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Despite Bacardi threat, Havana Club J-V enjoys booming rum sales in W. Europe
CubaNews / December 2003

By Larry Luxner

"I’m just a humble rum merchant,” protests Alexandre Sirech as he sits in his cheerful, sunny office decorated with posters of 1950s Havana and shelves lined with liquor bottles of every size, shape and brand imaginable.

Of course, Sirech is joking.

As director-general of Havana Club Interna-tional S.A., the 37-year-old Frenchman from Bordeaux — who speaks English like a Londoner and Spanish like a madrileño — presides over what may be the biggest, most successful joint venture ever launched between foreign investors and Cuba’s communist government.

In 2003, the company — a 10-year-old part-nership between French drinks giant Pernod Ricard and a division of Cuba’s Ministry of Food Industries — expects to sell 1.92 million 9-liter cases of Havana Club rum. That’s up from 1.73 million cases in 2002, when the brand ranked 53rd in Impact Databank’s list of the world’s top 100 premium distilled spirits.

“Demand has been exploding in Europe,” he said, noting that total sales in the first 10 months of 2003 were 11% higher than the comparable period in 2002. “If we keep up with this momentum, we should rank in the top 40 very soon.”

What makes this achievement really impressive is that Havana Club has been able to score these gains without selling a drop of rum in the United States, the world’s largest rum market.

Sirech said that in order to prevent his bosses from violating the 1996 Helms-Burton Act and lesser manifestations of Washington’s 40-year-old trade embargo against Cuba, “we don’t communicate with Pernod Ricard, we don’t speak on the phone, we don’t exchange e-mails. We want to avoid any problems.”

Sirech, interviewed for two hours at Havana Club’s small but lavishly decorated headquarters in the residential Havana suburb of Vedado, was reluctant to give us actual production figures or say how much Pernod Ricard has invested in the venture.

That’s not so much because of the U.S. embargo, but because of ongoing litigation between his company and Bacardi-Martini over rights to the Havana Club trademark.

“You have to be paranoid,” he told CubaNews. "We need to be extremely cautious, because we know we are being listened to.”

With fears of Bacardi spies ever-present in his mind, Sirech refuses to say exactly how many distilleries Havana Club operates, how big they are or even where they’re located, outside of the large bottling plant in Santa Cruz del Norte, along Cuba’s northern coast just east of Havana.

Sirech also doesn’t discuss sales, although Havana Club’s annual revenues are believed to exceed $300 million (last year the Pernod Ricard conglomerate reported revenues of 4.836 billion euros, or around $5.3 billion).

Havana Club’s profits are estimated to be around $20 million, or just under 3% of Pernod Ricard’s 2002 profits of 750 million euros.

“We are a fully decentralized, autonomous entity,” Sirech said proudly. “Outside of production, everything’s actually done here in this little building — strategy, pricing, advertising and promotions.”

Havana Club was born in 1993, producing 300,000 cases of rum in its first year. Most of that was exported to Russia via barter deals.

“Bacardi was the leader in the local market, but they left the island several years before Castro took over,” he explained. “They were in big trouble with Batista. Legally, the Arichebala family more or less abandoned the brand before the revolution. That’s why a Cuban entity, Cubaexport, could register it. Anyone could have done that, because the brand was free to be registered.”

He added: “When we started, there were many doubts about the Havana Club brand. It’s funny to remember, because now it’s the fastest-growing spirit brand on the market.”

Bacardi declined to comment for this story, despite repeated attempts to reach company officials in Bermuda, Miami and the Bahamas, where various subsidiaries of the Bacardi empire all have offices.

The issue is an emotional one, particularly for patriotic Cubans who believe that Havana Club rum — along with Cohiba cigars and the famous Tropicana nightclub — lend great prestige to a country whose traditional sugar-based economy is rapidly crumbling, at least partly due to the U.S. embargo.

