Premiumization: Super Duper Snake Oil

Post by **Capn Jimbo** » Wed Dec 03, 2014 9:56 am

What is "premiumization" all about? Is "Premium" really premium?

First of all just what IS premiumization? Simply put, what the mega's want you to believe is that their "limited edition, premium" release is really somehow special, better and of higher quality. On this basis we are being asked to pay, well, "premium" prices. I was reminded of this when I recently ran across the announcement that Coca Cola will now be selling what?

Milk!?

But not just ordinary milk. Nope this milk has been "premiumized". It now gets a saleable name, in this case "Fairlife". In fact, the word "milk" is there but you have to look for it. What's their pitch? According to the Huffington Post:

"...the new drink is marketed as "premium" milk with 50 percent more protein, 30 percent more calcium, half the sugar of typical milk -- and a higher price tag.

“We’ll charge twice as much for it as the milk we're used to buying in a jug,” the president of Coca-Cola North America told analysts".

http://www.huffingtonpost.com/2014/12/0 ... ostpopular

See how it works? In general you take a common and affordable product, add 25 cents of protein, calcium and additives from unknown sources, and then? Double the price for much greater profit, create excitement and new sales.

The goal: sell nothing - or very little - for a lot...

As so well put in the article, the ultimate example of "premiumzation" is yup, water. Coke did exactly this with "Dasani" - a "premium" water that sells for over $1.00 and except for marketing represents a class of products that in general are hard to distinguish from good tap water at about 6 cents for an 8 oz glass.

And how about spirits?

A great example of this is sherry finishing. What happens here is that an already made and warehoused lesser product (or bulk purchased product) is given a quick dip in tired sherry barrels. A great example of this is Plantation. They buy bulk product of unnamed source devoid of any data regarding the distiller, distillation or aging. As much as we get is the romanticizing of the source, the trip across the Atlantic, the supposed exoticism of the Ferrand cognac, and the use of these allegedly special ex-sherry and cognac barrels. Of their entire line only a handful even details the short dip in these well used barrels.

In other words, it's hard to distinguish this as other than hype and marketing with almost no specifics. And the rubes spend "premium" dollars for this. Let's face it, "premiumization" is simply the romanticizing and marketing of an unknown bulk product designed to create what to many is simply unearned, additional profit.

One of the very best examples I know of is a bourbon called "Sherry Signature". Now mind you, there are a whole list of very nice aged bourbons available for from $20 to $35, give or take. This "Signature" is based on such a bourbon, but gets its quick dunk in romanticized ex-sherry barrels, and get this - even adds some actual sherry! And then...

Sells it for $150 as a limited edition super-premium products. Not only does this product challenge the standards of identity for bourbon, it pushes the limits of credibility.

So how and why do the rubes buy this shite?

I think most of you know how. First you need a group of butt kissing webmasters like the Preacher (who knows better) and otherwise legitimate spokesmen like Cowdery (who should). Each of these shills - whether knowing or not - tends to have an "in group" of clonic followers. The Alpha Monkeys.

The alphas tend to consider themselves afficianados, and tend to have enough disposable income to buy such "look-at-me" products like Signature. The rest of the ordinary but fawning simians simply get in line with the hope that maybe they too might get a chance at some "special simian stuff", maybe this Christmas.

As far as speaking out? When the Grand Poobah holds forth with his pronouncements carried forth by his faithful disciples, those very few who speak out can expect to be piled upon and quickly put in their place. And they lose their chance to become an Alpha.

Thoughts?

Dai · Post by **Dai** » Wed Dec 03, 2014 11:56 am

I'm a firm believer in that if you are asked to pay twice the price you should get twice as much value for it. In the case of rum lets, use Mount Gay as our example.

Mount Gay 1703 = £103.45
Mount Gay Extra Old = £35.56

Does it represent VFM (value for money).
Am I getting three times the taste

Answer to both those questions is no.
Is Mount Gay 1703 a good product yes, does it warrant so much more than XO no, not in my opinion.

The simple answer for me is am I getting three times as much for the reason I'm buying it for (in this case taste, flavour) simple answer is no.

So to answer the premiumisation question no, these products are not worth it 99%of the time, same goes for 99% of all products sold at premium prices. It's just marketing.

