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03.2007

Massachusetts Beverage Business

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Article By: Ken Sternberg

As tastes profiles of tequila, single malts and every other spirit have grown more complex, and prices have soared, consumers have grown more sophisticated and picky about what they drink and buy, regardless of category. Where five years ago an $8O to $1OO bottle of tequila or scotch may have sat on a store shelf gathering dust, today the demand for such ultra luxe products is fierce. Such "premiumization", as this trend is known, is one factor that has primed the market for increased sales of high quality rum. From 2OO4 to 2OO5 rum sales in the United States grew 6% and trail only vodka. Flavored rums and the resurgence of classic cocktails are also driving rum's popularity. "There are definitely changes. Signs seem to point to a future of what's happened to vodka and is happening with tequila. Given premiumization, everyone is enjoying rum in all kinds of venues," says Todd Schuessler, Brand Manager for Mount Gay rum at Remy Cointreau USA. "Some people like to sip single malts and Cognac, and rum is starting to appeal to them. It's not only for cocktails, but nice to sip as well," he observes. "With the higher-end rums now coming into light, consumers who would reach for a Cognac or other spirit are looking at rums that appeal to their palate," he says.


Three main factors are driving rum, he concludes. First, "Every time you turn around there seems to be a new rum flavor coming out." Next comes what Schuessler calls the "trading up factor" where consumers ask, "What's the top shelf brand?" Third, but significant, is the popularity of the Mojito. "If you look at how rum is consumed, it's just increasing. Classic cocktails are back with a vengeance, along with new twists on popular cocktails, switching the key ingredient with rum." Then again, he notes, products such as Mount Gay's Extra Old rum, aged between 12 and 17 years, offer the kind of bold flavors that appeal to enthusiasts of single malt, Cognac and other brown spirits enjoyed for sipping.

"Americans are demanding authentic, sophisticated, hand-crafted cocktails, which is why we're hearing more and more bartenders and restaurant managers tell us that rum sales are increasing. From the Mojito to the Daiquiri to rum and cola, it's all about genuine, premium cocktails," says Laura Baddish, spokeswoman for Bacardi. "The rum category is growing because consumers crave flavorful drinks, which is why we're seeing Bacardi sales continue to increase. The Mojito is one reason for the growth of rum; another reason is the discovery that drinks like rum and diet cola contain no carbohydrates and no sugar. Classic cocktails like the hand-shaken Daiquiris and [other rum cocktails] are rising in popularity at trendy lounges in places like Boston, London and New York," she notes. "As the spirits industry becomes increasingly cluttered and competitive, we're hearing more that our distributors are looking to focus on the most valuable products in their portfolios, especially brands that offer sustainable growth year after year," she says.

Adds Brandy Toth, Division Marketing Manager for Bacardi Brands in New England: "Over the last two years the Mojito has had a huge influence bringing people into rum. We embraced the Mojito early and were featured in the film "Miami Vice", which drew a lot of attention." Unlike the Cosmopolitan, which many brands adopted as their own, Bacardi launched an integrated print and television advertising campaign in an attempt to link the brand with the drink. "Last summer, we saw double digit growth for Bacardi rums and flavors - we've seen great success on-premise with Bacardi flavors. In Massachusetts, rum's annual growth rate is about nine and a half percent, which matches tequila, she says. "People are demanding premium luxury brands, such as [Bacardi-owned] Grey Goose vodka, and learning more about what's in their glass," Toth says. To help draw consumers into the category, "We are looking at rum education as a big part of our brand. We offer rum training to bartenders and account staff, and have a traveling brand ambassador who conducts staff and consumer training," she says. Taking advantage of Mojito madness, Excelsior in Boston set up a muddling bar last summer to allow guests to design their own cocktails. "We had a good relationship with Bacardi and thought we'd do this," says Candace Smith, Excelsior's bar manager. "We took fresh fruit, mint and basil, along with the different Bacardi flavored rums, Sapphire gin and Grey Goose vodka and allowed guests to create their own cocktails," she explains. With guidance from a bartender, guests chose from the ingredients displayed and watched their drink get muddled and mixed in front of them. "It was very successful and people expect us to do it again," she says, noting the muddling bar will probably open again in July.

