And, the report forecasts that the premiumisation trend will gather pace as markets such as the US, the UK and Spain recover from the recession.
Globally, premium-and-above rum sales amounted to 4.2m nine-litre cases in 2009, out of a global rum market of 135.28m cases. Compare this with the giant premium-and-above vodka sector, which stood at 18.2m cases in 2009, and it is easy to see why premium rum is viewed as having such great potential.
Major rum marketers, who, along with market leader Bacardi include the likes of Diageo, Pernod Ricard, UB India and Edrington, have identified this opportunity and are now investing in the premium market.
However, in spite of this nascent investment in the emergent premium and super-premium segments, no brand has yet established a dominant position or really driven the market forward to the extent that brands like Grey Goose in vodka or Patrón in Tequila led the way in their respective categories.
The report goes on to suggest that the super-premium sector is expected to develop to a greater extent and many suppliers are investing in a bid to gain early leadership in this sector. Diageo, for example, has been particularly active in developing Zacapa, a brand for which it has the global distribution rights.
Rémy Cointreau is another company that is “fully embracing the premiumisation opportunity” with its Mount Gay brand, the report notes. The company has also repositioned Mount Gay with the introduction of Mount Gay Eclipse and Mount Gay Eclipse Silver and is seeking to have a permanent presence at the top end of the market with the new Mount Gay 1703. In December 2010, Edrington launched a new high-end variant for its Brugal brand called 1888.
With the success of Grey Goose and Patrón in mind, the US is clearly a critical market. It is a huge market for premium spirits and has been the platform and model for a number of premium spirits categories, notably vodka. Here, also, the portents for premium and super-premium rums are good. Growth in the US has been particularly strong, with sales rising by a CAGR of 13.4% between 2004 and 2009 to reach 1.16m cases. Premium growth was also seen in Canada, with premium-and-above rum sales increasing by 20.4% over the same five-year period to reach 656,000 cases.
However, premium sales in Spain slid by 33% in 2009 owing to the recession. Another market which IWSR believes could become significant for premium rum is the UK where premium-and-above rums saw a CAGR of 21.3% between 2004 and 2009 to reach 181,000 cases.
A further encouraging factor regarding the premium potential for rum is that, as yet, there has been little attention paid to Asia Pacific. “Given the importance of Asia for other premium, aged brown spirits such as Cognac and Scotch, it seems likely that at some juncture the major rum companies will turn their attentions to Asia,” the report states.
Rum marketers interviewed for the report pointed to the undoubted growth potential for premium brown rums in Asia. Diageo states that, having focused principally on Scotch whisky in the region, it is now “putting plans in place for rum in Asia”, where it sees the super- and ultra-premium segments as “the big opportunity”.
Even more encouragingly, overall growth in premium-and-above rums held up during the recession, with a rise of 5.8% in 2009.
In fact, the rum sector as a whole bucked the recessionary trend, growing by 5.7% between 2008 and 2009. This actually represents an acceleration from the five-year CAGR of 3.4%, though the report points out that much of the increase was derived from two relatively low-priced markets, namely India and the Philippines.
just-drinks and IWSR say that the market for imported rum was “slightly more subdued” owing to the economic downturn, growing by only 1.1% in 2009 over 2008, well below the five-year CAGR of 4.3%. This was primarily attributable to a 7% decline in Spain, the largest imported rum market, where sales fell to 4.08m cases. The drop in Spain was partly offset by growth in France, the UK and Germany.
Clearly the growth in imported rums will go hand in hand with the premiumisation trend, as the report states. “It is significant that the imported rum sector is growing. Imported rum still constitutes less than one-fifth of the total rum market, but has been growing at a 4.3% CAGR between 2004 and 2009 to reach 24.4m cases. Look for imports to account for a greater share in coming years as the market continues to premiumise.”
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