Impact International / March 15, 2002
By Larry Luxner
CARACAS -- Drinks executive Alberto Cristóbal Vollmer is leading Venezuela's venerable old Compańía Anonima Ron Santa Teresa back to profitability, only a few years after the family-owned rum distillery nearly fell apart due to mismanagement, negligence and corruption.
"In 1994, we did $120 million in sales and we were losing our shirt," CEO Vollmer told Impact. "In 2001, sales came to $35 million -- the lowest we've had in 10 years -- but we've been able to close with a profit."
According to Datos (Nielsen's equivalent in Venezuela), the country's most important rum producers are Seagram's, with a 41.4% market share, followed by Santa Teresa (37.3%) and Guinness/UDV (13.2%). The remaining 8.1% is split among Francisco Dorta, Barupano, Consorcio Lirorero and other smaller producers. Among specific rum brands, the leaders are currently Cacique (32.6%); Santa Teresa Gran Reserva (32.0%) and Pampero (5.7%).
Santa Teresa claims to have been producing rum since 1796 at its distillery near El Consejo, in the Venezuelan state of Aragua, 70 kilometers west of Caracas. In 1881, Vollmer's great-great-grandfather, Gustavo Vollmer, bought the property and in 1905 established Ron Santa Teresa as a distinct brand.
C.A. Ron Santa Teresa was incorporated in 1950, and until the early 1990s was doing relatively well. Both Santa Teresa and its competitors in the rum sector were helped by continuous devaluations of the Venezuelan bolívar, which discouraged the consumption of imported liquor and boosted domestic products like rum.
In 1991, however, the currency was more or less under control and imports began growing, so the rum market started to decrease, shriveling from around six million cases in 1992 to 1.4 million cases in 2001.
"The rum market has plummeted in the last 10 years, and the cheap whisky market has grown," says Vollmer, a civil engineer by profession who went to grade school in Florida, high school in France and college in Venezuela. "Sales always depended on price, not brands. On one hand, the market was declining, and on the other hand, we had a mismanaged company. During those years, there was no investment in brand equity. It wasn't given any importance."
Then, in the early 1990s, UDV bought Pampero, while Seagram's acquired Cacique -- leading Santa Teresa to consider a venture of its own with a foreign drinks conglomerate.
"Of course we looked at Grand Met and Bacardi, and finally we decided to have a partnership with Allied-Domecq," said Vollmer. "They valued Santa Teresa at close to $100 million, and bought 20% of the company. The idea was to develop their brands here, and they would develop our brands abroad. But there were tons of changes inside Allied-Domecq, and suddenly we realized nothing was happening. We were developing their brands here in Venezuela, but they weren't respecting their side of the agreement."
According to Vollmer, the relationship grew sour by 1995 -- just as Santa Teresa's financial problems began worsening.
"In 1996, Santa Teresa acquired Distribuidora Benedetti, which used to be a distributor for UDV, but by then they had no brands," he said, noting that "there were no measures being taken to restructure [Santa Teresa] or cut the fat out. We had a bloated company with too many people, and investments that weren't being supervised, and funds that were being badly invested. There was corruption, and shareholders weren't being respected."
"By February 1999, the situation was desperate," said Vollmer. "We were a week away from Chapter 11. We were three years behind in taxes, and we weren't paying our suppliers. Owens-Illinois wasn't supplying bottles because we weren't paying. How can you sell rum if you don't have bottles?"
Faced with financial disaster, Alberto and younger brother Henrique flew to Rome, where their father, Alberto José Vollmer Herrera, was serving as Venezuela's ambassador to the Vatican.
"We proposed taking over management of the company," he said. "Managers were already leaving. All the faithful guys were at the bottom. We told him: either we do this, which is going to hurt like hell, or we accelerate the closing of the company. He had no alternative."
Given the green light from his father, Vollmer immediately returned to Venezuela and officially took control of the ailing company. Two weeks later, on Mar. 1, he launched a restructuring program, slashing Santa Teresa's workforce by 45%, from 750 to 320 employees. He also closed the company's five regional offices and relocated their operations to Santa Teresa's headquarters, keeping only a small office in Caracas -- and cut the number of stockkeeping units (or SKUs) in the company's inventory from 262 to 17.
"Before the restructuring, close to 10% of our sales were being wasted on shipping and warehousing. We cut that down to 1.7%," he said. "We also slashed overhead and refinanced our debt, cutting a huge chunk out of what we were paying in interest. A lot of this was common sense. For example, we raised our prices, and that actually made sales grow."
But in March, just as Vollmer was pouring all his energy into saving the family business, Allied-Domecq sued Santa Teresa, claiming breach of contract.
"They made quite a few mistakes in court, and three months later, I started negotiating with them to buy back their 20% share in the company," he said, explaining that the liquor conglomerate wanted 270 bolívares per share at a time when shares were trading on the Caracas Stock Exchange for only 25 bolívares. "In August 2000, we reached an agreement where we would buy their shares at 52.80 bolívares per share. That went through on Aug. 23, 2001."
The Vollmer family now owns roughly 78% of Ron Santa Teresa; another 5% is traded publicly, 4% belongs to L. Benedetti e Hijos and the rest belongs to Banco Mercantil, Corp Banca and Banco Caribe, the rum distiller's three largest creditors.
Vollmer says he doesn't mind not owning 100% of Santa Teresa. "As a publicly traded company, you're obliged to think about all the shareholders, not just the major shareholders. It also gives you opportunities in the future to finance exports and growth."
Santa Teresa currently produces 600,000 cases of rum and 700,000 cases of other distilled products per year. Its rum brands include Santa Teresa 1796, Ron Antiguo de Solera, Selecto, Gran Reserva, Blanco, Rhum Orange, Carta Roja, Superior and Arakú. The company also represents several non-Venezuelan brands including Concha y Toro, Baron Philippe de Rothschild, Perrier and Italian wines Santa Margherita and Fazi Battaglia.
According to the Venezuelan Alcoholic Beverage Industry Association (known in Spanish as Cámara de la Industria Venezolana de Especies Alcohólicas), rum shipments during the first eight months of 2001 fell 26% compared to the same period in 2000. Nevertheless, of Venezuela's three major rum producers, Ron Santa Teresa was the least affected, with shipments falling by only 18%.
Despite Santa Teresa's importance in the domestic market, it trails both Cacique and Pampero when it comes to exports. The total export market for Venezuelan rum is about 700,000 cases, worth approximately $70 million.
"To be able to build something durable in the export market, you have to have a solid base," said Vollmer. "We're trying to consolidate this market, because we were losing market share for a long time."
In 2001, revenue from exports came to only $1.7 million, compared to $5.6 million in export revenues during 2000. This dramatic drop is explained mainly by financial difficulties as well as an internal restructuring of the company's distributor in Spain, which forced it to slash shipments to the Spanish market from 114,000 cases in 2000 to only 41,000 cases in 2001.
In June, Santa Teresa -- which already exports to Spain, the Canary Islands, Chile, Peru, Italy, Japan and Russia -- will begin exporting to the U.S. market, where its 15-year-old rum, Santa Teresa 1796, will sell for around $20 per 750-ml bottle. To that end, Santa Teresa is forming an import company in Miami, in partnership with Chilean investors.
By 2004, says Vollmer, Santa Teresa should be exporting 250,000 cases of rum a year, up from 80,000 cases today.
"At that point, we want to have close to a 60% market share," says Vollmer. "That's what we're aiming at."