In this blog, we revisit the ‘place strategy‘ which we previously covered in our blog on Cartier®. However, unlike Cartier®, which has an ‘exclusive type‘ and ‘level zero‘ distribution strategy, in this blog we explore the ‘extensive type‘ and ‘level three‘ distribution strategy of this world-class brand of rum which has occupied the top spot amongst rum brands globally for the past four consecutive years, from 2017 to 2020.
“We keep moving forward, opening new doors, and doing new things, because we are curious and curiosity keeps on leading us down new paths.”Walt Disney
While ‘rum‘ and Disney® have little in common, this concept of ‘moving forward, opening new doors and doing new things’ partly explains the success of this leading global brand which traces its beginnings from the mid-19th century in the Philippines.
I am referring to the world’s number one selling rum brand today, Tanduay®, founded by Elías Menchatorre in 1854 in Hagonoy, Bulacan in the Philippines. It was acquired shortly after by the Ynchausti y Compañia owned by the Ynchausti family, whose family crest can still be seen on every bottle of Tanduay® today. Since 1988, the brand has been owned by Lucio Tan’s LT Group, Inc. (formerly known as Tanduay Holdings, Inc.), which has been responsible for its phenomenal growth and global success.
It is a multi-awarded brand with over 100 international awards, including 90 Golds from Monde Selection International to its credit. It won its first award back in 1876 from The International Wine and Spirit Competition.
There are many reasons for the global success of this Filipino brand, including its strong brand identity and heritage, market segmentation, product quality and innovation, and more. However, one of the strongest pillars of this brilliant brand is its distribution strategy.
In the past 5 years, it has been relentless in ‘moving forward and opening new doors’ which has enabled Tanduay® to take over from Bacardi® the top spot for four consecutive years now.
Before we talk further about Tanduay®, let’s understand what we mean by these ‘types‘ and ‘levels‘ of distribution strategy.
Types of Distribution
In order to understand the types and levels of distribution, let me share this very good explanation from website Repsly. It says that there are three ‘types‘ of distribution, namely:
- Intensive: As many outlets as possible. The goal of intensive distribution is to penetrate as much of the market as possible.
- Selective: Select outlets in specific locations. This is often based on a particular good and its fit within a store. Doing this allows manufacturers to pick a price point that targets a specific market of consumer, therefore providing a more customized shopping experience. Selective distribution caps the number of locations in a particular area.
- Exclusive: Limited outlets. This can mean anything from luxury brands that are exclusive to special collections available only in particular locations or stores. This method helps maintain a brand’s image and product exclusivity. Some examples of companies that enact exclusive distribution would be high-end designers like Chanel or even an automotive company like Ferrari.
Levels of Distribution
Furthermore, according to Repsly, there are four ‘levels‘ of distribution, namely:
- Level Zero: A level zero distribution channel is the simplest. It involves a direct sale from manufacturers to consumers with no intermediary.
- Level One: A level one channel has one intermediary as the middleman between the producer and consumer. An example is a retailer between manufacturer and consumer.
- Level Two: When thinking about levels, associate the number to the number of intermediaries. In this case, a level two channel involves two intermediaries between producer and consumer. An example here would be a wholesaler selling to a retailer who then sells to the consumer.
- Level Three: Here’s where an agent or broker comes in. Agents work on behalf of companies and deal primarily with wholesalers. From here, the wholesalers sell to retailers who then sell to consumers.
Finally, specifically for the beverage and liquor industry, there are also two general classification of distribution channels, namely ‘on-trade‘ where beverage products are consumed on-site like bars, restaurants, hotels, etc., and ‘off-trade‘ like convenience stores, groceries, supermarkets, etc.
The ‘place‘ or distribution strategy of a brand has two major contributions to its overall brand architecture:
First, it enhances the positioning of the brand. For example, having Cartier® exclusively sold in its own branded boutiques and high-end retail partner channels like premier department stores, the luxury brand positioning of Cartier® is heightened. It makes no sense to buy this brand inside a supermarket.
And second, it provides proper accessibility of its products amongst its target customers. For example, a mass market product like Coke® would aim to be available in as many ‘on-trade‘ and ‘off-trade‘ distribution channels as possible. It is therefore not surprising to find this brand sold by street vendors as well as 5-star hotels.
In the case of Tanduay®, it has deployed an intensive, on-trade and off-trade, level three distribution strategy largely across the Philippines which has enabled this brand to capture 99% share of the rum market locally, a virtual monopoly. With its flagship product Tanduay Rhum 5 Years, it is available in the ubiquitous ‘sari–sari stores‘ across the archipelago, as well as practically in all modern trade outlets in the country which is made possible by its level three distribution strategy.
With its dominant domestic position secured, the brand then set it sights on the international markets.
In recent years, starting in 2017 when it was first named the top-selling rum in the world by Drinks International, it began to deploy the same distribution strategy in the other markets primarily in North America. In the US, Tanduay® can now be found in Hawaii, Nevada, Wisconsin, Florida, New York, New Jersey, Illinois, California, Tennessee, Michigan, and in the territory of Guam.
However, unlike in the Philippines where its low-priced product range comprise the bulk of its sales volume, it is penetrating the US market with its more premium range of rum products led by the Gold and Silver Tanduay Asian Rum.
It is also now available in China, Singapore, Australia and the UAE. This 2021, the brand has began its distribution push in Europe where former world leader Bacardi® has a stronger foothold. Tanduay® is now available in Germany, Belgium, Netherlands and Luxembourg.
“We are slated to add more distribution regions in North America, Latin America and Asia Pacific in the coming months. With our recent global expansion, we are hoping to reach more consumers that would patronise the brand,” according to the brand’s spokesperson in a recent interview with The Spirits Business.