Blade Rummer · Post by **Blade Rummer** » Wed Dec 03, 2014 12:59 pm

In the case of rum, I have a similar outlook as Dai: My first premium rum was ED21, which although I enjoyed at the time (I have moved away from the ED line lately, finding anything above the 8 yo as too sweet), I thought it wasn't worth 3x the price of a bottle of ED12.

We are lucky with rum (esp. in the US, where the prices are much lower than in Canada) that you can still get very good rums at a mid-range price. Appleton Extra, Barbancourt 4/8 yo, ED 5/8 yo, Havana Club 7yo, etc... In fact, I am more and more inclined to believe that the sweet spot for rum aging is in the 7-12 year range anyway.

On the other hand, I think everyone likes the idea of having a "special occasion" bottle. Myself, I spent 100$ on a bottle of Santiago de Cuba last year that I have still to open. No occasions have been special enough, I guess.

Another way of looking at it is how much are you spending in all on a hobby/interest. I enjoy coffee and I realized that since I don't drink it that often, if I buy cheap beans or premium coffee, my yearly expense is sill negligeable in re: to my entire budget, maybe I spend 150$ on premium coffee a year instead of 75$ on low grade beans. Nothing to break the bank over!

Finally, I'm glad you brought up the example of Plantation. I know I'm running the risk of having the entire rum community in arms against me, but they are really 100% marketing and little else. They give the appearance of limited bottlings with the dated labels, but don't include the info you would expect in a small batch product.

I have tried a few Plantation rums and the sherry finish (as well as whatever else they add) negates whatever regional differences are present in the rum. I had bought their Jamaica bottling and it was terrible, sweetest and that way-too smooth Plantation mouthfeel covering up the typical Jamaican profile. It's a crime against rum more than anything.

Post by **Capn Jimbo** » Wed Dec 03, 2014 1:22 pm

Having had both MGXO and the 1703 and on the basis that the XO sells for around $35, I'd give the 1703 a true value of around $70 (double) or even a bit more.

But the question remains, just why do people buy in to the premium marketing?

From a marketing standpoint what's being sold is the spirit as a kind of marker of discerning sophistication, special and limited appreciation and the ability and willingness to buy in and join the "premium crowd". The opposite is equally true. Many buyers mistakenly believe that a lower price means a lesser spirit. Anyone can afford it; therefore it can't be all that good.

A perfect example

An example: right now I pulled out a VERY old bottle of Rum San Pablo - a gold rum of perhaps 4 years. It is simply magnificent and an excellent example of the Cuban style - absolutely smooth, lovely vanillan, orange marmalade, surprising oily body, just a touch of astringency, warm black pepper finish. A classic profile. Yet it was very inexpensive, and came in an extremely ordinary bottle and label.

And now the RM no longer qualifies, I'm tempted to make RSP the new reference standard for the Cuban style. Yet I doubt the premium snobs would give this fine rum half a chance...

The Black Tot · Post by **The Black Tot** » Thu Dec 04, 2014 1:29 am

The water thing is a touchy subject for me - but you did add the qualifier of "good" in front of tap water.

Houston tap water tastes bad. Straight up. We don't use it even to make coffee. Also, we have done bottled water taste-offs to see what ones would be best for coffee. Bottles like Evian and even Dasani have a note that I'm not sure how to describe, other than that it's a popular profile for bottled water, we dislike it, and it's entirely unsuitable for coffee.

Most places I have lived had tap water far worse than what I can get from my bottle of choice, and I could taste them blind any day of the week and get it right every time.

The good news is our new place in the UK has tap water that's fantastic (you see? - It's not "tap bias"), which is going to save us a lot of money, packaging (which we are guilty about in the US and only buy the largest bottles to minimize) and just overall hassle.

Look, I get it - it's nearly beer prices for water, and that's crap - I agree. But to say it's nigh indistinguishable from tap is not correct from the standpoint of anyone who has taken the time to test them side by side, even with each other. And tap water where I have lived has been pretty nasty over the years.

On alcohol premiumization - yes, it's a really sad byproduct of the spirits bubble we're now sloshing around in. This rising tide is raising all ships, and against us...

...but I present a counterpoint...

What would happen without the premiumized spirits?

In an alcohol big box store devoid of Veblen goods, people would purchase instead what were truly the high quality spirits, deserving of their higher price points, for their special occasions. The Berry's and the Cadenheads... the Smooth Amblers.

These are plucked jewels that cannot be replaced, as many of these distilleries are gone, shadows of what they once were, or their stock has been so hammered by the boom that it needs time to regenerate.

