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Eluding Embargo, Western Drinks Marketers Eye Cuba's On-Premise
Impact International / Dec. 1, 2002

By Larry Luxner

HAVANA -- Drinks companies including E&J Gallo Winery, Southcorp, Labatt (Interbrew) and Stimson Lane are laying the groundwork to import their brands to Cuba.

Since the US embargo was invoked against Cuba in 1961, US companies have been forbidden from doing business there. The island also has been off-limits to American tourists.

But under the Trade Sanctions Reform and Export Enhancement Act (TSRA), passed in 2000, the Cuban government may import US food and agricultural commodities on a cash-only basis. While drinks companies are hoping for the eventual lifting of the embargo, they're starting to line up in the short term for on-premise business aimed at tourists.

About a half-dozen wineries and US spirits and beer companies recently participated in the US Food & Agribusiness Exhibition, an unprecedented event that attracted 750 executives representing 288 companies to the sprawling Pabexpo convention center just outside Havana. The event represented the first display of American food and drinks products in Cuba since the 1959 revolution which brought Fidel Castro to power.

Castro, clad in a dark-blue business suit rather than his usual military fatigues -- attended the expo on three separate days, tasting occasional samples of everything from Southcorp's Seven Peaks Cabernet sauvignon to raisins and soyburgers. Castro's enthusiastic reaction to California wine won't translate into immediate sales, but the very idea that U.S. wineries may now export their products to Cuba is encouragment.

Like many others, southcorp's wines would be targeted at Canadian and British tourists.

"Our Penfold's and Rosemount brands are phenomenally successful in Canada and England, and those countries are a big source of tourism in Cuba," said Ignacio Melero, southcorp's Miami-based sales director for the Caribbean and Latin America. "This would be totally tourist-driven, because of the price structure, but if it becomes a mainstay in the tourist industry, it will eventually trickle down to the domestic consumer."

Richard H. Moore, international director for California's E&J Gallo Winery, said Gallo currently exports to 92 countries, although Cuba isn't among them.

"The Cuban market won't be very large because the locals can't afford it, but there are two million tourists coming here every year, and that's growing by 20% annually," he said. "It's more a market of the future."

Moore, who is based in Fort Lauderdale, Fla., said Gallo would likely retail in Cuba from $6 for a bottle of Carlo Rossi up to $27 for a Sonoma Cabernet Sauvignon.

"Right now, you can buy other California wines here in Cuba," he said, noting that at the Hotel Nacional -- considered one of Cuba's finest luxury properties -- there are two racks of California wines in the hotel's wine shop.

Since November 2001, when Hurricane Michelle devastated Cuba's agriculture industry, the Castro government has imported over $140 million worth of US products through Alimport, a unit of Cuba's Ministry of Foreign Trade. Many US luxury products are already being sold at hard-currency shops in Cuba – having been imported by various government agencies — but they generally arrive through third countries. And that often results in outdated products, higher costs and delayed delivery.

Under the Trade Sanctions Reform and Export Enhancement Act, food commodities may be exported directly to Cuba through Alimport, with payment made to U.S. companies via Paribas and other French banks. Those exports can include wine, beer, spirits and even lumber products.

Yet brands like Seven Peaks -- which would sell here for at least $30 a bottle -- are way beyond the budgets of most ordinary Cubans, who earn the equivalent of $15 to $20 a month in relatively worthless pesos.

Laurence D. Pollack, CEO of Caravelle Wine Selections, represented two upscale California wineries, Burgess Cellars and Girard; Burgess sells 25,000 cases annually in the United States, and Girard sells 10,000 cases. Pollack spent most of the five-day event pouring glasses of Burgess Chardonnay, Burgess Merlo, Burgess Zinfandel and Girard Sauvignon Blanc.

"Our prices go from $15 to $40. In Cuba, our wines will probably be sold for the same price points," he said. "Our market is hotels and fine wine shops. There are 89 hotels in the 4- and 5-star category, and we've been talking with Alimport for quite a long time. This could be an important market for us if Cuba opens up. Even now, we're establishing important relationships."

Stephen J. Eisenhaure, an independent broker representing Stimson Lane -- which bottles Columbia Crest and Domaine Ste Michelle -- also hopes to get a piece of the pie.

"We're very small. We're going after Cuba's 1.75-million tourist market, which is the same size as the Virgin Islands tourist market," said Eisenhaure, who said his wines retail in the US for $9 to $40. "If I sell anything in the local market, it'll be a bonus. But the hotel and restaurant business is what I'm hoping for."

Beer, like wine, also represents a possible export opportunity for US companies. Before 1959, there were three major brands of beer in Cuba: Tropical, Polar and the leading brand, Hatuey, one of the main products of the Bacardi empire. Today, the beer industry is organized under the Asociación de Empresas Cerveceras de Cuba (Cuban Association of Brewing Companies), which includes all breweries except the most modern one built in the mid-80s under the name of Mayabe in Holguín province.

Canadian firms have been the most active foreign investors in brewing. The most successful has been Labatt, which has the exclusive franchise for all canning technology. A Canadian firm called Cerbuco Brewing formed a joint venture in the mid-1990s known as Bucanero to operate the Mayabe brewery. The venture produces three canned brands — Bucanero, Mayabe and Cristal (dark and light). Mayabe and Cristal are also sold in bottles, and both compete successfully with US, Mexican and European brands available in Cuba.

Joint ventures have also been set up with Spanish, Italian and Mexican companies to improve packaging quality, labeling and bottling technology throughout Cuba. the bottle factory at San José de las Lajas, virtually paralyzed for nine years, is now producing 27 million bottles a year, mostly for the beer sector. Another recent joint venture in brewing involves Canadian firm Sussex Admiral and Cuban partners Inversiones Locarinos (Inloc).

Inloc and its Canadian partners account for a large portion of the investments and refurbishing of Cuba's beer industry. the partners produce a new brand of draft beer called Caribbean Ice, which is brewed in the old Hatuey factory in Santiago de Cuba. The companies are reportedly also developing a new line of Hatuey beers.

Aside from heavily advertised Cristal, the only beer to be seen at the US Food & Agribusiness Exhibition was New Amsterdam Amberg Lager — a microbrewed beer distributed by Chatham Imports Inc. of New York. "People say it tastes like a beer that used to be brewed here years ago. How that will translate into sales in Cuba, we don't know," Joseph Magliocco, president of Chatham Imports, said of New Amsterdam Amber Lager, which retails for $8 per six-bottle case. "We're really here to gauge interest and learn about the culture."

In addition to beer, Magliocco brought down a variety of other products including Michter's Single-Barrel Bourbon Whiskey, which retails for $50 per bottle in the US, Puerta del Sole, an estate-bottled wine from Sicily, and Vega Alta premium wine from Argentina.

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