Brazil will have to put its current financial woes aside and host the second major sporting event in as many years. It is hoped Rio 2016 will present opportunities for the country’s fragile finances as well as the national spirit: cachaça.

“The great thing is that the Rio Olympics is happening so quickly after the World Cup,” says Phoenix Kelly-Rappa, managing partner of Cuca Fresca Spirits. “It keeps the momentum and the focus on the category going. And it is an opportunity to take the marketing that has proven effective during the World Cup and do it on a larger scale.”

For many, cachaça fell short when it came to capitalising on the World Cup. “In Germany, cachaça volumes decreased by double digits in the first eight months of 2015, with sales totalling 770,000 litres in this period,” says Fabrizio Sassoli de Bianchi, Mangaroca International export & marketing manager. “This is the effect after the 2014 World Cup in Brazil.”

As big consumers of the World Cup this might seem curious, but a closer look at the second-largest cachaça market in terms of volume shows that figures were down 9% prior to the World Cup and are forecast to fall a further 9% in the next five years, according to Euromonitor International.

There is a cause for optimism in other European markets though.

In France, says De Bianchi, cachaça volumes increased by 17% due to the World Cup – gaining market share at the expense of tequila. “As a consequence, many new cachaça brands were imported in France and even private labels were created. Despite this, once the ‘World Cup effect’ ended, in 2015 there was a physiological decrease.”

In general, the 2014 World Cup effect took place as a larger-than-usual  number of both off and on-trade promotions were carried out. “Once the promotions were over, consumption decreased back to the usual volumes, although cachaça gained in popularity,” De Bianchi adds.

AT HOME

In its domestic market – where 99% of the spirit is consumed – the main cachaça trend is premiumisation. The super-premium alambique segment is growing at 36% in Brazil, while the industrial cachaça segment is in steady decline (IWSR).

“Even in Brazil, the cachaça category is getting reinvigorated with younger consumers being drawn to higher quality, artisanal brands,” says Cuca Fresca Spirits’ Kelly-Rappa.

In Brazil, there are hundreds of formal producers and thousands of informal producers.

“Informal producers are usually for personal use, and quantities are very low,” says Leblon founder and CEO Steve Luttmann. “I have seen some estimates of about 4,000 brands in Brazil. However, per IWSR, there are approximately 65 active brands that sell at least 1,000 9-litre cases in Brazil.”

For export, Luttmann approximates there are 20 brands, of which seven or eight are actively pursuing the international opportunity with marketing and sales investments. Most set their sights on the US and Europe.

VALUE OVER VOLUME

With the exception of Chile and Portugal, cachaça values are up and volumes are down year on year in the top seven markets, according to Euromonitor International.

“This market is definitely increasingly about value rather than volume,” says Luttmann. “The quality disparity between the alambique premium brands and the industrial price brands is much more pronounced than in other categories, and consumers and bartenders alike note the difference.”

Portugal, up 24.6% in value and 15.6% in volume, has been a focus for Bacardi-owned Leblon. Luttman says: “The market in Portugal is the largest per capita outside of Brazil, so the awareness of cachaça is very high – it’s now trading up to better quality brands.”

Leblon has also found success in Chile, up 29% in value and 32.5% in volume. Luttman says: “Chile seems to be growing at a faster rate as a result of the strong economy. And we are currently working on our plans to expand throughout Latin America, including Chile.

“Both of these markets are big consumers of the Olympics, so we expect to see some solid growth next year overall.” Luttmann adds that growth has been experienced in all the Latin American markets in general, mainly as the influence of Brazil continues to grow. “The World Cup definitely had an impact here,” he says.

UNITED STATES

In the US, the cachaça category is growing 5% per annum, and 55% of the category in the US is the super-premium segment – which is growing at double the rate of the standard price segment (IWSR).

“In the United States, we are seeing increased understanding of and interest in artisanal and, importantly, aged cachaça,” says Nate Whitehouse, Avua Cachaça founder. “There is a trend outside of Brazil that buyers are beginning to understand artisanal, or smaller-batch cachaça, and how that differs from the value offerings that were previously available.”

Progress might have been made but Whitehouse says there is still a substantial amount of work to be done in education on the category in general and, specifically, the quality of artisanal cachaça.

“Consumer awareness in almost all markets is still quite low from a macro standpoint and remains the largest hurdle. It is a niche product that is growing quickly, although it remains a small part of the overall spirits market in the US,” he says.

“We believe we will continue to see this grow firmly and organically as more consumers seek out new and interesting spirits and flavour profiles.”