One of the leading flavored rums, category heavyweight Captain Morgan Spiced Rum, has seen double-digit growth every year since 1992. "There's a trending toward drinking spirits in general, and with that, more sophistication among consumers. Spirits have entered the repertoire of peoples' consumption," says Diageo spokesman Greg Leonard. Driving the brand's success is largely the result of heavy advertising on cable television, event sponsorships and bar nights at numerous accounts. The latter feature "Captain Morgan" in the flesh, leading consumers in a contest or game. Increased numbers of legal age consumers and their desire for a white rum alternative also fuel growth, he says. Looking to cash in on the growing ultra-premium category, Diageo last year launched Oronoco, a white Brazilian rum that sells for about $35, in a handful of markets. Leonard comments, "We figured there is space for that ultra-premium drinking experience. Consumers are traveling more frequently to rum-producing countries and they want to enjoy rum they taste there when they get home."

And speaking of flavored rum, Malibu remains the coconut rum leader with a 6O percent market share and a growth rate of over 82 percent in sales volume during the past 1O years. "Malibu is one of the fastest growing and most dynamic brands in the rum segment and the overall spirits category," says company spokeswoman Liz Benyon. "Malibu has earned impact's Hot Brand and adams' Growth Brand awards for several years running and is considered to be a very vibrant and youthful brand." To keep the brand fresh, Pernod Ricard plans to launch new packaging for the Malibu product line this March, The pineapple, mango and passion fruit flavored rums will be bottled in the same signature white bottle as the coconut rum. Along with this, the company plans to unveil "a new drinks strategy" to spur consumer interest in the brand, she says. "The continuing popularity of all things cocktail remains a key driver of the increased consumption of distilled spirits and rum is no exception. Rum has definitely benefited from the cocktail renaissance. It is versatile and mixable and has become a key ingredient in many contemporary cocktail selections. Interest in things Latin and tropical has also helped spur demand for rum-based cocktails. While vodka is often touted as the seamless mixer, rum is favored when it comes to sensual flavors, aromas and golden colors," she continues.

Not all rums are focusing on flavors. "I'm starting to see flavors slow down in favor of a return to the parent vodka or rum," observes Joe Murray, Brand Director for Appleton Rum at Brown Forman. The brand is growing by about 14 percent a year, he says. "I'd like to think that in 24 months amber rum will be more popular, first in soda or on the rocks," he says. Still, "Rum is seen as fun and people don't mind putting rum in a blender. Even though some people want rum to be a luxury beverage, I don't think it's ready for $35 a bottle yet," he remarks, noting "We see the $24 to $34 bottle of aged dark rum being the next evolution." This, Murray emphasizes, "is where we're hanging our hat as far as the next big thing. We want to take the lead but can't do it by ourselves." As far as competition, "Ron Zacapa and Goslings are our competitors," he says.

One approach Murray says he believes in is trying to steal a page from Johnnie Walker scotch by marketing 8-, 12- and 21-year-old rums and highlighting their differences. "When our parents drank, they had scotch in the fall and gin in the summer. Now, some drinks might be tequila, some vodka," he says, explaining, "We're not better than anybody else, we're just different. Someday we'll go toe to toe, but right now it's us against the premiumization of the other categories." Consumers look at costly rums now and ask why they should spend so much. "They've swallowed that pill on Goose, on Patron. It's just a matter of educating them," Murray says. Appleton's new advertising strategy is nearly done and should go public in March or April, he remarks, adding it will first focus on the trade with estate rums, then target consumers in the Fall. "We'll go back to old school tastings in restaurants and stores to taste consumers on rum, and get away from promotions. We'll try to change the way they think of rum. It's not just for frozen drinks. We're more bourbon or scotch, in the amber category," he exclaims.

"The rum category is going to continue to explode and become even more competitive," says Malcolm Gosling, President and CEO of Gosling-Castle Partners, the US marketing company for Gosling's Rum, noting that rum sales are expected to grow through 2O15. Even though the majority sold now is flavored rum, Gosling says consumers are increasingly interested in and are buying more premium-level and aged rums. "Consumers are not looking for a tasteless product," he states. It doesn't matter if people first enter the category by drinking flavored rums as long as they enter the category, he adds. "As consumers mature, it's anticipated that they will try premium products," he continues, referring to rums such as Gosling's Black Seal and Old Rum, and other high-end brands. "If you were one of the brands there at the onset you will be positioned correctly, enabling you to withstand the market entries that undoubtedly will come," he says.

"When you're in this segment, the proof has to be in the bottle. People have to say 'This really is an outstanding product'," says Gosling. "You can have all the ads you want, but the best sales tool is getting it into the consumer's mouth," he explains. "Gosling's is growing at a very healthy rate, but we're way behind the major brands," he says. This is due partly because Gosling's started exporting outside of Bermuda in the 198Os, and because it's not a well brand aiming for high volume at discount prices, he explains. "Boston is a primary market for Gosling's," he adds, stressing the importance of training account staff. Print and outdoor advertisements along with event sponsorships are also in the mix.

