Bacardi and the Long Fight for Cuba

by Gjelten, Tom

  To the working Bacardis, such criticism rankled. The Bacardi heritage in Cuba, they pointed out, was established at a time when the family was still close to its humble origins and not associated with the sugar barons, coffee planters, rich merchants, and other Cuban elites known for laziness and self-indulgent lifestyles. The family members who continued to toil for the company, it could be argued, were closer to the Bacardi working tradition than those who lived off their dividends.

  One Bacardi who caused the family some embarrassment in that regard was Luís Gómez del Campo Bacardi, a grandson of Facundo Bacardi Moreau and one of the family’s biggest individual shareholders. In 1993 Gómez del Campo became involved in a nasty high-society divorce in Switzerland, with soap opera overtones reminiscent of the Martha Durand-Pepe Bacardi divorce nearly seventy years earlier. He had served on the Bacardi board off and on since the prerevolution days back in Cuba but had worked for the company only briefly. In 1993 a British newspaper ran a profile of Gómez del Campo in the midst of his divorce proceedings in Geneva, reporting that he was worth about three hundred million dollars, had yearly dividend income of seven million dollars, owned a fifteen-million-dollar home in Monte Carlo, and had purchased a royal title in Britain, enabling him to be called the Lord of the Manor of Bayfield Hall cum Coston. “A picture is emerging of the lifestyle of one of the world’s wealthiest men,” the paper reported, “bearing one of the world’s most famous names. It is a life beyond the comprehension of most people, funded by the dividends of the Bacardi liquor empire and hardly touched by the tax authorities.”

  The media loved such stories, and messy Bacardi divorces produced rich material. But on occasion those stories also highlighted the enduring family bonds. Martha Durand discovered the importance of Bacardi blood loyalties when she divorced Pepe Bacardi, and she was not the last to learn that lesson. Ricardo Blanco, a Santiago-born Cuban who married Marina Bacardi’s great-granddaughter, had a similar experience sixty years later. Blanco worked for Bacardi for five years in the mid-1980s, until his divorce soured relations with his in-laws and ended his ties to their company.

  “No one knows about the Bacardi family,” Blanco said in an interview, “but they’re a very closed family. They don’t want anybody from the outside to be more than them.” Blanco said the only way for him to flourish in the company was to embrace the Bacardi family identity. “They did not acknowledge me as Ricardo Blanco. I was Ricardo Blanco Bacardi. You had to change your name and abide by their cult.... If you had an idea, they didn’t even give you a chance to explain, because they’re a hundred years old, and they know everything there is to know.”

  But this “cult” aspect of the Bacardi family enterprise was not always experienced negatively by outsiders. Some veteran nonfamily employees, like the distilling engineers Juan Grau and Richard Gardner and the marketing genius Juan Prado, came to have quasi-family status. Reflecting on his long Bacardi career in a 2004 interview, Grau said the company had such a tight family culture that senior employees—family and nonfamily alike—may have felt an even deeper sense of shared kinship than did actual Bacardi family members who were connected to it only by being a shareholder. “Bacardi has a culture that you have to sit within the company to experience,” he said. “Even though it’s a family culture, you can’t be a part of it just by being in the family.”

  Richard Gardner, whose forty-plus years with the company took him from Cuba to Brazil to Nassau, noted later that he and other nonfamily employees felt a loyalty to the company from their earliest days. “When the company in Cuba was confiscated, many of us who were not family members stayed with it,” he said, “even though we could have obtained much more lucrative jobs with other organizations. Bacardi was not in a position to be able to pay good salaries at the time, but having made one feel a part of the family worked in their favor.”

  The ongoing intrafamily conflict at Bacardi obscured what was in fact a remarkable business success story. By increasing worldwide rum sales from 1.7 million cases in 1960 to over 22 million cases in 1989, the company achieved a rate of growth that no other liquor firm could match, and it came in spite of bad investments, management mistakes, and shareholder squabbling. Beverage industry analyst Tom Pirko, who probably knew the company as well as any outsider, remarked in 1990 that the Bacardi management and shareholders had blown a chance to put even more distance between themselves and their competitors. “One can’t fault their success,” he said, “but one can fault that they haven’t been more successful.”