The recognition of cachaça as its own category in the US can only enhance this. Leblon’s Luttmann says the recognition of cachaça in the US brought a “ton of credibility and awareness to the category, especially among the trade”.

For him, the biggest challenge for cachaça internationally is awareness and distribution. “Without question, category awareness and distribution has grown significantly in the past 10 years but there is still a long way to go when you compare to other more established categories.”

The good news, he says, is that the trajectory is positive. “The question is how do we as a category accelerate the growth rate?”

Accelerating growth will require greater sales and marketing activities from the individual cachaça brands, according to Luttmann. But, patience is required. “It will require time and investment to grow. The category is growing consistently internationally 5% to 7%, with the premium alambique segments growing at a faster rate than the industrial price cachaças,” he says.

Avua Cachaca’s Whitehouse says recognition of the spirit has created a strong tailwind for the growth of cachaça. “Prior to the recognition of cachaça, most even high-end bartenders considered cachaça to be simply a rum from Brazil, rather than being a spirit with specific flavour profiles and a history that predates molasses-based rums by more than 100 years.”

Kelly-Rappa seconds this: “After being recognised not just as a Brazilian rum, as it was previously categorised, there has been more appreciation for the cachaça category as a whole. Being recognised as its own category is an essential piece in assuming a significant role in the spirits landscape in the United States.”

A key to unlocking the US and other international markets might be having a ritual or signature drink.

In much the same way that tequila has the Margarita, cachaça has the Caipirinha.

“The Caipirinha is just another reason cachaça will become prevalent internationally,” says Luttmann. “Cachaça is very versatile and plays especially well with fruit and fruit juices. Aged cachaças also function very similarly to whiskeys – they are great neat, on the rocks, and also in cocktails. So the future of the category definitely doesn’t depend upon the Caipirinha.”

Kelly-Rappa says she expects word to travel fast about cachaça and the Caipirinha. “It is quite possible this cocktail could become as ubiquitous as the Margarita in a much shorter time frame.”

If word gets out and stays out, can the Brazilian spirit repeat the success of tequila?

Hubertine Underberg Ruder, Underberg chairman, is bullish: “Yes, it can – and in mature markets for cachaça, such as Germany, it already has done so.”

Kelly-Rappa concurs: “If you look at the key factors that made the tequila category explode in the US, it is incredible how many parallels there are between the two categories.

“If history is any indication, the Rio 2016 Olympics will play a pivotal role in causing the cachaça category to reach its tipping point in the US.”

Fabrizio Sassoli de Bianchi is a little more cautious. He says: “Tequila success is due to the creation of a ritual to consume it: the tequila Boom Boom.

“I believe if something similar is created for cachaça, in addition to creating new cocktails it will certainly help in spreading its popularity.”

Whitehouse says the strong parallels between tequila and cachaça will only aid its trajectory.

“There are strong similarities in terms of a category in which value brands were the only available offerings in tequila prior to 1990, followed by the entrance of very high-quality, well-branded spirits in the 1990s, and the current state of cachaça today outside of Brazil, which has been principally value offerings until the recent entrance of high-quality cachaças such as Avuá, Novo Fogo, and Leblon in the US, or Avuá, Abelha, or Leblon in Europe.”

Parallels can also be drawn when it comes to the challenges tequila faced with consistency of product and message. The variation in quality across the cachaça category is a challenge that makes it difficult for a consistent message, says Hal Stockley, director of Abelha Cachaça.

“Tequila had the same scenario and has enjoyed great success over the past 15-20 years, so I am positive cachaça can rise above any inconsistency and become better recognised for its quality and diversity.”

CHALLENGES

Getting the word out about cachaça might be easier if it wasn’t so difficult to pronounce and perceived as such a summer drink. 

“There is sometimes some resistance to promoting it in the colder months,” says Kelly-Rappa. “We have found that the most effective way to overcome these challenges is through education, and that has been one of our main areas of focus.”

She adds that one of the most successful cocktails in its repertoire is Cranberry Blaze – a cranberry and rosemary festive offering.

Due to the summer association, Florida is Leblon’s best export market. “Mainly because it’s warm all year around and has a very significant tourist business,” Luttmann explains. “California is also a big export market, again probably because of the weather, and certainly New York.

“France is also an excellent export market for Leblon, as there seems to be a very strong affinity in France for Brazil.”

While Brazil’s economic future is in doubt, it is hoped the domestic spirit’s outlook is a cause for celebration. Rio 2016 provides the cachaça category with a second bite at the cherry in terms of getting international markets to buy into the spirit and its signature cocktail. For now, producers are optimistic that cachaça can kickstart carnival in Brazil and beyond.