"Rum is on fire. Largely speaking, if you're the type of person that looks for flavorful, exotic items, you'll look for that in other things. It's all about intensity of flavor, quality and smoothness," says Joe DeTrolio, Manager for Rum Runner Wine & Spirits in Mansfield. "I'm seeing more demand from customers asking me to bring in unique rums, such as Zaya and Pyrat Pistol. I fill customer demand, buy an extra bottle and it flies off the shelf. Without any publicity or discount, customers grab them. They say 'I saw this online. Can you get it?' They have no idea what it's like but they want to buy it," he says.

"There is no question the category is in a good place to take off," notes Tom Tesauro, Massachusetts Manager for On-Premise with Fortune Brands, which handles Cruzan rum, a brand that grew almost 21% in 2OO5. "We've done a good job of educating consumers in other categories. People are clearly drinking better. Rum is primed to follow," he says, pointing to the "explosion" of imported vodkas. "You go from a discovery brand to mainstream. It's happening in a big way with tequila. The thought of paying $3O for a 75Oml bottle of tequila 15 years ago would have occurred to very few consumers. Today, it's different. I think the same thing will happen to rum," he says. "Now, consumers are so much more aware of and educated about products. I think rum is on the verge of being discovered," he says. What's needed for rum to make the leap to widespread acceptance is both trade and consumer education, says Tesauro. "We really have to work both avenues and explain the differences, the aging process and regional variations in rum." He predicts this outreach will accelerate dramatically this year, especially for Cruzan's Single Barrel Estate rum, but less so with the brand's flavored rums.

"With Cruzan, we knew we had a winner. The rum category is one of the fastest-growing and we wanted one that fit our company," says Jeffrey Moran, spokesman for Absolut Spirits Co., which owns Cruzan. "Cruzan hit the mark. It was a great brand with great growth potential and we felt strongly that the brand was on the right track. With Mojitos being on fire, we think that they've helped people open up to rum. That, along with the overall premiumization of spirits and people's present tendency to indulge in 'great' cocktails have helped fuel this growth," he says.

"We're going to actively market the portfolio via advertising, public relations, on-premise promotions, and trade awareness/education to ensure that everyone knows why and how they should be enjoying this terrific rum brand," Moran notes.

"Tasting consumers is the real key, in retail where legal and in the on-premise channel," says Bill Dabbelt, Vice President of Sales and Marketing for White Rock Distilleries, whose rum brands include Barbarossa and Cabana Bay. "We believe the rum category is growing because today's consumer is looking for good tasting products and Rum definitely fits that profile. Rum is very versatile and mixes extremely well. The premium upper end of the rum category is being enhanced by all the excellent upscale rums entering the market." he points out. From 2OO4 to 2OO5 Cabana Bay sales fell 11 percent, while Barbarossa's increased by 33 percent. Dabbelt says this was due mainly to changing Cabana Bay's name from its original name of Cabana Boy, pulling back all marketing of the brand during the transition. Despite the company's intention of attracting female consumers to the brand, Cabana Boy generated great appeal among gay consumers. "It ended up being controversial, so we decided to make changes to a more neutral concept," he explains.

Nearly two years ago Moet Hennessy USA spent millions of dollars to launch 1O Cane, which it hailed as the first luxury light rum in a category lacking such a niche. A 75Oml bottle retails for $35 to $41. "Convincing buyers of the value of the rum and that 1O Cane really does make a better cocktail was one of our biggest challenges, but I think we have overcome that hurdle. By getting the word out about the taste of 1O Cane and that the care with which it is produced is the reason why it tastes better than other light rums, our customers have a better understanding of our positioning as a luxury rum," says Rob Bryans, Vice President/Marketing for 1O Cane at Moet Hennessy. "Creating awareness and a keen understanding of a new rum is no easy task. We accomplished this by educating journalists, the trade and the public through tastings and advertising. Customers are beginning to understand that the best rum cocktails start with the best rum and the freshest ingredients," he continues.

"Consumers are experiencing 'vodka fatigue', and many are moving to rum, or at least experimenting with rum. The popularity of the Mojito is a key driver, but let's not forget that the most popular rum drink is still rum and Coke. Creative mixologists around the country are helping to propel the rum category by introducing new consumers with discriminating palates to rum, especially light luxury rums like 1O Cane," Bryans states. "When dealing with a lower quality spirit, the goal is to minimize the poor flavor by covering it up with a mixer. The smooth texture of 1O Cane, along with its appealing flavor profile, is the perfect base spirit for cocktails," he says. "Rum is growing at a rate of 5.5%, faster than vodka. Flavored rum and high-end rums are driving the growth," he remarks.