  The key elements in the Bacardi business formula were quality control, brand promotion, and strategic marketing. If there was one guiding principle for production, it was that every bottle of Bacardi rum should taste exactly the same, no matter where in the world it was distilled or purchased. It should be slightly sweet but barely noticeable. Pepín Bosch established a quality control laboratory at Bacardi & Company in Nassau, the operation that owned the trademark, and every Bacardi distillery sent monthly samples of its rum production there to be evaluated. Bosch initially gave the quality control responsibility to Daniel Bacardi, who had been tasting rum at the distillery in Santiago for more than twenty-five years, but engineers Manuel Jorge Cutillas and Richard Gardner were in charge of the scientific analysis. No rum, no matter where it was distilled, could carry the Bacardi trademark unless it had been tested and approved by the quality control experts.23

  The Bacardis’ defense of their trademarks was legendary, dating from the time they protested the forgery of Don Facundo’s signature on bottles that were not produced in his distillery. After the Bacardis lost their properties in Cuba and went into exile, the company executives began producing a highly detailed “Trademark Guide,” including specifications for the use of the company’s famous bat logo. The name “Bacardi,” the guidebook explained, had to be used as an adjective followed by “rum,” and not as a noun, such as “a drink of Bacardi,” for fear it would come to be seen as a generic term for rum in general.

  It was not that Bacardi was above making cheap rum. Back in Cuba, the company had made a variety of “common” rums, though they did not carry the Bacardi label. In Puerto Rico, Bacardi Corporation introduced a new rum in 1966 after sales managers realized that the cheaper Ronrico brand was out-selling Bacardi rum in the bars. Rather than lower his price to compete with Ronrico, Pepín Bosch ordered up a new rum, Ron Castillo, that would sell for even less. By straddling Ronrico in the market—putting a cheaper rum below while keeping Bacardi Silver Label above—the company was able to squeeze it from both sides and win the competition.

  Such strategic marketing moves were a Bacardi strength. The company’s great growth in the United States came when it concentrated on one product, white rum, and targeted a particular audience: young men and women. Silver Label Bacardi rum was so gentle on the tongue that it could, in liquor marketing terms, “alcoholize” a Coke without significantly altering the taste. The marketing research director for Bacardi Imports in 1987, Paul Nelson, told a reporter that a large portion of the Bacardi U.S. market was “the naïve segment,” by which he meant women, “particularly younger females who don’t like the taste of alcohol but want to participate socially.” Back in Cuba, Bacardi had been well known for its highly aged añejo, a sipping rum, but there was little demand for añejo in the United States, and the company didn’t promote it. Rum connoisseurs, as well as distillers who produced more sophisticated rums, tended to ridicule the blandness of Bacardi white rum, but there could be little disputing the fact that Bacardi knew its market and pursued it successfully and profitably.

  In business circles, “Bacardi” by 1990 had become first and foremost a brand, one of the dozen or so most valued in the commercial world. Next, the word represented a successful global spirits company. Only after that did it name a family, and at that a somewhat dysfunctional one, stressed by the experience of exile and the divisive effects of wealth.

  In 1992 the internal management dispute that had divided the Ba
cardi family for several years was settled under a comprehensive “peace accord” between Daniel Bacardi’s dissident shareholder group and the top management. The agreement covered such controversial issues as the portion of net after-tax earnings that the company should return as dividends (half). For the dissidents, it also brought more clarity of control and ownership and a restriction of management prerogatives. The historic element, however, was an agreement by both sides that the five Bacardi companies should be acquired by a new entity—Bacardi Limited—which would serve as a holding company, with a single chairman and one board of directors, headquartered in Bermuda. The family business would once again be wholly private. The original rationales for the creation of independent companies—to protect the family business from confiscation and shield it from taxation—were no longer operative. No government was in a position to move against the Bacardi assets, and the taxation authorities in the various countries had become so sophisticated that there was no longer much to be gained through creative headquartering.