“We’re suffering a lot at the moment from our absence in the American market. The United States is half of the world rum market, and we can’t sell there,” said Sirech. “But we’re patient. We’ll wait to see what evolves before embarking on anything. The Cuban government wouldn’t have any problem with us doing business with the U.S., but any U.S. company that does business with Cuba should be very careful.”

Sirech, who began working for William Pitters in France at the age of 18, got his MBA in Barcelona and speaks fluent English, Spanish and German in addition to his native French. After a one-year stint in Miami with a French software company, he moved to Scotland in 1990 and joined Pernod Ricard in the whiskey division.

Sirech was sent to Cuba four years ago to head the Havana Club venture, and said he’s been amazed at the results.

“We’re in a venture with a Cuban company controlled by the government. As such, employees are paid in pesos rather than in dollars, though we can offer our people incentives. This is legal under the Investment Law of 1997,” he said.

“I’m a demanding boss, and when I arrived, I thought it would be impossible to have this level of quality.” But even without monetary incentives, he said, “many of these people believe that what’s good for Havana Club is good for the country.”

Sirech oversees 203 employees, of which 136 work in the local division; the rest are in exports, marketing and finance. That doesn’t include another 800 distillery workers, with whom Sirech has little or no contact. And fewer than five Havana Club employees know the brand’s proprietary formula, he said.

“Because of our legal battles with Bacardi, we keep our production process extremely secret. There’s a typical process for a Cuban rum, which is very different from the way people do rum in the Dominican Republic or Puerto Rico. On top of that, there’s a very special process for Havana Club which was developed by the Cubans in the 1970s. If the way we do light rum is ever imitated, we would lose a big competitive advantage.”

At present, Havana Club ranks as Pernod Ricard’s sixth-biggest spirit brand in volume after Ricard, Seagram’s Gin, Chivas Regal, Pasils 51 and Larios. Interestingly, the brand’s largest overseas markets are all in Europe: Italy (485,000 cases this year); Spain (318,000 cases) and Germany (187,000 cases).

“We started the Italian market from scratch in 1998,” Sirech told CubaNews. “Before that, the brand was distributed by Diageo. Then, Ramazotti began distributing Havana Club and it went flying. In Italy, it’s not only the top-selling rum but also the top-selling spirit.”

In Europe, the cheapest Havana Club brand goes for 11.90 euros, and the 7-year-old costs around 20 euros. Using a benchmark price of 14 euros per 750-ml bottle, that means a 9-liter case consisting of 12 bottles would retail for 168 euros, or just over $200. At 1.3 million cases this year, this translates into a European market of over $260 million for Havana Club.

Asked why the brand has become so popular in Italy and Spain, Sirech had this to say: “The name is good, and a good name in our industry is very important. It’s exotic, it links to a magic town, Havana. There’s a mystique, which is well-deserved. And it’s easy to pronounce; it flows in your mouth.”

But most importantly, he said, the rum is superb. “We didn’t choose to do Havana Club for nothing. We studied so many countries and so many brands, and in our view, every time we did a blind test with different rums, this one always came in first.”

The company says the successful launch of two new products, Añejo Blanco and Añejo Oro, has contributed to the brand’s unusually strong performance. The first of these, a pale straw-colored rum, is the base for most popular Cuban cocktails including the mojito. The second, which acquires its golden hue through ageing in oak barrels, is particularly popular in Spain, where it’s mixed with Coca-Cola to make a cuba libre.

Yet France, which imported just over 80,000 cases this year, is “a very tiny rum market” for Havana Club. The Caribbean islands of Guadeloupe and Martinique — both rum exporters — are overseas departments of France and as such receive a substantial tax rebate and can offer their rums at much lower prices. “As long as it stays like this,” said Sirech, “France won’t be a priority.”

Much of the Havana Club rum sold in Europe is shipped in bulk from Cuba to the company’s distillery south of Madrid.

“Our long-term strategy is that we’ll bottle everything here in Cuba, though it’s not that easy to get all that equipment in place,” said Sirech, noting that in September, Havana Club switched its European production from plastic to metal bottle caps, but not only because it looks classier.

