Cachaça: Critical Mass

Now that cachaça has legal status in the States, it’s bound to start moving in countries other than its homeland. But for now, Brazil remains the focal point. Hamish Smith reports

You don’t have to whisper. It’s safe now – cachaça is a legal term in the US. When it finally came in April, the US government decree was the biggest news to hit cachaça in years. It meant after hard times and hard lobbying, there was finally recognition from the world’s largest spirits market. It meant cachaça could be cachaça and not just another rum.

Indeed, this feature might well have pivoted on this development, the US market and all that its exploration entails. But right now the US market is embryonic and will have to take a back seat – driving the cachaça agenda is what’s happening at home, in Brazil, where, lest we forget, a lopsided 99% of the 100 million 9-litre case volume is consumed (Euromonitor International).

Diageo’s buyout of the giant cachaça brand Ypióca midway through last year cast a perfect beam of light onto the Brazilian market. We all knew Brazil was fast becoming one of the world’s critically important markets, but when Diageo pays £300m for a local spirits brand – even one selling 7 million cases per year – the drinks industry pauses to pay attention. 

Granted, Diageo and arch nemesis Pernod Ricard already owned small cachaça interests, but this is the first time any drinks group has gone after one of the big four cachaça brands, the others being Pirassununga 51 (18.6m cases in 2011 – Millionaires’ Club 2012), Pitú (10.49m cases, 2011) and Velho Barreiro (8.4m cases, 2011). Gruppo Campari’s Sagatiba is worth a mention at this juncture for its attempts to super-premiumise the domestic category and engage with a new generation but, at about 200,000 case sales per year, it is still an adolescent figure domestically. Bacardi’s JV Leblon, another super-premium, has an outward bent, particularly the US market – but more on this later.

As market analysts tell us, the Ypióca deal is not really about cachaça. But let’s not let cynicism get the better of us – the deal is not just about distribution either. Ypióca may be a one-market pony, but Diageo is not about to let it out to stud. With its new stable of international brands in support, previously closed doors will spring open for Ypioca. The arrival of the 2014 World Cup and 2016 Olympics make this an even more optimistic time for the brand. 

And even if sales are only maintained at their current size, Ypióca volumes are still huge – double that of the global leading tequila brand Jose Cuervo that Diageo tried so hard to buy. Ypióca represents a seat at the top table of the world’s fourth largest spirits category, behind baijiu, vodka and whisky. 

Fast-growing market

But over to the horse’s mouth, Paul Walsh, CEO of Diageo: “Brazil is an attractive, fast-growing market for Diageo with favourable demographics and increasing disposable incomes. The acquisition of Ypióca gives us the leading premium brand in the largest local spirits category. It will also provide Diageo with an enhanced platform from which to accelerate the long-term growth of our premium international spirits brands in Brazil. The acquisition meets our return criteria and this investment represents the continuation of our strategy to increase Diageo’s presence in the fastest growing economies of the world.”