Diageo boosts ‘sophistication’ of cachaça sector

The involvement of international drinks groups in the cachaça category has helped it become more “aspirational and sophisticated”, according to a leading drinks analyst.

Diageo’s acquisition of Ypioca has helped the cachaca category become more premium, according to Euromonitor analysts Spiros Malandrakis

Speaking to The Spirits Business, Spiros Malandrakis, senior alcoholic drinks analyst at Euromonitor International, said the involvement of large drinks groups such as Diageo has boosted the premium credentials of cachaça, a sector which has long suffered an un favourable image due to the presence of “industrial brands”.

Diageo purchased Ypioca for US£450 million in 2012, giving the drinks group its first major presence in the cachaça category.

“With Diageo coming into play, the cachaça category has become more premium, and this end of the sector is doing very well,” said Malandrakis. “With this alliance we are now seeing a transition from low quality brands to the more aspirational and sophisticated.”

His comments come as IWSR figures reveal that volume sales of cachaça have fallen 10% from 88m cases in 2009, to 79m in 2013. However, premiumisation in the category is evident as its value has grown by US$2.2bn in the past five years, a huge 2,500% increase.

Of the sector’s volume decline, Malandrakis said: “This is happening because consumers are moving to other spirits categories, and the cachaça category itself is so saturated, it doesn’t have a lot of space to grow.

“The category is not expected to reverse its chronic volume decline any time soon, but there are opportunities for value growth. The only hope for volume growth is that it merely stabilises at this stage.”

This decline has been exemplified in an earlier forecast by the IWSR, which predicted that in Brazil, cachaça  and local brandy will lose almost 4.7 million cases between them in the next five years, while volume sales of whisky and vodka are set to soar by 1.2m and 2.6m cases respectively.

Steve Luttmann, founder of Leblon, however, believes such declines are not a negative trend since it reflects cachaça’s move towards the more premium end of the spectrum.

“For a long time cachaça has had a reputation of being a low quality spirit, but this is changing due to the emergence of artisanal brands,” he said.

“I always say cachaça is two categories with the same name – there’s industrial cachaça which is in decline, but alambique cachaça, made in pot stills, is growing in double digit numbers.

“So when you look at the empirical measures, it masks over what is happening in the alambique category.”