Comment - Spirits - Cachaca's Big Chance, But Heed Tequila's Warning
To celebrate the launch of just-drinks' and The IWSR's latest spirits report, Richard Woodard considers the future for cachaça. But, first, let us look to the past.
Consider these twin pairs of sporting occasions, nearly half a century apart: In 1968, Mexico City hosted the Olympics and, two years later, the city’s Estadio Azteca was the scene for Brazil’s historic third FIFA World Cup win.
Buoyed by the resultant boost to the international profile of Mexico, so the theory goes, Tequila sales took off.
Forty-six years later, Brazil and cachaça are keen to repeat the trick: the World Cup this year, and the Olympic Games in 2016. As has been said many times over the past couple of years, this is cachaça’s Big Chance. But, given that 99% of its sales remain confined to the domestic market, is it ready?
Some of the signs are promising. In early-2013, the US Alcohol and Tobacco Tax and Trade Bureau (TTB) recognised cachaça as an official product designation, meaning that exporters to the US no longer have to label their spirit as “Brazilian rum”.
There’s multi-national involvement too: Bacardi purchased a stake in Leblon in 2007, Gruppo Campari bought Sagatiba four years later in a deal worth over US$36m, and Diageo acquired premium market leader Ypióca in 2012 for BRL900m (just over $450m at the time).
For a category that is not so much domestically Brazilian as regionally parochial, that’s a big deal. For many cachaça brands, “expansion” means selling in more than one state in the home market, so the involvement of industry big hitters can only help to encourage higher, more export-friendly standards of product quality, marketing and packaging.
Let us not delude ourselves: Both Campari and Diageo have made no secret of the fact that the primary motivation for their cachaça purchases was not to transform it into a global category, but to build their presence in the vast, and vastly promising, Brazilian market.
Yes, Sagatiba has been reintroduced to the US and, yes, Ypióca is rolling out internationally, but that BRL900m price tag says much more about Diageo’s belief in the potential of the domestic premium cachaça segment – and the allure of Ypióca’s extensive sales and distribution network, especially in the north-east of Brazil.
As for Bacardi and Leblon, the brand at least has a decent foothold in Miami, for instance, and commands an impressive 50% share of the US market. But, given that Stateside cachaça volumes only hit 80,000 cases in 2013, this particular tiny acorn has barely even started to sprout.
As for that landmark TTB ruling, of course it can only help cachaça to carve out its own identity in the huge US market, but again it says more about the attraction of Brazil’s developing economy and emerging consumer base than any desire to offer cachaça a helping hand. The quid pro quo of the deal was that Brazil now recognises Bourbon and Tennessee whiskey as distinctive US products too – so it’s far more likely to benefit Jim Beam and Jack Daniel’s than Leblon and Sagatiba.
The more I look at cachaça’s export performance and ambitions, the more convinced I become that the internationalisation of the category is neither its biggest concern, nor – in the short to medium term, at least – the answer to all its problems.
That’s not to say that cachaça brands should ignore the export markets – I’m sure that the multi-nationals in particular will continue to seed their brands around the world – but when you sell 78.5m of your 79m or so cases every year in one single market, that’s the place that should dominate your thinking.
Cachaça may be declining in Brazil, but it still has massive scale; it may face threats from a number of sources – beer, imported spirits such as vodka and Scotch whisky, the generational shift away from traditional categories – but it retains the capacity to reinvent itself as a more modern, premium and artisanal spirit.
There are signs of this already in the strong, more youth-oriented RTD/RTS segment, as well as in the success of Ypióca in the premium price bracket (the brand sells just under 6m cases a year).
In its raw material and production method, cachaça is a rum, and it can ape rum’s twin-track strategy: column-distilled spirit for the mass market, pot still for the aficionado, premium products that blend the two. In particular, the artisanal cachaça hotbed of Minas Gerais offers hope of a future in which fine cachaças sit alongside single malts, XO Cognacs and luxury Tequilas on the back-bars of Rio and São Paulo.
The pay-off is that those dwindling sales volumes are bound to continue on a downward track, but sacrificing volume for value is rarely a losing strategy, however difficult the adjustment period for low-end operators.
Solving cachaça’s problems in the Brazilian market has to be the category’s highest priority, bar none – while the slow construction of a significant export presence will take far longer. After all, it’s 46 years now since Bob Beamon broke the world long jump record, and 44 since Pele and his team-mates trounced Italy 4-1 in the World Cup final.
The Tequila category serves as a good case-study for cachaça. While it is a major spirits category in the US and, with brands such as Patrón, has secured a presence in the luxury segment, move further afield and what do you find? For most consumers, the Mexican white spirit is still associated with drinking games, slammers and hangovers of epic proportions.
Taken together, Mexico and the US still account for more than 85% of global Tequila volumes and, despite the export ambitions of premium brands and 100% agave bottlings, that’s unlikely to change any time soon.
It’s an example that cachaça producers would do well to heed. These things take time.
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