So why not consider the GOOD that premiumization does us? ED25 acts as a smoke screen drawing the budgets of the Veblen set, while we quietly can purchase MGXO or even 1703, which isn't too far out of range. We can buy that bottle of Berry's because it looks plain and someone else can buy the limited edition Dictador in the fancy bottle and velvet-lined box.

Furthermore, it accelerates the madness of the spirits bubble, which I can only hope will lead to it bursting sooner than later. The flame which burns twice as bright burns only half as long. I'd like it to burst ASAP, thanks very much, so part of me says "hit the gas on premiumization!" "Kill your golden goose by making your customers punch their budgets out!" The higher they jack things, the sooner people will say "Enough!".

The market is already unreasonable, and I had to make this the time that I wanted to find out about the rums of the Caribbean. Sheesh. Well now I have to pay to play, because those unadulterated Scottish bottlings ain't cheap. But I'll wince and bear it because I'm the kind of guy who has to know.

In the meantime, I'm glad that when people with $250 in their hand walk into a store, see a shiny limited edition of overhyped juice in a royal crystal decanter, they leave the TRUE premium rums on the shelf, for the most part, and completely ignore the bottom shelf gems.

I don't think by this point anyone can stop premiumization, so I have chosen to instead become excited to see it expand to the point where it destroys itself, which greed and bubble markets inevitably do.

I think a return to simpler values must rise from the ashes of the meltdown which must result from the rising general stress level of chasing the premiumization of everything. You can see people squirming today, trying to live a quality first world life and struggling to keep up with the premiumization of that concept.

So bring it on! Crash it! We need a reboot.

Post by **Capn Jimbo** » Thu Dec 04, 2014 9:07 am

So why not consider the GOOD that premiumization does us? ED25 acts as a smoke screen drawing the budgets of the Veblen set, while we quietly can purchase MGXO or even 1703, which isn't too far out of range. We can buy that bottle of Berry's because it looks plain and someone else can buy the limited edition Dictador in the fancy bottle and velvet-lined box.

Furthermore, it accelerates the madness of the spirits bubble, which I can only hope will lead to it bursting sooner than later. The flame which burns twice as bright burns only half as long. I'd like it to burst ASAP, thanks very much, so part of me says "hit the gas on premiumization!" "Kill your golden goose by making your customers punch their budgets out!" The higher they jack things, the sooner people will say "Enough!".

A very interesting take, thanks, and worth examination. Let's think about it. For this take to be true, it requires that the MGXO's continue to be made and widely distributed. But already this may not be true. Essentially the mega's see two markets which reflect the redistribution of wealth to the elite, along with destruction of the middle class who ostensibly would purchase the MGXO's.

Thus the market has divided such that we are awash with Big Three altered releases which have grown to dominate the shelves, along with a handful of super-premiums. The MGXO's and the few other middle class products are literally being pushed off to the side.

They are disappearing.

Your position also assumes the MGXO's will maintain quality. This requirement too is being breached. JaRiMi has speculated that what is happening is that the MGXO's are being degraded as the really good stuff is being redirected to the 1703 (a true premium). Our comparison of an old MGXO with a new one verified this. JaRiMi has also noted similar degradation of the El Dorados as DDL more and more becomes dependent on bulk sales. Mount Gay is no longer a unified company and now jobs out its distilling.

Bottom line: it's fair to ask if enough quality product is still being honestly produced and properly aged, distributed and available. Sadly, the mega's seem to see only two extreme markets - the very low and very high ends. Still, I do hope your view has enough legs (pun intended) that customers finally see through it all. Will that happen?

Personally, I'm not hopeful but if a return to quality is to occur we must absolutely support those few distillers that still produce it - Seales, Barbancourt, Appleton, et al. Certainly the private bottlings (the Berry's, etc.) are attractive but it's important to consider that these depend on their dwindling stocks that once gone, may never be again. A dollar spent on these is a dollar denied to the Seale's.

A real dilemma...

The Black Tot · Post by **The Black Tot** » Thu Dec 04, 2014 3:23 pm

Excellent points as usual, cap'n, all of which I agree with.

It's a mix of issues, though.

You are absolutely right, they're disappearing. But that's not because of premiumization. The disappearance is the result of general corporate psychopathy, which is a different issue at core, although premiumization is certainly born of corporate psychopathy.

