WHITEFISH, MT / July 10, 2014 / With over 146,000,000 9-liter cases now sold annually, rum has emerged as the sixth-largest spirit by volume globally and is enjoying a resurgence in popularity. Higher-quality rums are seeing increased local consumption as well as traction in the export markets, according to a report published last year by Just-Drinks.com and International Wine & Spirits Research. The report indicates rum has excellent receptivity all over the world and yet has been largely underdeveloped as a market in several up-and-coming regions, with the biggest volumes currently being in India, North America, the Caribbean and Europe, where Germany and the UK lead consumption growth.
For instance, the Office for National Statistics data in the UK swapped out champagne for rum in their basket of goods representing the average shopper’s basket last year – a metric which it uses to calculate annual inflation rates. Low price and the wide range of cocktails rum can be used to make (like mojitos and daiquiris), has increasingly made this spirit a standard staple among consumers from across all buyer segments. Moreover, spiced rum in particular has become extremely popular, particularly among college-aged drinkers. With brands like UK-based giant Diageo’s (NYSE: DEO) Captain Morgan shattering the one-year, 10,000,000 case benchmark in 2012 on record growth led by DGE’s core Captain Morgan Spiced product (with 5.7% growth in Latin America and the Caribbean during the first quarter this year), the handwriting is on the wall for rum and spiced rum sales, no matter which side of the pond you are on.
The biggest growth in recent years has been in the standard-and-above category, with premium rums fetching the best results and Brazil, Germany, the Dominican Republic and Russia ranked as the top four consumers thereof. According to Diageo’s global brand director, the success of their rum has been due to tight marketing that really hits home with consumers and the perfection of a brand that consumers identify with and enjoy. Sage words about the rum market from a top man at Diageo, the company behind such household names as Bushmills, Guinness, Smirnoff, and Johnnie Walker.
The rum resurgence isn’t just for the big boys either. Storied spirit producer Gosling Brothers, the oldest business house in Bermuda with a history stretching back to 1806, whose brand is developed and distributed by partner Castle Brands, Inc. (NYSE: ROX), has also seen record breaking sales in recent years. Once a Bermuda-only brand and now routinely winning awards from the likes of the Caribbean Rum Journal, Gosling’s variety of rums have become quite popular, with the company breaking 100,000 cases in the U.S. just two years prior.
Major M&A Activity and New Brand Releases Telegraph Market Strength
The rum market is so hot that Diageo, which has been hammering United Spirits Ltd. (BOM: 532432), the biggest spirits company and rum producer in India, to buy up a bigger position in their operation, just announced that they scooped up another 26% of United Spirits to become a majority shareholder at 55%. United Spirits produces one of the consistently ranked, best-selling whiskeys worldwide, McDowell’s No.1, and the deal essentially makes Diageo the biggest spirits producer worldwide by volume, with over 17% of just the global rum market (9% of spirits globally).
The growing consumption of rum among western consumers is further evident from Kantar Media ad tracking data on the World Cup that shows privately-held rum juggernaut Bacardi came in second on a list of the top ESPN and ABC World Cup advertisers. Spiced rum has really become a facet at student parties and has even become in vogue as a substitute at wine and food parties, whether in the increasingly-known for its gastronomic excellence Caribbean region, or in the U.S. and UK. Higher-end premium rums continue to take increased market share from cognacs and whiskeys.
This is a clear indication of the strength of the rum revival in western markets, and the growth Diageo is seeing in the Caribbean is of particular interest to investors. The continued subsidizing of the rum-producing U.S. territories of Puerto Rico and the Virgin Islands (where Diageo operates a large rum distillery making Captain Morgan) has created an export vacuum that impairs other Caribbean Community (CARICOM) rums, creating a peculiar insularity that has set the stage for the emergence of stronger, localized brands that target the unyieldingly positive domestic Caribbean market.
The Caribbean, a Major Source For and Consumer of Rum
A solid way to play the strength of the domestic Caribbean rum market is with premium, authentic Caribbean rum and a superior branded approach that takes advantage of the sizeable tourist market coming mostly from North America. A company like Blue Water Global Group, Inc. (OTCQB: BLUU), which recently confirmed their initial Caribbean-themed Blue Water Bar & Grill(TM) restaurant chain location as being at Indigo Bay, St. Maarten (part of a 150-acre lush tropical and beachfront commercial/residential project), is poised exceptionally well to capitalize on the thriving Caribbean rum market. Blue Water is rolling out a variety of branded merchandise alongside the proliferation of their restaurant chain, which caters to North American tourists and will follow the cruise ship ports of call route across the Caribbean. The company’s core branded merchandise is a line of premium rums made of organically-grown Caribbean sugar cane, harvested at the pinnacle of freshness and carefully crafted by a master rum maker.
Superb production cost and economy of scale advantages from distilling the product in the Dominican Republic dovetail nicely with Blue Water putting their premium rum into attractive, imported bottles. Blue Water hasn’t ignored the spiced rum segment either and recently announced they will be releasing an extremely smooth, naturally spiced rum, Blue Water Caribbean Gold(TM) (35% alcohol by volume), to support their flagship, high-end white rum, Blue Water Ultra Premium Rum(TM). The Blue Water-branded rums play beautifully off of the company’s Caribbean restaurant theme and with "lifestyle" merchandising that has the rum as its crown jewel done in a fashion similar to the Hard Rock Cafe, a bottle of the company’s rum will make the perfect souvenir for tourists, as well as the perfect beverage to enjoy while drinking in the ocean breeze at a Blue Water Bar & Grill.
The Blue Water restaurants are designed to give tourists the ultimate beachfront Caribbean experience. The initial restaurant location, in what is the newest and closest attraction to the thriving Port of St. Maarten, features all the amenities one might expect, from an open-air tiki roof and swimming pool with swim up bar, to lounge chairs on a picturesque whitesand beach, attended by full food/drink service from a sumptuous menu of Caribbean style cuisine. The company’s rum products accentuate and encapsulate the overall brand concept, giving patrons and regional consumers a chance to buy a slice of the experience, while the restaurants make an ideal point of sale for the rum, whether as a beverage or as a souvenir.
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Well-Executed Brands Express & Capture Growing Western Taste For Rum
Westerners visiting the Caribbean bring their growing taste for rum along with them and the growth of that taste is increasingly evident in the debut of new, highly developed brands throughout the western world. The recently announced launch of a smooth, 7-year-old Añejo rum branded after the iconic Copacabana nightclub in NYC, via a top distillery team assembled by celeb chef Alex Garcia and restaurateur Spencer Rothschild, is a leading example of how much headroom there is in the sector, especially for well-executed premium rum brands. Focusing on location authenticity and heritage, as well as exceptional flavor, Copacabana 1940 rum will come in a gorgeous oval shaped bottle made in France by Saver Glass that is decorated with the famous Copacabana girl.
The appeal of a given brand of rum is about so much more than what is in the bottle and cultivating a target market through consistent brand identity has proven to be the hallmark of success in this niche of the spirits industry. The recently announced roll-out of The Real McCoy Rum in the UK, after a successful launch in the U.S., is another good indicator here. Developed by Bailey Pryor, the director of a popular documentary about the life and times of Bill McCoy and the origins of the rum running trade in the prohibition-era U.S., The Real McCoy Rum’s much-anticipated debut in UK markets is another striking example of how much room to move there is for top quality, branded rums today. However one chooses to invest in the rapidly growing rum sector, whether with the most established players or with an up-and-comer filling the gaps in the market, there seems to be plenty of upside for all concerned.
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