  The push to create Bacardi Limited was directed by Manuel Jorge Cutillas, who served at the time as the INTRAC chairman and therefore the family business chief. Cutillas argued persuasively that there was a wave of consolidation in the spirits industry and that it would be hard for Bacardi to participate if the business continued to exist as five separate entities. If another liquor brand became available, which of the five Bacardi companies would buy it? The creation of Bacardi Limited solved that problem. The “peace accord” also gave management a green light to diversify as long as any deal was put to a stockholder vote.

  Indeed, within months of the agreement, Bacardi Limited made the first major acquisition in the history of the firm, purchasing Martini & Rossi, a spirits company known primarily for its vermouth. Like Bacardi, Martini & Rossi was an old family company (founded in 1863), and it had played a role in its native city of Turin, Italy, not unlike the Bacardi role in Santiago.

  In acquiring Martini & Rossi, Bacardi took on a company bigger than itself, with greater gross sales (though lower profits). The move cost Bacardi $2.1 billion, and for the first time in the firm’s history the management had to turn to investment bankers for financing assistance. Risky as the move was, it made strategic sense. Recent years had seen a wave of consolidation in the spirits industry, and more mergers and acquisitions were on the horizon. If Bacardi were to compete, it would need more brands in its portfolio. Martini & Rossi was a good fit, being strong in parts of Europe where Bacardi was weak, notably in the former Soviet bloc countries, an important new market. In subsequent years, the company acquired more high-profile brands, beginning with Dewar’s whiskey and Bombay Sapphire gin in 1998.

  After 130 years, Bacardi was finally moving beyond its exclusive association with rum, and the new products diminished the company’s Cuban character. It seemed as if an era had passed. That sense grew still sharper with the death in February 1994 of Pepín Bosch after a brief but debilitating illness at the age of ninety-five. Bosch was the Bacardi executive who had saved the company after it was uprooted from its native soil, while tying the family name to the Cuban cause more tightly than anyone since Emilio Bacardi, his wife’s uncle. By the time of his death, nearly two decades had passed since he had left the company, and in his final years neither Bosch nor his two sons bothered to stay in touch with their Bacardi relatives. For years, he had imagined that he would take the rum business back to his beloved Cuba someday, but Bosch died in Miami.

  Ironically, the Bacardi management was just then beginning to turn the company’s attention back to Cuba, and in a big way.

  Chapter 21

  Havana Club

  Premium tickets for the floor show at the Tropicana in downtown Havana bought patrons a seat at one of the tables around the edge of the circular stage, just a few feet from the dancers in sequined pink bikinis and feathered head-dresses. Red and white spotlights swept wildly across the floor as the conga drummers pounded out a driving rhythm and the corista girls kicked their legs high. Around the room, waiters in tuxedo jackets scurried from table to table with fresh bottles of rum and Cuban beer. Cigar smoke drifted overhead. More than two decades had passed since Fidel Castro imposed his strict moral values on Cuban society, but the Tropicana in the 1980s was still one of Havana’s hottest nightspots.

  Cuban cultural life under Communism involved a curious mix of pre-Castro licentiousness and postrevolution austerity. Castro closed all the casinos and most of the nightclubs that had made Cuba such a favored vacation spot in earlier decades, but the Tropicana survived, and its famous floor show was preserved as a kind of souvenir spectacle, reflecting the island’s Afro-Cuban flam boyance. In theory, the other clubs were shut down not because of a revolutionary objection to eroticism and extravagance per se, but because of their association with gambling, drug trafficking, prostitution, and the Mafia. By keeping the Tropicana open as a national treasure, the authorities could show that the revolution did not require a wholesale rejection of Cuban salsa music, rumba dancing, batá drumming, or rum-fueled celebrations. Communism did not have to look the same in every country; Fidel Castro presided over a sexy Cuban variant.

