Spirits such as soju and cachaça may be less well known than vodka and whisky, but according to a new report from IWSR and just-drinks, could offer considerable benefits to multinationals, both in underpinning distribution in emerging markets and establishing new international categories.

The high profile of brands like Smirnoff, Absolut, Bacardi and Johnnie Walker on the international stage gives the impression that the spirits market is completely dominated by vodka, whisky and white rum, and by large, multinational corporations. But as a new IWSR/just-drinks report on speciality spirits points out, this is far from the reality.

True, the premium sectors and mature markets are dominated by the likes of Diageo and Pernod Ricard, but looking at the global spirits market in volume terms, the share of the multinationals is considerably lower than one might imagine.

According to just-drinks/IWSR's Global market review of speciality spirits - forecasts to 2013, the ten largest multinationals only have around a 14.6% share of the global spirits market in volume terms. In Asia, the share is even lower, at just 2.8%. It is similarly low in Eastern Europe, though higher in North America (61.2%) and Northwest Europe (38%).

Some local spirits categories, such as Chinese spirits, cachaça and shochu/soju, are enormous in volume terms. Others, like grappa and bitters, are smaller but offer opportunities for niche brands.

To give some idea of the scale, Chinese spirits is a 607m-case market, accounting for 27% of global spirits volumes. Vodka has a 22.3% share of global spirit volumes, shochu/soju 11.4%, non-Cognac brandy 4.3% and cachaça 4.2%. The multinationals are scarcely represented in some of these vast local spirits sectors, the report points out.

"Many view the market for these local products as largely divorced from the market for international products," the report states. "This is a contentious point. The IWSR believes that the fortunes of these two sectors are very much interlinked for a variety of reasons."

With much of the consumption of local spirits represented by cheap unbranded product, the report suggests there is an opportunity for the big national producers "to trade consumers up - initially from unbranded products into local or national brands". For example, the move from cheap unbranded so-called country spirits in India to local branded sector has driven the dramatic growth of the Indian Made Foreign Liquor (IMFL) category, the report says. Some of these IMFL consumers are now trading up into Scotch whisky and other imports.

"In theory, there should be a broad progression from unbranded products to cheap local brands and then either more aspirational national brands or international brands," the report continues. "A small increase in penetration by both the national players or the multinationals in markets such as China could lead to major volume and profit improvements."

Not all multinationals have eschewed this area of the market. Pernod Ricard, for example, has successfully marketed sub-premium local spirits in markets such as India and Thailand, bolstering the distribution base for its premium international brands.

"Acquiring large-volume brands to achieve distribution strength can make particular sense when these markets are on the cusp of significant economic expansion, like China or India," the report states.  Also, there has been a notable reluctance among consumers to abandon wholeheartedly their traditional spirits. "All things being equal, consumers will often prefer local products, provided they can offer the same status, quality and presentation. It could be harder to convert the populace to non-local styles than many Western companies imagine."

While multinationals focus on the major international categories, these are not always the fastest-growing sectors. According to the report, between 2003 and 2007 some of what it terms "non-mainstream" sectors were among the fastest growing. After vodka, shochu/soju was the second-largest growing category, while Indian whisky was the third fastest growing.

Tequila posted the fifth-largest volume increase, and Tequila's rising prominence on the world stage, the report posits, is a further reason why speciality spirits should be taken seriously by international players.

"Tequila's transition from being principally a national category into one of the hottest international categories shows what is possible," the report says. And that success should give multinationals good reason to take a look at cachaça. "Volume sales of cachaça may not be high enough to register on the strategic radars of most multinationals in Europe, but the current situation is similar to that of Tequila in the mid- to late '80s."

In 1985, volumes of Tequila in Europe stood at just under 180,000 cases, but by 1989 had risen to 600,000 cases, and now stand at around 2m cases. Today, every multinational has a Tequila brand in its portfolio.

That said, there has been talk in the drinks business about the international potential of cachaça for years, and so far little progress has been made. While it is the third largest spirits category in the world, 99% of cachaça is consumed in Brazil and there has been little development internationally.

The report cites the large domestic market as one reason why cachaça has not been exported in any great volume, but also suggests there has been some complacency. "The fact that cachaça's total international sales are less than 1m cases is an indictment of the industry," says the report. "Major Brazilian brand owners now need to invest further in advertising and brand-building promotions if they are to regain impetus and expand their foreign sales." Or is it time for a multinational finally to take on the challenge of developing Brazil's national spirit as an international category?

For more information, or to download the IWSR/just-drinks report, Global market review of speciality spirits - forecasts to 2013, go to www.just-drinks.com/store