"We see a return to the classic cocktail and less emphasis on frozen frou-frou cocktails. With all of the wonderful fresh ingredients that are now available in most parts of the country, it is easy to make a simple classic Daiquiri, rather than the frozen version. Fresh lime juice is not difficult to obtain and it is very easy to make simple syrup. Bartenders today are getting very creative, concocting all kinds of delicious syrups and infusions just like great bartenders did in the 19th century. More and more bars and restaurants are serving the Mojito and we feel that its success will continue to grow in 2OO7, therefore rum as a category will continue to grow," says Bryans. "Rum is suffering from a poor image," he continues. "Consumers like the taste of the product, but not the image associated with frozen drinks and spring break. At the same time, rum is synonymous with relaxing by a pool during a Caribbean vacation, good times and lively gatherings. We tend to drink rum when we go away for a vacation, but go back to vodka when we get back home. 1O Cane is single-handedly recrafting the image of rum to one of relaxation and luxury to appeal to a more sophisticated level of consumer that may not be drinking rum at the present time. We are communicating this new message on a daily basis."

"Over the past year, the rum category has continued to advance significantly and there's every indication that this growth will continue in the coming year. At the high-end where Pyrat competes, new entrants into the category continue at higher and higher price points, including those selling for several hundred dollars per bottle," comments Matt Carroll, Brand Manager for Pyrat rum at Patron Spirits. "Flavored line extensions have helped drive the category, but certainly there's no doubt that the Mojito has contributed significantly to rum's popularity and growth. As a matter of fact, many industry experts are predicting that the Mojito will become the next margarita," he says, a trend that may already be occurring.

"In the summer to early fall we sell more Mojitos than anything else, even margaritas," says Stephen Clark, a bartender at Cuffs in Jurys Hotel Boston. "In the winter, they still sell well. People love to watch them being made and then they order one. With people traveling to Bermuda, we also get a lot of call for Dark 'n Stormys," he says. For the occasional customer asking for a smooth rum they can sip on, Clark often suggests Pyrat XO.

"The rum segment is doing extremely well, advancing by over 1.2 million cases in 2OO5, eclipsing the 22 million case mark in the US, second only to tequila for growth rate. Preliminary sales data indicate an even higher level of growth for 2OO6," says Carroll. "The Pyrat rum line is up 1O5 percent over 2OO5. This is one of the top growth rates for ultra-premium rum in the US Pyrat 'Pistol', which represents a small segment of the total Pyrat line, was up 11% over last year in the US," he notes. As for flavors, Carroll allows their importance for attracting people to the rum category. As their taste for rum grows more sophisticated, "People begin to recognize and appreciate ultra-premium rums like Pyrat," he states, adding that this class of rum is, "similar to single malts and tequilas in that it is a barrel-aged product."

"A similar event occurs with our tequila, Patron. It's seen being promoted by celebrities in movies, television, music and media of every sort. Our brands, both Patron and Pyrat, are an affordable luxury," he says. For the moment, "Most of our marketing efforts for Pyrat rums are geared around trade programs. We are trying to build enough distribution to warrant traditional consumer advertising. "I'm a big fan of consumer events," says Mount Gay's Schuessler, pointing to the Aspen Food & Wine Festival. "Events like that are key for any brand to educate consumers on a one to one basis." Sailors are Mount Gay's primary target consumer, he notes, pointing to the company's sponsorship of Key West Race Week and other regattas.

The majority of the budget is used on value-added packaging and consumer event sampling, Carroll remarks, explaining "With Pyrat we have a real opportunity to educate consumers. Rum is traditionally mixed with fruit juices or cola, but Pyrat's taste profile is entirely different than the white rum that many consumers are used to. With the ultra-premium rum category, these products are much better suited to be served straight up or on the rocks to sip and savor."

As for the trend toward premiumization, Dabbelt says, "Any rum marketer looking to appeal their brand to the premium tequila or single malt consumers needs to be aware of product differentiation, origination of product, packaging and, of course, premium pricing. To succeed at the high end of the category, rum products need all these elements to succeed." Adds Schuessler: "I think it's a gradual turning point we've been on. All things lead to that." Dabbelt cautions, however, "It is important to remember that rum with cola still remains the leading cocktail made with rum for decades now, including silver rum, spiced rum and, to some extent, coconut rum too."

All signs point to rum as a category poised for a sharp sales spike. As always, smart marketing, product training and an understanding of target consumers are among the factors that could prove pivotal to rum's continued success.

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