Bacardi & Company Ltd.

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Bacardi & Company Ltd.

65 Pitts Bay Road
Pembroke, HM 08
Bermuda
Telephone: (441) 295-4345
Fax: (441) 292-0562
Web site: http://www.bacardi.com

Private Company
Incorporated: 1919 as Compania Ron Bacardi, S.A.
Employees: 6,000
Sales: $2.9 billion (2002 est.)
NAIC: 312130 Wineries; 422820 Wine and Distilled Alcoholic Beverage Wholesalers

Bacardi & Company Ltd. is one of the largest wine and spirits groups in the world, shipping upwards of 200 million bottles of rum blends annually to approximately 200 countries worldwide. As the first distiller to produce smooth, light-colored rum in the mid-1800s, Don Facundo Bacardi turned his blending process, called the "marriage of rums," into a reported billion-dollar empire. Some of the company's other brands include Bombay Sapphire gin, Martini & Rossi vermouth, Dewar's Scotch whisky, and DiSaronno Amaretto.

FROM RUM SALES TO MANUFACTURING: 1830–1875

Bacardi, the giant liquor conglomerate, began with the emigration of Facundo Bacardi y Masso from Spain in 1830. Born in Sitges, Catalonia, Bacardi arrived in the Caribbean port city of Santiago de Cuba, then a Spanish colony populated by many fellow Catalans. There the 14-year-old Bacardi began importing and selling wine. While working for an Englishman named John Nunes who owned a local distillery, Facundo started tinkering with ways to upgrade the quality of aguardiente (fire water), which was also known as rumbullion. Facundo hoped to "civilize" the dark liquor from its early incarnation as a coarse, harsh liquid swilled by buccaneers. As rum production had changed little in the previous 200 or so years, Facundo decided it was time to elevate the spirit into something smoother and more refined.

In 1843 Facundo married a young woman named Amalia, the daughter of a French Bonapartist fighter, and soon began a family. Around this time his rum experiments had paid off and he offered samples of his newfangled light rum to relatives and friends. Facundo's secret formula enabled him to ferment, distill, and blend from molasses a rum one could drink straight, almost like wine, without mixers or additives. Since molasses was a byproduct of processing sugarcane, Cuba's largest export, there were ample quantities around the island. On February 4, 1862, Facundo, his brother Jose, and a French wine merchant joined forces to buy Nunes' tin-roofed distillery for $3,500. The facility had the necessities (a still of cast-iron, fermenting tanks, and aging barrels) for creating and selling a Bacardi brand of rum. Buying the old distillery lock, stock, and barrel, Facundo also received an added bonus in the deal—a colony of fruit bats that later came to represent the Bacardi name.

The Bacardi enterprise was a family affair. As Fa-cundo's three sons—Emilio, Facundo (Jr.), and Jose—came of age, they joined the company and learned their father's secret formula for making what was fast becoming the Caribbean's finest rum. Emilio, the oldest, worked in the office; Facundo Jr. worked in the distillery; and Jose, the youngest, eventually sold and promoted his father's products. Facundo Jr., in honor of his father and to celebrate the new family business, planted a coconut palm tree just outside the distillery. As the Bacardi boys learned their father's trade, a young man named Enrique Schueg y Chassin, who was born in 1862, the same year Don Facundo purchased the Santiago distillery, was maturing and would soon join both the business and the family, by marriage. In the ensuing years, as the business thrived, young Facundo's coconut palm did, too. The tree became an enduring symbol of the Bacardi family and its spirits operation.

Not long before Don Facundo and his partners bought the Nunes distillery, an Australian named T. S. Mort had perfected the first machine-chilled cold storage unit. Three years after Bacardi was established, Thaddeus Lowe debuted the world's first ice machine. Although these two inventions seemed completely unrelated to Don Facundo's premium rum, they later helped Bacardi conquer the social drinking marketplace by making ice and cold mixers commonplace. Yet such thoughts were far from Don Facundo and his family's minds, for they had no idea how widespread the appeal of their smooth, fine rum would one day become. Instead, they greeted Bacardi's increasing popularity in Santiago and the neighboring villages as a pleasant surprise.