  The new Tropicana was a bit different from the old one, of course. Castro’s rule on cultural activity in Cuba was, “Within the revolution, everything; against the revolution, nothing,” and the nightclub had been purged of all the “counterrevolutionary” elements. Photographs of some salsa stars of the past still hung on the wall, but there was no trace of Celia Cruz nor of any of the other notable Tropicana performers who had rejected Castroism and gone into exile. The clientele had also changed. The audience included some Canadians and Europeans and a few Americans, but most of the patrons were from the Soviet bloc: East German tourists, Czechoslovak and Bulgarian trade officials, and hordes of Russian advisers. The Cubans called the Russians bolos, joking that their white skin and big, round bottoms made them look like bowling pins. Unaccustomed to the tropics, the Russian visitors often seemed out of place in a Havana nightclub, not realizing that guayabera shirts were meant to be worn outside their pants and proving themselves utterly unable to keep up with a Cuban dance rhythm. They quickly learned to appreciate quality Cuban cigars, however, and at the Tropicana they consumed enormous quantities of Cuban rum—in daiquiris or mojitos, with cola or on the rocks—just as patrons in the old days had done.

  Before Castro, however, it would have been Bacardi rum; now the Tropicana served only Havana Club, the rum that had previously been made by the Arechabala family of Cárdenas. Within a few years of taking control of all private enterprise on the island, the Cuban government decided to make Havana Club its premier rum. In 1977 Fidel Castro personally inaugurated a new Havana Club distillery in Santa Cruz del Norte, about fifty miles west of the Arechabalas’ old plant in Cárdenas. The Havana Club bottle was redesigned to feature an image of La Giraldilla, a seventeenth-century bronze female figure that sat atop the oldest fortress in Havana and served as a symbol of the city. The new label identified the product as “pure Cuban rum, founded in 1878.” There was no mention of the Arechabalas as the founders, and few of the visitors who drank Havana Club rum had any sense of the brand’s history prior to the revolution. No matter. While Bacardi had been the iconic spirit of the old Cuba, Havana Club was the rum of Castro’s Cuba, served at every hotel bar, restaurant, and nightclub on the island.

  The Cuban revolutionary authorities began promoting “Havana Club” only after seeing that the Arechabala family would not block them from using the rum brand. The Arechabalas’ assets on the island were confiscated on the same day in 1960 that the Bacardi properties were seized, but unlike the Bacardis the Arechabalas made no effort to salvage their rum business by reorganizing it outside of Cuba. None of them had ever planned and built a rum distillery in a foreign country from the ground up, as the Bacardis had done several times already, and the Arechabalas had no commercial or industrial base in exile from which they could continue operating. When their bu
siness in Cuba was nationalized, they basically surrendered.

  José Miguel Arechabala, the production manager at the Havana Club rum factory before the revolution, left for the United States, where he took a job with the American Sugar Refining Company in Philadelphia. During a court proceeding years later, he told a lawyer that his family did not attempt to maintain its rum business because it couldn’t afford to. “Who’s going to give you the money?” he said. “I don’t want to make a fool of myself going to the bank and asking for the money.” His brother Ramón Arechabala, the Havana Club sales manager in Cuba, stayed on the island until he was forced out in early 1964. For the next twenty years, he bounced from job to job in south Florida, working mainly in auto repair and auto sales. Most of the other Arechabalas settled in Spain, where the family had a long-established residency. Without a figure like Pepín Bosch around whom they could rally in exile, the Arechabalas drifted apart. Unlike the Bacardis, they did not become active in the anti-Castro movement, in spite of their anger over their losses. The Arechabalas had backed Fulgencio Batista to the end and therefore did not share the Bacardis’ sense of having been personally betrayed by a revolutionary movement they had once supported.

  Some of the Arechabalas’ former rivals at Bacardi were a bit surprised they didn’t put up more of a fight to defend their claim to the family rum trademark. Juan Prado, the ace Bacardi salesman, had always coveted the “Havana Club” brand. As a marketing man, Prado believed a product’s value in the marketplace could derive as much from the appeal of its brand name as from its intrinsic quality. “Bacardi” sounded good in any language and was easy to remember. “Havana Club” likewise had a nice ring to it. English-language product names are recognizable everywhere, and this one was especially clear and lyrical. “Havana Club” also connoted the lively night scene for which Cuba had long been known. It was a product name worth fighting for, Prado believed, and when he saw that the Arechabalas were apparently ready to give up the brand, Prado suggested that Bacardi buy the rights to it. If the Arechabalas were not going to contest the Cuban government’s use of the brand, maybe Bacardi could.