Feb.04 Bacardi story

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Feb.04 Bacardi story

1/12/04

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Bacardi Breaks New Ground As the rum giant celebrates 25 years as the number one selling spirit in the U.S., they are also keeping an eye on the future. By Kristen Wolfe Bieler

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Photographs by Thomas Mangieri

f there is one word to describe the operating style of Bacardi, it would be focus. The dedication once devoted to a single brand is now applied to a small and intensely profitable portfolio of brands, most of which have grown into category leaders. “There is a big difference between a bottle with a label and a brand,” says Eduardo Sardina, president and CEO, Bacardi, USA. “We like to see ourselves as offering strong brands. Bottles with labels, anybody can do.”

With its rich history in Cuba, and now its global base in Hamilton, Bermuda, the rum that Bacardi has been making since 1862 has become the number one premium-distilled spirit in the world. The Cuba Libre – Bacardi Rum and Coca-Cola – is the most popular cocktail internationally and Bacardi is the largest selling spirit brand in the U.S. The company was an extremely successful single brand company until the early 1990’s when their strategy changed. “A gentleman that I have tremendous respect for once said that Bacardi was a onelegged stool,” says Sardina. “Although we had a great brand, it is difficult to sit in a one-legged stool because there is no balance.” Until 1992, Bacardi was focused on one thing: selling cases of Bacardi rum. Then the company embarked on a pattern of growth, making some highly prized acquisitions, starting with Martini & Rossi, followed by Dewar’s and Bombay Sapphire. “Bacardi has evolved from a one brand company focused on the rum category to a very diverse organization with a portfolio functioning in every category except domestic whisky,” says Raul Marmol, VP, chief marketing officer. “We now have a broader view on a wide spectrum of spirits and that has made us a much better marketing company as a result.” How does a company whose identity was so defined by one brand for so many years, assimilate a new family of brands? “This requires a lot more discipline for us; more organization and training,” Sardina says. “Particularly for our sales department.” Currently organized into nine divisions, Bacardi’s sales team is structured with a VP in every market, “close to the action,” says Bill Anderson, VP sales. “We are highly decentralized. We don’t like to see our sales reps in the office; we want them in the field with the retailers.”

Opposite page, clockwise: Bill Anderson,VP sales, Eduardo Sardina, president & CEO, Raul Marmol,VP marketing; Bacardi museum entrance and landmark Bacardi building.

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THE BACARDI PORTFOLIO Bacardi thinks of their portfolio in terms of six core businesses; Bacardi Rum, The House of Dewar’s, Bombay & Bombay Sapphire Gin, Martini & Rossi, imported liqueurs and the recently acquired Cazadores tequila. The U.S. is a particularly strong market for all of these brands. “We have brands that are of real value to retailers,” says Sardina. This differentiates Bacardi from the competition. “When most suppliers visit a retailer, they really only have a few good brands in their portfolio. All of our brands are premium, profitable and come with tremendous support and promotion.”

The Classic Line Still the number one selling spirit in the country, Bacardi has benefited by the overall growth in the rum category; today it is second only to vodka in sales. Since 1996, Bacardi has grown their traditional rum business by 500,000 cases and continues to grow it by two percent a year. “We’ve diversified rum’s image through new products like Bacardi flavors and drink promotions. At the same time, Bacardi and Cola is the world’s favorite cocktail, a great reason to remain focused on this classic,” says John Gomez, VP group marketing director. Recognizing that 55 percent of all cocktails are consumed with cola, they have decided to embrace the trend, and have created numerous promotional campaigns celebrating the classic combination. A series of light-hearted TV commercials are airing on network cable, and they have developed Bacardi and frozen Coke machines for on-premise accounts.

“QUICK” RUM REFERENCE Bacardi Light: The most “democratic” of the line. It is primarily mixed with Cola and is a key ingredient in the wildly popular Mojito. The widest appeal to all ethnic groups. Bacardi Gold: A very strong ethnic skew, appealing to Hispanic and African American markets in particular. Bacardi Select: The most robust, competing with Myers rum in the marketplace. Bacardi 151: An over-proof rum used in exotic drinks.