Where the rubber hits the road is what a rum devotee must now do if he or she is to taste the beautiful sunset of extinct rums that are, although expensive, still on shelves if you hunt and are willing to pay.

It definitely sucks, but our opinion and even our support of the Seales (I had Mrs Tot buy a Doorly's XO and a Seale's 10 last week) is not slowing the close of Aladdin's cave. So I'm faced with two options, either I hustle and pay and put as much of the old school loot in my closet before it's closed, or I get comfortable with the fact that I'll never know. I'm not really the latter kind of guy.

While I am hustling, I am finding that while I am metaphorically running down the aisles with Berrys under both arms, my "competition" seems to be looking completely elsewhere - at fancy bottles, charming stories, whatever's on the blogs this week. In short, all their eyes seem to be on the premiumization, and that's also where they are throwing all their (substantial) dollars.

There is some crossover where good spirits are also premiumized. I have no doubt ED25 tastes great (although I'll never know). As you have highlighted, those who want the real MG experience must now pay the 1703 prices. In the bourbon world, the BTAC and Van Winkle line are both premiumized and legitimately awesome. In practice, I have to let many of these fish go, and focus on better value and more powerful and relevant slices of spirits history.

People in the US are spending money on premium spirits at an unprecedented (and undeniably unsustainable) clip. I truly believe the premiumization saves us from having all the truly historic spirits instantly pillaged by this ravenous mob (and calling this wave of consumers a mob is being polite).

The corporations haven't premiumized to help people like me, but in looking after their own interests, they're keeping the heat off of what I'm interested in smuggling out of this house fire of a market.

That quality is dwindling can't be helped other than by doing what we're doing - supporting the Seales, etc. Which I am also doing simultaneously and those are going to be my daily drinkers. The rare bottlings I'm buying now are intended for a reference library, and very special occasions. Had I done this ten years ago it would have been cheap and easy.

On the dollar spent being a dollar denied - Okay, but a dollar spent on Seale's is also a dollar denied Berrys, who are also doing good and important work (and expect to be paid for it. Probably too much, but I'm sure running a warehouse in Scotland with all its taxation isn't cheap).

My position does not assume that anything will maintain quality. My position categorically confirms that quality is in a tailspin. That it's the old stuff that we must now rush to purchase. If we wish to enjoy a life of fine and character-infused true rums, we have to bunker what's left, now. It's mad, it's vicious, it's violent, and it's wrong and unfair. But it is.

Will the US premium spirits market crash? Yes. But not gracefully. It will most likely take one of two forms. Either people will admit that it is inappropriate for most people to have as much liquor as their local bar in their house (a cultural change that is certainly coming, it's just a matter of when), or the coming economic storm in the US will take the purchasing power out of their pockets. Either way, it will be a fast and violent turn.

Will it be good for rum buyers? It will take pressure off of the limited market. It will chop the knees out from under the whiskey flippers and take the pressure off the warehouses, so it will surely be good for the bourbon buyer who can still afford it. But while America drinks their bunkers, the entire liquor industry is going to be without decent sales for quite a long time. The purchasing bubble will have burst, but the consumption backlog will deflate slowly, ounce pour by ounce pour. That's going to be excruciating for producers, who have been all too happy to ignore the fact that people aren't likely to be drinking the three bottles a week they're buying at this point in spirit retail history. That once alcohol "collecting" goes the way of the comic book, and it's all relatively worthless again, America's spirit enthusiasts will have enough in their house to drink for a decade.

...but it has to happen. It's out of control, and people are buying way more than they can consume without killing themselves (myself included). This will hurt the little guys we love as much as it will the corporations, unfortunately. But the corporations might get hit the hardest, having the largest overheads. It MIGHT chop their lobbying budgets, for example. Corporations seem to always find a way to land on their cloven hooves, but when there are no customers, it's hard to imagine a safe haven even for them.

So, to make a long post longer, I agree with everything you said, but for me the glint of the premiums keeps the magpies off of what's left of the rogue rums, and frankly I need that smoke screen in order to get enough of them put away for the future.

Post by **Capn Jimbo** » Thu Dec 04, 2014 5:51 pm

Tot...

...a brilliant and very insightful exposition and you just might be right. I feel enlightened, and I thank you for taking the considerable thought and time to post.