As was the custom of the day, customers brought their own jugs and bottles to the distillery; the Bacardi family members promptly filled and returned them. With business booming, Don Facundo decided the current method of distribution was not good enough and set out to find an alternative. Meanwhile, back in Spain, Queen Isabella, who ascended the throne in 1843 at the age of 13, was deposed. For Bacardi and his family, as with most Catalans living on the Spanish-controlled colony of Cuba, the insurrection mirrored their own growing unrest. As civil war raged in Spain in 1872, Emilio, who had become a Cuban freedom fighter, was caught and exiled to an island off the coast of Morocco. During his absence, hostilities grew and a rebellion swept through Cuba, although the family business was unharmed. Emilio returned to Cuba four years after his capture and learned Bacardi rum had earned a gold medal at the Philadelphia Exposition of 1876.

A CHANGING LANDSCAPE: 1877 TO 1931

As the 1880s dawned, Don Facundo retired and turned Bacardi over to Emilio, Facundo Jr., Jose, and Enrique, who was now his son-in-law. The company's distribution problems had been solved with the suggestion from Dona Amalia that Bacardi products be sold with a distinctive, easily recognized label. As many of Santiago's residents could not read, Dona Amalia recommended using a symbol to represent Bacardi. The Bacardi logo was then born, sporting a most unlikely mascot, the fruit bat.

Before the turn of the century, as Bacardi flourished, Cuba was again engaged in battle to gain its independence from Spain. Emilio, fighting for his country, was banished a second time and Enrique went with him into exile. The United States joined the fray after a mysterious explosion on the U.S. battleship Maine sparked the Spanish-American War in 1898. After the defeat of the Spanish fleet at Manila, the U.S. and Spain signed the Treaty of Paris, which ceded Cuba, Guam, the Philippines, and Puerto Rico to the U.S. for $20 million. In 1901 Cuba became an independent republic, and Emilio returned home to the Bacardi family and business.

Emilio was elected mayor of Santiago while Bacardi continued buying sugarcane fields and expanding its operations through several bottling facilities. In 1906 Emilio was elected to the Cuban Senate and the next year Jose, the youngest Bacardi son, who had represented the company's interests in Havana, died. Though the family mourned his loss, the business continued to prosper and in 1910 Emilio returned to his father's homeland to begin Bacardi's first international venture: a new bottling facility in Barcelona, Spain. Less than a decade later, on May 2, 1919, Compania Ron Bacardi, S.A. was incorporated with Emilio as president, and Facundo Jr. and Enrique as vice presidents.

COMPANY PERSPECTIVES

Since 1965 we have been making Bacardi rum at the Bacardi & Company Ltd. distillery on New Providence. We are proud to say that our Bacardi rum is the only rum produced locally in the Bahamas and that it was the first major product to be exported from the Bahamas.

As Bacardi set out to conquer the world—especially the United States—with its premium rum, a roadblock called Prohibition stood in its way. Though temperance had been gaining ground for several years, the Prohibition amendment was officially ratified less than four months earlier on January 16, 1919. However, although Bacardi could not sell their spirits to the U.S., nothing stopped Americans from coming to Cuba for liquor. Havana soon became known as "the unofficial U.S. saloon" and Bacardi rum was one of its biggest attractions. Bacardi's international sales were also strong in a world whose population topped 1.8 billion by 1922. This same year, both the family and the business suffered the loss of patriarch Emilio, followed two years later by Facundo Jr. Enrique, though not a family member by blood, took the reins of the burgeoning company and served as its president.

The dawn of the 1930s brought further international expansion for Bacardi as its bottling operation in Spain was a huge success. Realizing that Bacardi rum could be distilled and sold from any facility with the appropriate equipment, Enrique began to open what soon became a network of distribution points. In 1931 came the establishment of a new subsidiary in Mexico, which was nearly bankrupt through a severe recession. Enrique's son-in-law, Jose Bosch, intervened and kept the operation afloat until the economy improved and the small company turned profitable.

