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July 25, 20226 Comments

The Seven Biggest Reasons Rum is SO Cheap

When you walk into your liquor store, the only aisle with lower prices than rum is vodka. Sure, the whiskey aisle has some budget-friendly options, but most whiskey drinkers don't even bat an eye at a price tag north of $50. Vodka is frequently at bottom-tier pricing, excluding the celebrity-owned "luxury" brands.

And don't get me wrong - there are some premium-tier rums out there. But the vast majority of rum is relatively inexpensive. Yes, even the good stuff.

Before We Start, Let's Prove It: Is Rum Cheap?

The short answer? Yes.

77.2% of all vodkas sold in Ohio are $25 or less, compared to rum's 58%. Whiskey (27.2%), tequila (24.4%), and gin (45.8%) are just barely getting started at the $25 price point. Whiskey and tequila have seen a premiumization like no other, each with more than 35% of their bottles going for $50 or more, and a whopping 72% or more above $25.

Data Sourced from OHLQ.com

Rum isn't quite as cheap as vodka, on average, but certainly contends with the flavorless beverage for the title. Whiskey has the evenest spread, while tequila is an interesting bell curve. Gin concentrates in the same range ($25-$50) as most of the other spirits, but has few higher-tier options.

Vodka is cheap because it is cheap to produce. It can be made from almost anything, is not barrel-aged, and is often produced in mass quantities in huge distilleries that more closely resemble a factory than a place where any craft happens. And for the most part, it all tastes the same. This is why vodka producers have focused on pretty bottles and celebrity endorsements to differentiate themselves.

Similarly, gin leans toward the cheaper end because it is ultimately produced FROM vodka. It usually lacks barrel-aging. The layering of botanicals and herbs atop the neutral profile dictates the quality of the product and, therefore, the price.

Then what's the deal with rum? It's made from a narrow range of raw materials, isn't always barrel-aged (which rarely seems to impact the price anyway), and often has a lot of hands-on crafting involved. Why is rum so cheap? Let's take a look!

1. Any Barrel is Fair Game

While whiskey often has very specific requirements regarding the type and condition of the barrel it is aged in, rum (at least in the US) does not have any restrictions. Most rums, if they are aged at all, are aged in used bourbon barrels. A new barrel is fair game, as are used barrels from other types of whiskeys, wine, or just about anything. This means that the barrels can be cheap. Bourbon must be aged in a new barrel every single time, which gets expensive, and also means the bourbon companies have no secondary use for them. To save on storage space, they want them out the door as quickly as possible. If you're a big rum company that needs a lot of barrels, you can probably negotiate a good deal.

At Echo Spirits, we use a wide variety of barrels. Our white and pineapple rums aren't aged at all. Our Queen's Share Rum is normally aged in used bourbon barrels, but we have individual experiments sitting around in new barrels and even used rye whiskey barrels. We even released our Cherrysmoke Rum, which was aged in a used bourbon barrel before adding charred cherrywood chips.

2. The Raw Materials are Mostly Byproducts

Most people know that rum is often made with molasses, but what most people don't know is that it's not the same type of molasses you'd find at the grocery store. That molasses, while having some earthy notes to it, is normally used as a sweetener. It was the first cut of the cane sugar refining process after pulling out the crystallized sugar itself.

Molasses used in rum is often the final, dark, rich, mostly un-sweet version. It is what is left over after the sugar refinery has pulled everything valuable out of it. If not for the rum industry, this would be sold as livestock feed or simply sent down the drain. In fact, before rum became a large spirit category in the 1600s, it was just that - given to livestock or thrown out.

Fermentation-grade molasses is cheap just about anywhere in the world. Doubly so if you are in a cane sugar-producing region and don't have to deal with shipping costs. In those areas, the cane sugar itself is also cheap. Think about what's made in Ohio - vodka, gin, whiskey. That's because grain is plentiful and cheap in the Midwest. Cane sugar, less so. Once you start to include shipping from the Southern US or Caribbean, cane sugar gets very expensive. In fact, at Echo Spirits, we spend twice as much on the raw materials for a batch of rum than we do on any of our grain-based bottles.

3. In Rum-Producing Regions, Labor is Less Expensive

There's no pretty or complex way to state this one, folks. Just like the plastic trinkets we get at big box stores are cheap because of labor costs in the country where they're made, rum's price is low because most of it comes from regions where the cost of labor is also low. Remember how whiskey is higher-priced on average? Most of the whiskey available here in Ohio was produced in the US, where workers are paid more.

4. Rum Isn't Viewed the Same Way as Whiskey

Think Mad Men. Gentlemen (well, not really) of a more formal era dressed in three-piece suits, smoking cigars, and drinking glasses of whiskey. Not rum. Not vodka. Whiskey.

Whiskey is the accessible, gateway sipping spirit. As whiskey drinkers get older, their tastes (and income) change, and they often start looking for more challenging bottles.