Blade Rummer · Post by **Blade Rummer** » Fri Dec 05, 2014 12:56 pm

It turns out we were all wrong, the golden age of rum has only begun :

From Just-drinks.com :

http://www.just-drinks.com/comment/comm ... 15583.aspx

Long touted as the natural successor to single malt whiskies, premium and super-premium rums have yet to make a dramatic impact on consumers. Could that be about to change? Ian Buxton takes a closer look.

Speaking to just-drinks late last month, Dmitry Ivanov, Bacardi's global category director for rums, highlighted the opportunity the company sees in the aged rum sub-category. “I think the big thing we're driving more now is the dark rum side of the portfolio – that's very critical.”

Recent figures serve to highlight the importance of the segment to the broader rum category. In the 12 weeks to 19 July, UK off-trade sales of dark and golden rums recorded single-digit rises. White rum sales, meanwhile, were flat.

Ivanov is not alone in seeing both growth and further opportunity in this long neglected and only partially understood category. The Ron Zacapa brand, which Diageo took control of in 2011, is part of the company’s Reserve Brands unit. “Ron Zacapa is a truly superior rum," says Nick Temperley, hHead of Diageo Reserve GB. "It’s extremely luxurious and sits comfortably alongside Diageo Reserve’s finest whiskies.”

As the category develops, Temperley stresses the need for hand-selling brands into key on-trade accounts. “Part of the brand’s success in the UK has been our personalised approach," he says. "As Ron Zacapa is so unique, we like to work closely with our customers, ensuring they really know the brand story, understand its production and appreciate how it’s best served. The strategy has been successful and we have some incredible support among the bartending community and great listings in the best bars and restaurants in the UK. There is a real demand for this level of luxury in spirits, and as a result Ron Zacapa has seen double-digit growth in the UK for the past two years.”

While the UK is performing well, further down the road, suppliers are optimistic that rum can play a significant role in the east Asian markets. As Havana Club managing director Jérôme Cottin-Bizonne tells us: “There is an appreciation of aged brown spirits such as Scotch and Cognac within these markets. We believe that this can lay the preconditions for the eventual growth of aged premium rums. Moreover, cocktail consumption in Asia is coming in. This will create another opportunity for rum. The future looks good.”

Bacardi’s Ivanov echoes the cocktail theory: “There are possibilities to expand, particularly within the dark segment, not only in aged rums but also ways-to-serve, for example…. With around 160 different variants, we have a lot of product that we still haven't shared with consumers.”

With rum’s image still hampered by its association with cheaper products, however, the entry of recognised premium brands will be essential to build both trade and consumer confidence. One strategy, adopted by Diageo’s Reserve Brands, is to enhance exclusivity with limited releases. As Temperley explains: “In December, we’ll be launching a new limited edition blend, Ron Zacapa Reserva Limitada 2014, into the UK market. It’s the second in a series of vintage limited editions to be released with a different blend of rums, hand selected by our master blender, Lorena Vasquez, each year. It’s eagerly anticipated by the trade because it gives our customers something new to offer their luxury consumers.”

Yves Schladenhaufen, Havana Club’s international marketing director, also feels there are opportunities for strong growth: “Globally, rum is an under-premiumised category, especially when compared to whisk(e)y and vodka," he says. "We believe it will progressively catch up on this trend, especially as more of the stronger players have now entered the super-premium-and-above category.”

And, former Captain Morgan global brand director Russell Jones says: “It is bizarre how under-developed the super-premium rum area is. As a category, rum does a really nice job of marrying the energy of white spirits with the tradition and authenticity of dark spirits. There is no reason why the super-premium area could not be much larger than it is today.”

Overall, there remains enormous room for volume growth in high-end rums. As the most recent report from just-drinks and The IWSR makes clear, “premium-and-above qualities amounted to about 4.8m cases in 2011. By comparison, premium-and-above vodka sales amounted to 24m cases and whisk(e)y 46.8m cases.

"At the super-premium-and-above level the comparison is even less flattering," the research notes. "Total super-premium-and-above rum sales (in 2011) amounted to just 423,000 cases, compared with 7.6m for vodka and 5m for whisk(e)y.”

As Jones sees it: “It is not so much a question of will that gradually change, but rather when is it going to explode? When the super-premium rum area begins to catch fire it won’t be gradual, it will be pretty quick and dramatic.”

Possessing both the energy of vodka and the discernment and connoisseurship of Scotch or Cognac, rum seems to hit all the notes. Perhaps the future really is golden.

Personally, I welcome the idea of a small batch Zacapa yearly release; it'll be interesting to see how the additives change from year to year