The company celebrates its past while looking forward to growth in the competitive spirits business.
By ELAINE WALKER
When Bacardi family members gather over the next week to celebrate the company’s 150th anniversary, they will crack open limited-edition, $2,000 bottles of an aged rum blend made especially for the occasion.
A fitting toast would celebrate how far the company has come, particularly in the last two decades. During that time Bacardi Limited has transformed itself from a family-owned company known almost exclusively for its namesake rum to a multi-branded spirits company featuring a collection of well-known premium brands ranging from vodka to gin, scotch and tequila.
The expansion wasn’t just a matter of growing market share. In a shark-like global marketplace, Bacardi needed to grow if it wanted to survive.
“We saw consolidation happening and with a single brand it would have been very difficult for us to compete,” said Manuel Cutillas, a Bacardi family member and shareholder. Cutillas lead the first phase of the diversification as chairman and chief executive during the 1990s. “We had to grow. Had we not done that we would have found ourselves having to sell or merge with a larger company.”
Bacardi learned that lesson the hard way during the 1980s and early 1990s. As rum sales declined amid the growing popularity of premium vodkas and tequilas, Bacardi rum lost its rank as the top selling spirit in the world. When consolidation swept through the industry, the company struggled to remain competitive with industry leader Diageo and the fast-growing Pernod Ricard.
The company’s move toward diversification began in 1992 with the acquisition of Martini & Rossi, then picked up speed with the 1998 acquisition of Dewar’s scotch and Bombay Sapphire gin. In 2002, it added Cazadores Tequila. The crown jewel came in 2004 when the company spent $2 billion to buy Grey Goose vodka, the world’s top super premium vodka. That deal made Bacardi a player in the hottest beverage category, where it had long been missing in action.
Initially, some industry watchers were skeptical about the growth potential of the new brands.
“The doubters have been proven wrong,” said David Fleming, executive editor of Impact, an alcoholic beverage industry trade publication. “There were some people who thought the only thing Bacardi knows is rum. They’ve shown that they’re real brand builders.”
Internally, the Grey Goose acquisition also seemed to silence the rumblings that had been brewing for more than a decade about Bacardi’s potential transformation from a private company to a publicly traded one. The option was seen as way to raise expansion capital.
Chairman Facundo L. Bacardi said the family values its independence and has no intention of going public. Bacardi has fewer than 500 shareholders; all but a handful are family members. Today, there are eight generations of Bacardi family members.
“There are plenty of acquisitions out there that we can do without resorting to being a publicly-traded entity,” said Facundo Bacardi, the great, great grandson of founder Don Facundo Bacardi Massó and one of the company’s largest shareholders. “You don’t realize how hard it is to manage a company quarter-to-quarter and fiscal year-to-fiscal year. We don’t think that way. Some of our plans go out 10 years. We take a long-term view on a number of initiatives.”
Today, the company that Don Facundo founded in 1862 in Santiago de Cuba is the third-largest spirits company in the world, with more than 200 brands. In the last two decades, Bacardi has quadrupled in size.
While the Bacardi Limited empire is based out of Bermuda, its U.S. headquarters has called Miami-Dade County home since 1964. The U.S. remains Bacardi’s top market and the company puts most of its resources behind its six core premium brands.
“I think that’s one of the secrets to our success,” said Robert Furniss-Roe, regional president of Bacardi North America, who has spent 23 years in executive positions for the company around the world. “We’ve remained very focused on building a few brands very well. We’re not stretched terribly thin across 15 different things.”
Accordingly, Bacardi has bought little in recent years. Its most high-profile deal since Grey Goose was the 2008 “significant” investment in the parent company of Patron tequila.
The company has been rumored as a potential bidder should Beam Brands (maker of Jim Beam, Maker’s Mark and Courvoisier) break up, but that’s not likely in the immediate future. The major voids in Bacardi’s spirits portfolio revolve around cognac and bourbon.
“We always keep our eyes open for acquisitions that make sense,” said Séamus McBride, president and chief executive officer of Bacardi Ltd. “I think the shape of our portfolio is self-evident. Some of those are gaps we could fill if we saw the right acquisition at the right price.”
McBride, who took over the helm in 2008, is one of a string of chief executives since 2000 who have come from beyond the Bacardi family. As the company has grown over the last decade, it has focused on bringing in outside management with more diverse skills. Like McBride, many of the executives have come from a background in the consumer products industry.
Even the number of family members working at Bacardi has dwindled to less than 100 of the company’s nearly 6,000 global employees. Bacardi’s 16-member board of directors also now includes nine non-family members, a practice that started in 2003 among several moves to strengthen the company’s corporate governance.
Yet, Facundo Bacardi said the family has by no means separated itself from the decision-making process.
“At the end of the day the buck stops with the family,” said Bacardi, 45, who became chairman in 2005 and also runs Apache Capital, a Coral Gables investment company. “The family needs to make sure everybody is reading off the same page. People look to me to ensure we follow the same values that my great, great grandfather started this company with 150 years ago.’’
But industry experts say the changes internally and within the industry have had far-reaching impacts on the way Bacardi does business.
“They don’t have the kind of unitarian power they once had,” said Tom Pirko of BevMark, an industry consultant “They’re playing by other people’s rules, much more than they ever did before. Sometimes that’s good because it brings discipline. Sometimes that’s bad because it stifles creativity. There was always a kind of exuberance about Bacardi. They were more spirited in what they did. Now, they’re more confined. It’s a response to forces bigger than they are.”
Although its acquisitions have pushed Bacardi up the ranks to the third-largest, major international spirits company, a huge gap remains between the family-owned company and its two larger competitors, Diageo and Pernod Ricard.
“They’re not playing at that level and they probably never will,” said Olly Wehring, editor of just-drinks, a leading London-based industry trade publication.