“It’s good against counterfeiting,” he said. “With aluminum bottle caps, you can’t glue them back. And an unrefillable fitment prevents you from pouring rum in.”

Sirech said counterfeiting is a “huge” problem, particularly in Spain. “That’s why we’ve invested so much money in all these changes,” he said, adding that in Cuba, the victims are more often Cubans than tourists, since the tourist shops are carefully managed and controlled by professional buyers.

Most of Havana Club’s distributors overseas are affiliates of Pernod Ricard, though since May 2003 the company distributes its own products in Cuba. Before that, Havana Club was distributed here by an outside firm.

Cuba itself accounts for one-fourth of Havana Club’s total sales.

At present, Havana Club controls around 30% of the local market by volume, and around 75% by value. That local market is divided evenly between foreign tourists in Cuba and Cubans with access to dollars.

“For some Cubans, a bottle of Havana Club would be a once-in-a-lifetime occasion like a wedding,” said Sirech. “Other Cubans have access to dollars through their families in the States, and these people have the means to buy Havana Club on a more regular basis — and they wouldn’t buy anything else.”

The brand’s main rivals are Ron Varadero and Ron Santiago de Cuba. Billboard and TV advertising has been banned in Cuba, so Havana Club promotes itself to the tourist and local market through other ways.

One clever method has been to supply the city’s hundreds of parking attendants with free Havana Club T-shirts.

The company also promotes its brands through music. At any given moment, three “Bandas de Havana Club” groups are touring the world; each consists of 12 musicians and dancers, and they do three shows a day.

This summer, Havana Club launched ready-to-drink 275-ml bottles of Loco, a premixed product of 5.5% alcohol content made with Havana Club rum and real fruit juices. Loco is currently available in two flavors — lemon and passion fruit — and sells in Europe for 1.20 euros. In Cuba, it’s now being launched at hard-currency shops for $1.00 per bottle, where the biggest buyers are expected to be Cubans with dollars in their pockets. At the other end of the price spectrum is Maximo, which took four years to develop and “is a mix of very old things and very young things.”

Sirech wouldn’t say much more about Maximo, except that it’ll be bottled in Cuba, that only 400 cases of it will be produced every year for the whole world, and that it’ll sell locally for an astounding $200. That’s more than an entire year’s salary for many Cubans. (In Europe, the 700ml bottle will go for 200 euros, or $240 at current exchange rates).

What would really boost Havana Club’s worldwide sales would be an end to the restrictions that prevent most U.S. citizens from visiting Cuba.

“I’m very pessimistic about the travel ban being lifted as long as President Bush is in office,” said Sirech. “Cuba now gets two million tourists a year, and I think this could double if Americans were allowed to visit the island. Americans are very inclined to drink Havana Club, and our sales would take a fantastic jump.”

He’s equally pessimistic about seeing the repeal of Section 211, a provision that prohibits U.S. courts from protecting the rights of expropriated Cuban trademarks. The arcane law was slipped into a massive 1998 spending bill at the behest of Bacardi, which has been fighting for years to wrest control of the Havana Club trademark away from Pernod Ricard and the Cuban government.

Yet Section 211 is bitterly opposed by groups like the National Foreign Trade Council, which warns that the provision threatens more than 4,000 U.S. trademarks currently registered in Cuba.

Sirech said U.S. companies should fear a backlash by the Castro government.

“So far, Cuba has been very gentle and soft on this issue, hoping that one day the same policy would apply to them. There was a lot of hope when the WTO ruled against the United States, but nothing has happened since then. We found it extremely strange that so much could be done in favor of Bacardi when the company is not even American. It’s beyond understanding.”

For now, Sirech says he just wants to see an end to the never-ending litigation between the two drinks giants, which according to the Communist Party daily Granma has cost Havana Club over $625,000 in legal fees.

“I don’t think Bacardi will win anything by legal action,” he said. “This has been going on for eight years, we’re going nowhere, and both of us are spending enormous amounts of money on lawyers. I think we should call it a day and make peace.”

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