“We are positioning [our flavored rums] to be consumed like vodka, not with Coke or in Daiquiris.” — Romanach A Focus on Flavors Flavored rums now account for 30 percent of all rum sold, and Bacardi is a top player in the field with their flavor offerings. According to Celio Romanach, VP group marketing director, the flavor phenomenon that began to gain momentum in the mid Celio Romanach VP group marketing director 1990’s has grown into more than just a passing trend. There are now over 50 individual offerings from top brands and 33 offerings from the top five brands alone. Rum and vodka are undoubtedly benefiting the most from the flavor craze, and Bacardi sees their flavors as competing in both categories. Going head-to-head with the Stolis of the world, Bacardi released Bacardi Razz, Bacardi Vaníla and Bacardi Cocó in 2003, which join the already successful Bacardi O and Bacardi Limón (still Bacardi’s best selling flavor). “With these five flavors, we have gone after vodkas in order to grow the rum category,” says Romanach. “We are positioning them to be consumed like vodka, not with Coke or in Daiquiris.” Packaged slightly different, and coming in at a 20 percent premium to Bacardi Light, Bacardi defines the opportunity as coming in at a lower price than the premium and super premium vodkas, while still offering a premium brand name with higher margins for retailers. Interestingly, Anderson has noticed that flavor sales have not come at the expense of traditional rum sales for Bacardi or for retailers, making them truly value-added. “We are going to pass 1.4 million cases this year,” Anderson remarks. “That’s all incremental sales with high profits.” Bacardi sales have hit an all-time high in the US, and Romanach credits that benchmark to flavors.

Dewar’s Broadens its Consumer Base In a mature, and overall declining category, it is no small achievement when a brand grows in volume. This is exactly what Dewar’s has been doing since Bacardi began directing the brand in 1998. Gonzalo de la Pezuela, VP group marketing director, credits the 1.5 percent annual growth to the brand’s increasing popularity with a younger consumer, and Dewars’ explosion within the Hispanic market. “We have identified a Dominican consumer because of a strong affinity to the brand in their own country, so we approach that consumer in their neighborhoods here,” de la Pezuela says. “The recently Gonzalo de la Pezuela VP group marketing director introduced Dewar’s 12 Year

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“The recently introduced Dewar’s 12 Year Old has quickly become a 50,000 case brand growing at 15 percent a year.” — de la Pezuela

focuses on Martini & Rossi and Vermouth, both strong growing brands. Asti sells at 750,000 cases annually, growing at 4 percent a year and Martini & Rossi Vermouth sells more than 550,000 cases growing at 4 precent a year. Americans consume only a fraction of the vermouth as Europeans, yet surprisingly the Martini & Rossi brand is over half a million cases a year, and growing.

Premium Imported Liqueurs Old has quickly become a 50,000 case brand growing at 15 percent a year even though it is only available in limited markets. We are growing the whole Dewar’s business through the 12 Year Old, targeting primarily Hispanic consumers and also ‘mentoring’ a new generation of consumers who are just starting to develop a taste for fine Scotch,” continues de la Pezuela. “It is not fast or easy, but we are committed to it.” Dewar’s enjoys particular strength in the Northeast, however, is growing by leaps and bounds in the west, an opportunity Bacardi does not ignore.

Bombay Sapphire at the Top of its Game Bombay and Bombay Sapphire, also acquired in 1998, has grown every year since. “We acquired Bombay when it was a 350,000 case brand,” says Monsell Darville, VP group marketing director. “This year we’ll be more than 800,000 cases, growing at 10 percent from last year.” Darville and his team have worked to broaden the brand’s original, older male Martinidrinking consumer base.

Rounding out the Bacardi USA portfolio are several premium imported liqueurs, DiSaranno Amaretto, Drambuie and B&B which are all agency brands. These classic products have a loyal consumer base and are highly profitable at all channel levels. Combined, Bacardi USA sells approximately 500,000 cases.

Entering the Tequila Category The company recently acquired Cazadores Tequila. It is the number one premium Tequila in California, the world’s largest tequila market outside of Mexico, and will close in on the 100,000 case mark in California this year. This is an important trend for the brand given the “leading indicator” role that California has for Tequila dynamics in the U.S. as a whole. The brand’s success can be attributed to consumer recognition that it is the authentic brand from Mexico when considering a 100 percent blue agave product.

Malternatives: Going away or here to stay?

Monsell Darville VP group marketing director

“This year Bombay Sapphire will be more than 800,000 cases, growing at 10 percent from last year.” — Darville “We have aligned Bombay Sapphire with the design and film communities creating a rich platform with which to broaden our consumer reach,” he adds. “Today, Bombay Sapphire continues its historical strength in western markets, but is growing in all states.”

