Rum category set for change of fortune

10th September, 2015 by Amy Hopkins

Rum has struggled against numerous challenges in the US and Europe over the past five years, but the category now has the opportunity to “regain its footing”.

National-Rum-Day

Analysts predict that rum will return to growth in Europe and the US following five years of decline

According to Rabobank’s Spirits Quarterly Q4 2015 report, European rum consumption declined from 175.5m litres in 2009 to 174m litres in 2014, while the category has been underperforming compared to the broader spirits market in the US since 2009.

In Europe, the category’s decline has been predominantly attributed to rapidly falling volumes in Spain, where sales dropped 13m litres during the period.

Rabobank analysts believe that this is largely due to Spanish Millennials drinking less, since they are part of the demographic most impacted by the recession. However, when these consumers do drink alcohol, they are increasingly favouring shot formats.

Rum still suffers from a lack of “premium positioning” in Spain, analysts claim, and maintains an image as a “party drink”.

However, Rabobank reports that suppliers are witnessing a “notable improvement” in Spanish consumer spending as super-premium brands become more popular in the market.

“Assuming a slowdown in rum’s rate of decline in Spain, and ongoing growth in major markets such as France and Germany, we expect Western European rum sales to turn positive within three years,” analysts claimed.

Vodka and American whiskey challenge

In the US, rum is losing market share to both vodka and American whiskey and due its reputation as a mixing spirit, has also been knocked by a slowdown in the soft drinks market. In 2014, US per capita consumption of soft drinks fell to levels not seen since 1986.

However, Rabobank argues that the US could receive a boost from the growing popularity of dark super-premium rums that can be consumed without a mixer.

In addition the restoration of diplomatic relations in the US and talk of lifting a long-held trade embargo between the two nations has the potential to “breathe new life” into the US rum market, but it is “premature” for producers to raise their hopes, said analysts.

Furthermore, the report states that even if the trade embargo is lifted, Cuban rum producers will battle against those in Puerto Rico and the US Virgin Island, which benefit from subsidies.

“Given the cost disadvantage, Cuba will need to focus on building brands in the more premium end of the market, which will require restraint and discipline from a country with reportedly low supplies of aged inventory and intense short-term needs for cash,” the report concludes.

Since diplomatic relations between the US and Cuba were “normalised” last year import restrictions have been eased, meaning US citizens travelling to Cuba can now bring up to US$100 worth of tobacco and rum into the US.

The trade embargo was implemented in 1961 when the Cuban revolution led to communism.

If US Congress decides to lift the embargo, Pernod Ricard could import its Havana Club rum into the US under the Havanista label. The group is unable to launch the rum under the Havana Club label in the US as the trademark is owned by Bermuda-based firm Bacardi, whose rum is produced in Puerto Rico.

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