All of this has led to a race in the whiskey industry to put out a wide array of high-quality products at high-quality-appropriate prices. Think back to your young-adulthood days. You knew there were (and probably drank) cheap whiskeys whose flavor you kinda liked but mostly wanted to cover up with Coke or Ginger Ale. But you also knew there was a whole world of whiskey out there that was good enough for people to drink neat (with no Coke at all!). And you probably resolved to buy one of those bottles someday, when you could afford it, to see what the fuss was about.

Rum hasn't had the same recent history of premiumization. At one point, in our Colonial days, rum was seen as a very British and noble thing to drink. The average person drank beer, cider, and gin. But if you were a gentleman of a richer blood, you drank rum. The colonies turned on the Crown, and rum was swept aside. It became a secondary spirit. And for hundreds of years, rum has been associated with University life, cheap fruity drinks, and the kitschier side of tiki.

Most rum that is produced is intended to fit into those stereotypes. There just isn't that much "fine rum" accessible to us (though it absolutely exists!) because very few people are looking for that category. Only those of you who are in-the-know know that rum can be a lovely sipping spirit.

5. A Lot of It is Crappy

There. I said it. Most rum out there, particularly white rum, is crap. If few people are seeking high-quality rum, producers aren't going to make as much of it, and stores aren't going to carry it. This skews the prices you see on store shelves toward the budget-tier bottles.

6. It Is Distilled to Compete with Vodka

Yep. Vodka.

Think back to your early days of drinking. I make rum for a living, and I'll be the first to tell you that years ago, I couldn't tell the difference between rum and vodka. And if you made me do a blind taste test today using most budget rums, I would probably still guess incorrectly.

And that is because most white rum, at least as Americans know it, is made to compete with the vodka market.

In the 50s and 60s, coming out of World War I, The Great Depression, Prohibition, and World War II, the rum companies ran into a problem. The American palate was changing. We all became concerned with light. Beer became light. After years of eating what was available, we had options, overindulged, and became concerned with our health. Even our whiskey became light. Flavor-rich varieties were falling out of favor.

So the rum companies adapted. They began producing more and more neutral rum - rum distilled to a higher proof, meaning more alcohol and less flavor compounds coming off the still. Water is added to bring this back down to drinking proof, but the flavor remains empty. If it's 190 proof coming off the still, it's considered vodka. But if it's 189 proof coming off the still, you can still call it a rum.

In the ensuing decades, this is what most Americans began to associate with rum. Neutral spirits that don't have much character. If you're trying to compete with vodka, and vodka is cheap, you had better make your rum cheap too.

7. The Rum Cover Over

You can probably back yourself into the logic of any of the points above. Numbers 1 through 6, summarized, are "if you can make rum more easily and with lower costs, you can sell it more cheaply". The Rum Cover Over falls in line with that logic, but it's not something most people have heard of.

Alcohol is one of the most heavily taxed commodities on the planet. For thousands of years, governments have taxed alcohol to pay for just about anything. Historically, taxes on alcohol would often pop up to pay for the costs of a war or other hardship, then disappear. Today, we primarily see permanent taxation, but the point remains.

The Rum Cover Over is the policy that the Federal taxes collected on the sale of rum which is made in the US Virgin Islands and Puerto Rico are sent back to the Treasuries of those islands. That tax money is the primary revenue and support they receive from the Federal government. The tax collected from rum made in Ohio? Distributed among many projects covering the whole US. The tax collected from rum made in the USVI or Puerto Rico? Sent directly back to those territories to help fund their economy.

I'm not arguing that this is a bad policy, certainly. Those territories require funding, just like anywhere else. I'm not an economist or politician and I don't pretend to have answers for the problems the islands would face if the Cover Over were to disappear.

But I do know one thing: the Cover Over incentivizes those governments to pull in as many rum producers as possible. And they do this by heavily subsidizing rum production within their borders, even going so far as to build new distilleries for the companies. No one is sure just how much money rum producers receive, but it's estimated that some of these distilleries actually pay $0 to produce and market their spirits and run their facilities - 100% of the revenue they receive from bottle sales is profit. But the taxes collected are far higher than the costs of the rum itself, so there is still a net incentive to the Treasuries of the USVI or Puerto Rico.

The distilleries on these islands are paid to produce as much rum as possible, flood the American market, sell bottles, and see that money flow back. This is so lucrative to those economies that they even compete with each other to provide better benefits for distillers and pull them from one island to the other.

In short, the rum producers on two of the biggest rum-producing islands in the world pay essentially $0 to make or market their products, allowing them to sell it for rock-bottom prices. The revenue is 100% profit, and the tax collected is based on volume and proof, not bottle price.

Why Rum is Cheap

There is no single reason that tells us why bottles of rum are priced lower than most other spirits. Instead, we see a network of components, all contributing to driving down the number on the sticker. The reasons are numerous and fascinating, creating a pricing model we don't see anywhere else in the spirits world. Even when all of those factors aren't at play - like here in Ohio - distilleries must be competitive and fall into those same buckets.

I hope this was educational and interesting. Let me know what you think in the comments!

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