While Bacardi waits for appropriate brands to come up for sale, the company is focusing its attention on innovation, with the rollout of new products at a pace never seen before.
The anniversary will mark the launch of Ron Bacardi, de Maestros de Ron, Vintage: MMXII. Cutillas and seven other of the family’s retired master blenders gathered for several days in Puerto Rico to create a product using rums aged in cognac barrels, some as long as 25 years. Only 1,000 bottles have been made, each in a numbered, hand-blow glass decanter. Most will go to the family, but a limited number will be available for $2,000 a bottle at select travel retail locations, including Miami International Airport.
For most consumers, of greater interest is last fall’s unveiling of Bacardi Oakheart. The spiced rum is designed to compete against Captain Morgan and appeal to the sense of adventure among its young male target audience. It has already been the company’s most successful launch since Bacardi Limon.
“It’s an offensive play, not a defensive play,” Furniss-Roe said. “We spent an awful lot of time trying to come up with a product that was far superior to anything else in the marketplace. We’ve already taken beyond the marketshare we were expecting.”
On tap is an emphasis on new fruit flavors: Bacardi rum’s, Black Razz and Wolf Berry; Grey Goose Cherry Noir vodka, and Bombay Sapphire East gin flavored with lemongrass and black pepper.
And that’s only the beginning. Look for another high-profile super-premium product launch designed to fill a category gap in Bacardi’s portfolio.
“The consumer today is always looking for new experiences,” McBride said. “They have more choices than in the past and they are more sophisticated. They want variety. Flavor line extensions can increase the frequency of our existing user base or bring in new customers.”
Innovation is just one way that Bacardi hopes to boost sales.
“The best way to grow the business is organic growth,” Facundo Bacardi said.
The company says its business is once again back in the growth mode. Like other companies in the consumer products business, sales took a hit during the recession as consumers cut back on going out to bars and restaurants for cocktails.
Although the privately-held Bacardi does not have to file financial reports with the Securities and Exchange Commission, documents were available until Sept. 2008. The last full year of documented financial results show 2008 fiscal year sales, less excise taxes, hit a record of $4.5 billion compared to $4 billion the previous year. Net income for the year ending March 31, 2008 was $794.7 million, up from $730.5 million the previous year.
But by Sept. 2008, although sales were still increasing because of higher prices, Bacardi reported a 2 percent decline in global case volumes for the first quarter of Fiscal 2009. The picture was even worse in the U.S., which saw a 7 percent decline in global case volumes.
“Traditionally our industry has been viewed as a defensive proposition during economic downturns, but the possible breadth and depth of the current downturn suggests that past history may not be a good guide to this very deep and very global recession,” Bacardi wrote in a Sept. 2008 note to shareholders. “Having repositioned ourselves as a premium and super-premium branded spirits company, we remain even more cautious. The tightening in the credit markets is impacting both our consumers and our customers.”
While post-2008 financial results are not available, industry sales reports show Bacardi’s core brands all took hits in volume during 2009. The turnaround has begun, as most brands have started to grow again and have rebounded either to where they were pre-recession or close.
Alcoholic beverages as a whole stood up better than many industries during the recession, as consumers opted for drinks at home instead of pricey cocktails at bars. Others traded down to less expensive products, which took its toll most on super premium brands like Grey Goose.
“It’s been very tough in the U.S.,” Furniss-Roe said. “The brands that were higher priced faced more challenges and the brands that were more affordable were less challenged. We’ve basically held on to our marketshare during the recession. I think 2012 will be a substantial turning point, both in the industry and the company.”
Bacardi sees opportunity in the emerging markets. The company has put an emphasis since the late 1990s on developing its business in markets like India, China, Brazil and Russia, all of which have seen sales growth at least double the rate of the developed world.
Industry experts say Bacardi needs to pick up the pace of growth both internationally and in the U.S. if it hopes to continue to thrive.
“In this industry you lose if you’re not continuing to grow,” Pirko said. “You grow or somebody grows at your expense. The decisions Bacardi makes now are going to determine what happens in the next five to 10 years. If you don’t have the resources to go after a competitor with deep pockets like Diageo, you’re always going to be behind.”
Always a leader in creative marketing, Bacardi has adapted to changing consumer patterns. Today, you’ll find Bacardi engaging with more than 2 million Facebook fans, introducing brands through events and aligning its brands with art and culture.
“There is no consumer today that drinks a brand because they saw an advertisement,” said Juan Rovira, senior vice president and chief marketing officer of Bacardi U.S.A.. “Engagement with a brand goes through multiple touch points. It’s a much more complicated seduction process.”
It’s why for the 150th anniversary, Bacardi is throwing a VIP birthday bash at the Super Bowl in a space reminiscent of Cuba during the 1950s. A Bacardi-sponsored promotion on LCD screens in New York’s Times Square celebrates 2012 as the United Nations Year of the Bat. Contests on Bacardi’s Facebook page give away tickets to birthday celebrations around the world, vintage Bacardi T-shirts and crates packed with all the accoutrements to throw one’s own Bacardi birthday bash.
“We’re trying to talk about the history in a way that’s relevant and engaging to our consumer,” said Toby Whitmoyer, Bacardi U.S.A.’s vice president and brand managing director for Bacardi rum. “Social media is absolutely critical. A more engaged consumer purchases your brand more often; that link is clear.”
During the anniversary, much of the marketing effort will focus on the namesake brand. No matter how much Bacardi grows, its focus will always remain back where it started.
“We may own other brands, but it’s always going to be a rum company,” Facundo Bacardi said. “Our mother brand has the name of the family on every single bottle. We may spend a lot of time thinking about ways to succeed in other spirits categories. But we know where we come from.”