How is the brand able to replicate its domestic market success in the international markets in North America, Latin America, Europe and Asia Pacific?
The answer lies in its aggressive distribution strategy in these markets.
“To go abroad you need partners.”Nestor Mendones, CFO of Tanduay
Using the intensive, on-trade and off-trade and Level 3 distribution strategy, it has entered into strategic partnerships in the various markets.
For example, following the brand’s basketball heritage in the PBA and PBL in the Philippines, its forays into the US$9billion US rum market include a partnership with the Golden State Warriors, making it the first Philippine brand to sponsor an NBA team. It had naming rights to the Tanduay Club in the 19,000+ capacity Oracle Arena, and Tanduay Rum can be found at retailers in the Golden State Warriors’ blue and gold “Strength in Numbers” collectible boxes in California. Tanduay® currently has its own branded bar at the Chase Center, the Golden State Warriors’ brand-new arena in San Francisco’s Bay District which opened in 2019.
Earlier this 2021, NBA’s Minnesota Timberwolves also announced a new three-year partnership with Tanduay®. This is the first rum partnership for the organization and designates Tanduay Rum as the official Rum of the Timberwolves. The new partnership includes a specialty experience inside Target Center, custom branded packaging at retail locations, and in-arena assets.
“Tanduay Rum is the world’s top selling rum brand who is growing fast and expanding into Minnesota,” said Ryan Tanke, Chief Operating Officer of the Minnesota Timberwolves and Lynx. “It’s recognized for its taste, quality and popularity, and we are excited to bring this iconic Philippine rum brand inside Target Center and continue to enhance our arena and build experiential spaces for our fans.”
Tanduay® also became the official rum of the Barclays Center and the Brooklyn Nets. It has been a Presenting Sponsor of the 40/40 CLUB and an Associate Sponsor of the arena’s Brooklyn Show platform.
Also during early 2021, Tanduay® has entered into a partnership with another NBA team — the Phoenix Suns. This makes it the first Philippine company to simultaneously sponsor five NBA Teams including: Phoenix Suns, Minnesota Timberwolves, Milwaukee Bucks, Golden State Warriors and the Brooklyn Nets.
Aside from the on-trade distribution that these NBA partnerships bring, the brand also inked off-trade deals with the largest and most established US wines and spirits distributors, Johnson Brothers (founded in 1953), General Beverage (founded in 1933), and Hensley Beverage Company (founded in 1955).
“We couldn’t be more excited about our new partnership with Tanduay Rum, the largest Rum brand in the world,” said Yale Johnson (2nd from left in photo on left), Vice President of Johnson Brothers. “With a global 150-year track record of success, we recognize the tremendous opportunity for this portfolio in the U.S. Additionally, we see great potential with the premium rum category and look forward to leveraging our best in class selling capabilities and customer relationships to help Tanduay Rum flourish in all Johnson Brothers markets.”
“We are privileged to work with international distributors who share our commitment to providing only the best products to our consumers. We thank General Beverage and our other partners for their trust in our products,” said Tanduay® Senior Vice President for Sales and Marketing Paul Lim. “We are excited to add Tanduay spirits to our product lineup, their award winning rum adds to our premium spirits portfolio. Distinctly Filipino, Tanduay differs from many of the Caribbean rums currently found in our local marketplace. Their product offers tremendous depth of character that is unique to their heritage. They offer a diverse portfolio of rums for discerning consumers,” said General Beverage Senior Vice President Marketing and Sales Michael Minkoff (2nd from right in photo above). “The Tanduay team’s passion for authenticity, their loyal customer base and their commitment to long-term brand development in Wisconsin is what brought us together in this partnership,” Minkoff said.
Chad Marston, Chief Sales Officer, Hensley Beverage Company, said that they expect the Philippine-made rum to have a strong customer following in the state. “We expect the market to embrace Tanduay Rum as a truly unique offering. While Tanduay is massive internationally, it is still relatively new to the United States. Rum is a popular spirit in Arizona and Tanduay will help drive category growth,” said Marston.
And finally, with Lucio “Hun Hun” Tan III, grandson of ‘El Kapitan‘ Tanduay® owner Lucio Tan, now at the helm of brand as Tanduay President and COO, the push for online channels is also being given strong focus.
A software engineer, Tan’s direction for the 167-year-old Tanduay business is to bring it to more customers globally, making it available not just through traditional marketing and selling but tapping into online channels as well.
“Even before the pandemic, we were already working on making Tanduay available through tech-driven channels. Last June, we launched an online selling site for our Filipino customers, shots.ph. In the US, we have partnered with Caskers and Flaviar, and we are also available through the online sites of our distributor-partners,” Tan, a graduate of Stanford University, said.
The results speak for themselves. Now on its fourth consecutive year as the world’s top-selling rum brand, Tanduay has also been named the alcoholic Brand of the Year from 2015 to 2019 by the London-based World Branding Forum. With all these accolades under its belt, Tanduay® is poised to achieve even greater heights as it pursues its successful ‘intensive‘ and ‘level three‘ distribution strategy in more and more international markets in North America, Latin America, Europe and Asia Pacific, and online.
This brilliant Filipino brand teaches us some key lessons with respect to ‘place strategy‘ including:
- A correct and robust distribution strategy can enhance the brand’s positioning in the various market segments it competes in with its various underlying products.
- A relentless pursuit of a brand’s distribution strategy is able to create new market segments for the brand thereby providing whole new revenue streams.
- Appropriate partnerships with relevant parties in various markets and segments can accelerate the growth of a brand.
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