AFTER PROHIBITION

When Prohibition was repealed in the United States in December 1933, Bacardi was ready to start serving the thirsty market. Enrique promptly sent his son-in-law Jose to New York City to pave the way for Bacardi's distribution in the United States. Back in Cuba the political climate was once again boiling as Fulgencio Batista y Zaldivar, the country's army chief of staff, became Cuba's de facto ruler after a military coup. Unfettered by its tropical roots, Bacardi entered the U.S. marketplace in a bang—selling over 80,000 cases in 1934. To save the company the United States' expensive import duty tax (nearly $1 per bottle), Jose Bosch decided to open another Bacardi facility in Old San Juan, Puerto Rico. Under American control since the Treaty of Paris in 1901, Puerto Rico was considered U.S. soil and its exports duty free. Under the name Bacardi Corporation, the new company soon moved to larger accommodations across the bay in Catano.

The 1940s brought several milestones for Bacardi, both in expansion and brand recognition. Much of the company's U.S. business had begun through word-of-mouth praise from visitors to the Caribbean, especially those flying Pan American Airways, which used Bacardi in some of its ads, "Fly Pan Am to Cuba and you can be bathing in Bacardi in hours." To capitalize on Bacardi's growing reputation and enhance its brand at the same time, Enrique and Jose initiated advertising that focused on Bacardi's excellent qualities as a mixer. Two of the more popular variations were the Daiquiri, named after a Cuban village where an American mining engineer mixed Bacardi, crushed ice, and lime juice in 1896; and the Cuba Libre or Rum & Coke, created by an American army lieutenant in honor of Cuba's new independence. The latter concoction gained widespread attention when the Andrews Sisters made "Rum & Coca-Cola" a hit in 1944.

KEY DATES

1830:: Facundo Bacardi y Masso emigrates from Spain to Santiago de Cuba.
1862:: Facundo, his brother Jose, and a French wine merchant jointly purchase a distillery for $3,500.
1919:: Compania Ron Bacardi, S.A., is incorporated.
1934:: Bacardi sells over 80,000 cases in the U.S.
1944:: Bacardi Imports is established in New York City.
1960:: The government of Fidel Castro seizes most of Bacardi's assets; Bacardi shareholders reconstitute the company as Bacardi & Company Limited; Bacardi International Limited is also formed.
1977:: Approximately 12 percent of company stock is sold to an outsider, Hiram Walker.
1986:: Chairman Alfred O'Hara and president Manuel Luis Del Valle buy back and convert shares from Bacardi's IPO in 1962 as well as those sold to Hiram Walker in 1977.
1993:: Bacardi buys a majority interest in Martini & Rossi.
1998:: The company acquires Dewar's Scotch whisky and Bombay gin brands.
2002:: Tequila Cazadores is purchased.
2005:: Facundo Bacardi—great grandson of the company's founder—is named chairman.

The same year "Rum & Coca-Cola" sailed up the charts, Bacardi Imports was established in New York City to coordinate the increasing demand for Bacardi, and both Cuba and the United States joined the Allied war effort. By the end of the decade, however, challenges loomed for Bacardi. In the United States, where whisky was reintroduced in 1947, rum sales plummeted 47 percent in a one-year period. Next came the death of Enrique Schueg in 1950, at which time Jose Bosch as-sumed the role of CEO. By 1953, drinkers had become concerned over the caloric content of liquor. In response to consumer concerns, Bosch introduced a new advertising campaign, comparing the calories of a Daiquiri with those in a glass of milk. This successful spin was soon followed by ad campaigns directed toward blacks and Hispanics, and in 1956 the company broke cultural gender barriers by featuring a woman in its ads, advising homemakers to serve a Daiquiri with the evening meal.

It was around this time (there were two dissenting versions) that the first Pina Colada was mixed in Puerto Rico, using Bacardi rum, varied fruit juices, and coconut milk. As the 1950s came to an end, Cuba was once again seized by revolution—this time to unseat Batista, who had returned to power in 1952. Regarded by many as a puppet of the United States, whose continued interference in Cuban affairs spawned guerrilla uprisings, Batista ruled until 1959 when rebels led by Fidel Castro and Che Guevara overthrew his dictatorship.

