Turbulent times for rum: Saving market share
By Edwin Laurent
Despite the vast quantities of rum that revellers drank during London’s Notting Hill carnival, Caribbean rum producers are still facing a bleak future.
The previous articles in this series considered the twin challenges facing Caribbean rum.
These include the “unfair” government support to distilleries in Puerto Rico and the US Virgin Islands, as well as the threat to tariff preferences in Europe as the EU opens up to Latin American rums.
While these problems are each of a different nature, their ultimate commercial impacts are broadly similar: both the US and Latin suppliers will be able to sell more cheaply.
The Puerto Rican and USVI distilleries use the money from the government to reduce their costs of producing and getting the rum to market, while Latin American prices are likely to fall as import duties are cut.
The London-based Overseas Development Institute estimated that the Caribbean could lose as much as 16.5% of its European market to the Latins, while the West Indies Rum and Spirits Producers' Association (WIRSPA) has been warning of dire consequences in the US.
To avoid losing out to lower-cost competitors, the rum industry has to find ways of reducing its own prices.
So what can the Caribbean do?
Surrendering the market is out of the question; the jobs, income and foreign earnings are too important.
Therefore it has to either challenge the competition head-on, including through reducing prices, or alternatively (and maybe simultaneously) try to reverse the harmful measures or block their introduction.
What is the precise commercial action that the industry can take?
The most obvious is to reduce costs, so that selling prices can be lowered.
This will require a hard look at the entire supply chain, from sourcing of inputs to finally getting the rum on the shelf.
The producers will need to carefully study each stage to determine how costs can be reduced and greater efficiencies achieved.
Optimising and branding
Questions to be addressed include:
· Is the best deal being secured on inputs and raw materials?
· Is the right plant and equipment being used, and is it functioning at optimal capacity?
· What of other factors influencing costs, transportation and inventory arrangements, for instance?
Then there is packaging and presentation, so important in the case of branded rum, where the customer is to be enticed to choose that particular brand, instead of not only other rums, but also whiskey and other spirits.
To have any chance in competing with the massively subsidised Puerto Rican and USVI distilleries and the low-cost Latin American rum that is threatening to swamp the EU market, the Caribbean industry has to reduce prices and be perceived as offering better value for money.
However, these efforts need to be accompanied by more aggressive and effective marketing and promotion, if they are to have the desired impact on sales.
Not surprisingly, WIRSPA has been running a multi-million-dollar promotional campaign centred on the Authentic Caribbean Rum marque.
It has been invaluable for the successful establishment and flourishing of its members’ brands, particularly in the UK.
A most important area for enhancing the ability to compete is that of management.
As the industry seeks to improve its competitiveness, it must take a hard look at itself and its style.
It has to assess if it is sufficiently using best modern practices to ensure efficiency and minimise costs while getting the most from its work force.
But rum embodies tradition, leisure, fun, a laid-back island style.
As we sip a Royal Oak on the rocks or an Appleton and coke this evening, wouldn’t our pleasure be diminished if we were told that instead of being lovingly crafted by attentive artisans, our tipple of choice will have to be mass-produced by overworked employees of some soulless corporation?
There would be outrage in the rumshop!
Keeping the special character
Of course, efficiency must increase and costs be cut back as much as possible, but the right balance needs to be struck.
Caribbean rum must preserve its special character, one that is associated with, and is so inextricably entwined with, its history and the traditional art of the distiller and the master blender.
It has a cachet that is difficult to pin down, but which accounts for the loyal following of the various island brands.
The industry undertook major retooling and restructuring in order to adapt to the changes resulting from the Zero for Zero Agreement of the late 1990s.
The aim of that programme, initially costing 135m euros, was to improve production efficiency, packaging and branding, as well as marketing and promotion.
The industry has since been able to raise additional funding to continue and extend the programme.
Beyond traditional markets
Another commercial response to increased competition in its traditional US and European markets would be for the Caribbean to try to expand sales elsewhere.
Targets could include China and Japan, for instance, or be within the EU, such as Germany, Sweden and Poland, where there is still a certain degree of protection from the Latins.
This, of course, requires skillful and expensive marketing and promotion campaigns. And in the new markets outside of the EU, there is no protection whatsoever from the lower-cost Latins.
To survive, the Caribbean industry must tackle the heavily subsidised competition from Puerto Rico and the USVI and avoid being swamped in Europe by the Latins.
Realistically, though, it is not certain how much scope still remains for improving efficiency and lowering costs.
While the industry does not have all the financial resources required, it must anyway undertake further modernisation and product development, as well as extensive marketing and promotion.
Although these commercial responses are essential, they cannot, at least on their own, provide the solution to the industry’s problems and enable it to safeguard its American and European markets.
So what about responses in the regulatory/political domain? Can they offer alternative or complementary strategic options? Specifically, can Caribbean governments get the US subsidies ended and also somehow manage to oppose or impede the tariff concessions that the Latins seem to be on the verge of securing in Europe?
Edwin Laurent has served as an Eastern Caribbean Ambassador to Europe and worked in London for the Commonwealth. He has recently been awarded the Cross of the Order of St Lucia for contributions to economic development.