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Rum In Showdown With Vodka
With Smirnoff breathing down its best-selling neck, Bacardi has dismissed global rankings of spirits as a `sideshow'.
BY ADAM JONES
May 8, 2004
Bacardi's claim as the world's best-selling premium spirit is in peril of being usurped by Smirnoff vodka. But CEO Javier Ferrán insists he's neither shaken nor stirred.
The threat to Bacardi's global supremacy was revealed in a table published this year by Impact, the industry magazine.
''Impact claimed that, excluding low-strength spin-offs, Smirnoff's dollar sales should this year overtake those of the Bacardi brand'', said Mr Ferrán, who called the global rankings a ``sideshow''.
In his first interview since taking over last year, Mr Ferrán even suggested that losing the top spot could benefit Bacardi by making the rum seem more exclusive.
After 12 years of diversification, Bacardi is better able to withstand challenges to its flagship product. Mr Ferrán says rum now accounts for only about 40 per cent of sales.
''We are a far more diversified company'', he said.
Yet, even with record sales of $3.1bn in its last financial year, this is a second-tier distilling multinational facing competition from above and below. Dropping from the clouds: Diageo, maker of Smirnoff, whose product portfolio dwarfs Bacardi's. Nipping at ankles: niche distillers.
It is a challenge facing medium-size firms in many industries: how to compete simultaneously with gorillas and guerrillas. Bacardi insists it's possible, with a careful approach to extracting value coupled with products strong in their categories.
Following a historic shareholder vote in February, however, Bacardi directors now have the financial flexibility to buy out of the middle ground should they choose to do so.
LANGUAGE NO BARRIER
Mr Ferrán, a Spaniard who speaks five languages, said Bacardi rum should not be underestimated. Indeed, in the booming US market, it enjoyed record volumes in the financial year just closed.
''The potential for growth is still very large'', he said. ``Our focus, however, is not so much on volume but on value''.
This means greater emphasis on price increases and products at the more expensive end. To enhance its image, Bacardi has been running courses for employees and customers, including a tutored tasting, at its distillery in Puerto Rico. The training is being formalised into a ``Bacardi University''.
Its portfolio has also been extended to include flavoured rums, following the successful launch of Bacardi Limón in 1995. And Bacardi Breezer, ''ready to drink'' cocktails dating to the '80s, has been a durable spin-off, though it's aimed at fashion-conscious younger drinkers.
Bacardi's second-biggest brand is Martini vermouth, whose consumption has been declining in its European heartland, though with exceptions. Sales in Italy have revived, and Russia's an encouraging market.
In general, Mr Ferrán describes Martini as an upmarket brand that has been ''sold too cheaply, with enormous opportunity'' to raise prices and improve profits.
One area where Bacardi is weak is vodka, with no dynamic international brand. Could it buy one? There are attractive brands still not in the hands of multinationals -- such as Grey Goose, a fast grower owned by Sydney Frank Importing -- but these would be expensive assets, if ever put up for sale.
The recent decision of controlling shareholders to allow directors to issue shares gives Bacardi more resources should it want to buy brands or rival companies. But it stresses that it isn't necessarily going to do a big deal. The same goes for an initial public offering, also a possible prelude to consolidation.
Rubén Rodríguez, Bacardi's chairman and Mr Ferrán's predecessor as chief executive, dismisses the argument that the scale advantage enjoyed in the US by Diageo, the world's biggest distiller, demands response. Nimble marketers with must-stock brands can still hold their own, he said.
That said, he has made it clear that the Bacardi sales and distribution machine could happily take on new brands, at the right price. He seemed less keen on the idea of buying an entire company, partly because of the obscure ''tail'' brands most distillers accumulate over the years.
''There are disposal problems, logistics'', he said. ``. . . We went through that [while integrating] Martini & Rossi''.
But big mergers bring attractive cost savings, and companies with large product portfolios have an extra weapon in negotiations with retailers and distributors.
Bacardi watchers will keep speculating on possible deals involving the privately held firm. As for the most probable venue for an IPO under Mr Ferrán and Mr Rodríguez, that would be the New York Stock Exchange. Much depends on the strength of the next annual results, due in June. The last showed a 14 per cent fall in pretax profits, to $463m.
Mr Rodríguez has made Bacardi friendlier to outside capital. But a two-tier share structure would leave new investors with nothing like the voting power enjoyed by family shareholders. They may need reassurance minority owners won't be trampled.
Certainly the astonishing way Bacardi has thrived in exile and overcome the confiscation of its Cuban assets in 1960 by Fidel Castro's regime shows an ability to adapt to the most extreme of changes.
''Losing your home country, your home base, practically 90 per cent of your assets has had an enormous impact on culture'', Mr Ferrán said.
So who is to say that Bacardi cannot adapt again?