THE NEW BACARDI: 1960–1989

Bosch, no fan of Batista, was shocked when the new Castro government seized Bacardi's assets, valued at $76 million, in 1960. Luckily for Bacardi, it not only had its Mexican, Puerto Rican, New York, and recently established Brazilian operations to fall back on, but its registered trademark, as well, which Castro tried to seize, to no avail. Bacardi's shareholders, all descendants of Don Facundo, reconstituted the company in 1960 as Bacardi & Company Limited, headquartered in Nassau, the Bahamas. Another company, Bacardi International Limited, was also formed and headquartered in Bermuda. In 1962 the company sold 10 percent of its shares in an IPO (initial public offering).

Trying to stave off competitors with Bacardi's reputation as a mixer, the company launched a new advertising campaign once again expounding its rum's versatility. "Enjoyable always and all ways" was supposed to be taken literally, to use Bacardi's light-colored rum as a substitute for anything, even vodka in heavyweight drinks like highballs. The formula worked and Bacardi's sales grew by 10 percent annually throughout the 1960s, when the company finally broke into the top ten of distilled spirits brands. In 1964 Bacardi sold over one million cases of rum; this figure doubled by 1968.

During 1970, 2.6 million cases of Bacardi were sold. Aiming to further dominate the U.S. spirits market, Bacardi aggressively campaigned its rum as the mixer of choice, featured in joint promotions with Coca-Cola, Canada Dry Ginger Ale, Dr. Pepper, 7Up, Pepsi, Perrier, and Schweppes' tonic water. In a well-played game of one-upmanship, Bacardi won the battle against Smirnoff vodka as the nation's biggest-selling distilled spirit. After a dispute with the Bacardi family, Jose Bosch resigned as president of the company in 1976. The following year Bosch and a group of his supporters sold their company stock (amounting to 12 percent or so) to an outsider, Hiram Walker. Unfortunately, this break with family tradition was the first in a series of squabbles that rocked the Bacardi empire over the next decade-and-a-half.

Bacardi's rums sold just shy of 8 million cases in 1978 and by 1980 Bacardi reigned as the number-one liquor brand in the United States. During this period, consumers were once again weight-conscious and accordingly, Bacardi relaunched its status as a low calorie diet drink mixer. By 1985 Bacardi was selling over 18 million cases a year, with old rival Smirnoff selling less than 14 million. In 1986, three years after Bacardi Capital was created to manage and invest company funds, a group of inexperienced brokers lost $50 million speculating in the bond market. Regrouping, Bacardi chairman Alfred O'Hara and president Manuel Luis Del Valle (non-family members brought in to run the company in the 1970s) commenced a controversial stock buyback, which divided the company and inspired a storm of controversy. Many of the 500 family shareholders cried foul, several Bacardi family members were ousted, and O'Hara and Del Valle—despite the ruckus—succeeded. Spending more than $241 million, they bought back or converted shares from Bacardi's IPO in 1962 as well as those sold to Hiram Walker in 1977.

THE BACARDI OF THE 1990S

When the 1990s began Bacardi was once again a private company. Having weathered the Bacardi Capital scandal and increasing family discord, the company was faced with falling market share and sales. In an effort to jazz up its image, the company introduced Bacardi Frozen Tropical Fruit Mixers and Bacardi Breezers to wide acclaim. Two years later came Rum & Coke in a can, and a majority interest in Martini & Rossi for $1.4 billion. Bacardi hoped the diversification would help its European operations; as a result of the purchase, Bacardi became the fifth largest wine-and-spirits company in the world. Before the Martini & Rossi acquisition, Bacardi was bringing in close to $500 million annually, yet was nowhere near complacent. Its next new product launch, Bacardi Limón, was aimed at younger drinkers of flavored liquors like Absolut's Citron and Stoli's Limonaya. Introduced in 1995 with an $11 million advertising campaign, Bacardi Limón took off and was considered one of the hottest high-proof new brands of the year.

By the mid-1990s Bacardi had bottling facilities located in Australia, Austria, France, Germany, New Zealand, Switzerland, the United Kingdom, and the United States, while its spirits were still manufactured in the Bahamas, Mexico, Puerto Rico, and Spain—with Brazil, Canada, Martinique, Panama, and Trinidad added to the list. The company's brands, of which Bacardi Breezers and Bacardi Limón were the latest newcomers, had grown to accommodate virtually all tastes. First and foremost were Bacardi's four premium rum blends: Bacardi Light, the original, comparable to gin and vodka as a mixer; Bacardi Dark (full-bodied, its amber color achieved by blackening the inside of wooden aging barrels) and Bacardi Black (charcoal-filtered just once before extended aging; later renamed Bacardi Select), which competed with whisky and bourbon; Bacardi Anejo, a golden rum blend named for the Castillian word meaning "aged" that appealed to upscale brown spirits-drinkers; and Bacardi Reserve, a twice-filtered blend for brandy and cognac drinkers.