Martini & Rossi Adding Value Bacardi purchased Martini & Rossi in 1992, and it came with, what Sardina refers to as, a lot of “tail.” “With Martini & Rossi we acquired a lot of excellent brands, but we also acquired a lot of products that for whatever reason did not have a great fit for our company. We spent ten years cleaning that up.” Today, the company

Many industry experts predict that the malternative trend will fade. Bacardi, which witnessed the wine cooler decline in the 1980’s with their own Bacardi Breezers, sees a different evolution this time around. The company launched Bacardi Silver in 2002, and released two flavor extensions last year; Bacardi Silver O3 and Bacardi Silver Raz, with Bacardi Silver Limón set to release this year. Many brands which came out in early 2001 are now struggling or discontinued, and Romanach believes the field today consists of two serious players from the spirit-branded side; Bacardi at number two, behind Smirnoff Ice, the category leader. But with SAB’s acquisition of Miller, and the entire distribution network deemphasizing the malternative category, will they go the way of wine coolers? “Because of the strong spirit trademarks, we believe these two lines will be a success,” Romanach says. He attests that Bacardi Silver is a good fit with their partner Anheuser-Busch’s portfolio; they don’t directly compete with the beer giant’s core products, because they are priced more like an imported beer. An off-premise product – where 90 percent of its volume comes from – Bacardi Silver targets entry level adults, who are used to soda and juice, and may not like the taste of beer. Ideally, these consumers will develop brand loyalty, and choose Bacardi when they make the transition into spirits.

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NEW PRODUCT DEVELOPMENT: A SCIENCE OR AN ART?

“In tighter economic times like this, retailers are going to have to decide to put their money and their space behind brands that are delivering.”

Before leading the North American market, Sardina worked in Europe for many years and sees the US as a very unique market. “This country is more open to new products and new ideas, which is great. However, because con— Eduardo Sardina sumers are so willing to try something new, there are a countless number of new brands that hit the market every year which makes it very hard cocktail around 12 percent abv. Hitting nearly In 2004 for new products to succeed. When you 500,000 cases in 2003, Bacardi Party Drinks were BACARDI rum will are in the new products game, you lose launched to compete in the ready to drink (RTD) more than you win.” celebrate its position category, where a few players, such as Jose Bacardi takes a very conservative as the number one Cuervo, have dominated. “Retailers have used approach to product introduction, Party Drinks to fill a gap in the marketplace for selling spirit in the and when they bring something new rum-based, pre-mixed United States for to market, they invest significant time cocktails,” says Gomez. 25 consecutive and energy into doing everything they Packaged in 750ml and can to guarantee the product’s success. “I years. 1.75L bottles, Bacardi has believe in innovation and new products, but encouraged retailers to put them they have to be backed by support and promotion,” in the cold box, which represents an continued Sardina. “Probably 80 percent of the new prodadditional sales opportunity. “Retailers ucts out there are not developed very well and aren’t have supported the brand beautifully and appropriately supported. The retailer gets stuck with a have helped to make it what it is.” lot of that product.” The company allocates additional millions of dollars to research, primarily on the conBEHIND THE sumer end, which translates into savvy COCA-COLA¨ market knowledge. “We have incredible SCENES: was first mixed with reach to the individual retailers,” says rum in Havana, Cuba in SUPPORTING THEIR Anderson. “We can even break trends August of 1900. The rum down by zip code and are working on BRANDS providing specific consumer informaused to originate the Sardina spends a lot of time analyzing tion by individual account. That is Cuba Libre cocktail or retailers’ businesses. “If you look at retailer shelves, there are a lot of products that should rum and COKE¨ was not be there. I have been to retailers where they BACARDI. have 30 different brands on the shelf, and five brands are responsible for 95 percent of the business.” Sardina sees this as the result of suppliers creating products, pushing them on distributors, who have no choice but to push them down to the retailer, by offering discounts. “The retailers — Gomez are going to have to take a stronger stand and ask their distributors and suppliers what kind of support they are going to offer them in return for shelf space, and I’m not talking discounts,” why we have profitable, Sardina emphasizes. “In tighter economic times like this, retailproven, high-turnover proders are going to have to decide to put their money and their space ucts and our new products behind brands that are delivering.” are on average more successBacardi devotes tremendous resources to consumer-driven ful than the industry norm.” promotion, at a spend rate that is significantly higher than Currently Bacardi has much of their competition. The company spends $100 million several new product dollars annually on promotions both on and off-premise. introductions: TÜRI “There have been some companies that have backed away Vodka from Estonia; from merchandising in stores, such as producing holiday gift Ciclón, a tequila-spiked sets,” Marmol observes. “But Bacardi fully understands the rum; Drambuie Sylk need to assist not only in merchandising, but in-store promotand Talea Cream John Gomez ing to make sure our products are moving. That will always from DiSarrono. VP group marketing director remain a large part of what we bring to the market.” “Premium and super “We are totally committed to this industry,” Sardina says. premium brands are the ones that are growing.” “We bring the retailer profitable brands with tremendous support Another new product introduction, that has surso they are able to sell those brands. We stand behind what we passed the Bacardi team expectations, has been the sell. What retailers find in Bacardi is a really good partner.” instantly successful Bacardi Party Drinks, a pre-mixed

“Retailers have used Bacardi Party Drinks to fill a gap for rum-based, pre-mixed cocktails”