By 1996 all of Bacardi's products were given a more hip look with updated labels and bottle caps as Bacardi Spice (to compete with Seagram's Captain Morgan) made its way to the market with several more prototypes in the works. By now, Bacardi was once again a family-run empire, with Don Facundo's heirs calling the shots. Manuel Jorge Cutillas and brother Eduardo occupied the top posts, while the company created alliances with partners in Hong Kong, Japan, Malaysia, the Philippines, Russia, Taiwan, and Thailand to introduce its products. Another global project was the debut of Club Bacardi, the company's web site. Well-positioned for the future, the name Bacardi conjured up far more than a refined, dry rum; Bacardi was not just a premium spirit but an institution here to stay.

BACARDI HEADS INTO THE NEW MILLENNIUM

As Bacardi headed into the 21st century, the company continued to expand its business in the highly competitive liquor industry. In 1998 it added Dewar's Scotch whisky and Bombay gin to its arsenal. Bacardi then set its sights on Seagram Company's alcohol beverage segment, which was up for sale as a result of the impending Seagram and Vivendi SA merger. In 2000, Bacardi teamed up with Brown-Forman Corp. of Louisville, Kentucky, to bid for Seagram's prized liquor business that included brands such as Chivas Regal Scotch whisky, Crown Royal Canadian whisky, and Captain Morgan. A bidding war ensued and in the end, Bacardi and Brown-Forman lost out to Diageo PLC and Pernod Ricard S.A.

Undeterred, Bacardi forged ahead with its growth plans. In 2002, the company purchased Tequila Cazadores, a premium reposado tequila. Bacardi also added tequila infused rum Ciclon, Turi vodka, and malt beverage Bacardi Silver to its brand portfolio that year. Bacardi chairman Ruben Rodriguez commented on the cutthroat nature of the liquor industry in a December 2002 Calgary Herald newspaper. "It's a very competitive environment, and we have to get bigger in order to be able to effectively compete," claimed Rodriguez. He went on, "It's important to be the first one in the marketplace giving consumers what they want. If you don't do it, your competition is going to do it for you." Indeed, this mind-set remained at the forefront of Bacardi's strategy. In 2004, the company acquired Grey Goose vodka. It continued to launch new products and also redesigned some of its packaging.

Despite the company's successes, family squabbling, management changes, and failed plans to take the company public were taking a toll on morale at company headquarters. At the same time, Pernod Ricard's takeover of Allied Domecq left Bacardi well behind competitors Diageo and Pernod Ricard. The company reported a 21 percent drop in net profits for 2004 due in part to falling demand for its ready-to-drink cocktails.

Facundo L. Bacardi, great-great grandson of the founder, was named chairman in 2005. Under his leadership, the company took steps to secure its position in the industry. In 2006, Bacardi launched a new marketing strategy designed to take advantage of online social networks and blogs. It also launched Bacardi B-Live, an online and mobile radio station, and offered a sweepstakes on its Web site that tied in with the 2006 debut of the Miami Vice movie. Later that year, Bacardi U.S.A. relaunched its Havana Club brand in limited supply after winning a decade-long legal battle with the Cuban government and Pernod Ricard concerning the rights to market the brand. Back in 1960, Castro had seized Arechabala's Havana Clubs assets. The rum was then exported by the Cuban government's Cubaexport company and Pernod Ricard—but was not sold in the U.S. due to the embargo on Cuban products. In the mid-1990s, Bacardi bought the family recipe and the Havana Club name from the Arechabala family. The Havana Club product was pulled from store shelves however, after Pernod Ricard and the Cuban government cried foul. Havana Club's reinstatement in the United States in August 2006 was a sweet victory for not only the Arechabala family, but for Bacardi as well.

Taryn Benbow-Pfalzgraf