Bacardi and the Long Fight for Cuba

by Gjelten, Tom

  The rising Bacardi star was Pepín Bosch, who had performed so impressively in Mexico, New York, and Puerto Rico. Loyal though Schueg was to his assistant José Espín and respectful though he was of Luis J. Bacardi’s family clout, it was to his son-in-law that he increasingly turned for advice. Bosch personally knew many of the prominent players in Cuban politics, including two former Cuban presidents, Carlos Hevia and Carlos Mendieta, coconspirators during the Gibara uprising. Luis J. Bacardi and José Espín were known to be resentful of the attention Bosch was suddenly getting, even though he showed little interest in any leadership rivalry and did not openly campaign for an executive position. When Espín and Luis blocked action on Bosch’s business recommendations, he simply resigned rather than argue with them and did not return to the company until Schueg and other family members pleaded with him to do so.

  Schueg liked to use his son-in-law as his ace troubleshooter, which meant Bosch was always on the move, shuttling between Santiago, Havana, New York, Puerto Rico, and Mexico. In the midst of the 1943 labor crisis, Schueg asked Bosch to come to Santiago and take charge of union dealings. As a fresh face and personality in the management, Bosch was able in the following months to turn union relations in a more positive direction. Whereas company officials had previously dismissed employees who violated contract obligations, Bosch temporarily suspended them. He initiated meetings with union leaders and arranged moderate wage and benefit increases. Before long, the Bacardi management was on better terms with both the union and the Batista administration, due partly to Bosch’s intercession and partly to the determination of Batista and his Communist labor allies to defuse tensions with Cuban employers. Batista’s minister of labor, José Suárez Rivas, even paid a friendly visit to the Bacardi facilities in Santiago one day, guided by Daniel Bacardi, a grandson of Emilio who had been named chief of the industrial section at the company. Just a few months earlier, Suárez Rivas had overseen the government’s seizure of the company, but on this occasion he beamed from ear to ear as he walked through the plant, stopping to chat with workers and congratulating the factory managers for their impressive production. There would be more labor-management conflict at the Bacardi company, but the era of constant confrontation had finally passed.

  In November 1944, Enrique Schueg installed Pepín Bosch as the company’s deputy managing director, replacing Luis J. Bacardi. No one seriously challenged the decision. For fifty years, Enrique Schueg’s business instincts had brought the Bacardis wealth, and family members knew to defer to his judgment. Luis retained his position as first vice president of the company, but it was clear he had lost out in the leadership struggle, and he generally withdrew from company business affairs. In the coming years, he showed up at the plush corporate offices at the Edificio Bacardi in Old Havana for a couple of hours each morning, but only to linger in the reception area and receive friends who stopped by for a visit. José Espín, his ally and associate back in Santiago, was demoted to the purchasing department and never again played a major leadership role in the company. Though Pepín Bosch officially had to answer to his father-in-law, he was now the company’s chief executive for all practical purposes.

  Bosch had turned around the failing Mexican operation, defended the company’s position in the U.S. market, and fought back a stubborn anti-Bacardi drive in Puerto Rico. Bacardi rum sales from the overseas facilities he oversaw were bringing the company more than five million dollars a year in revenue. Now he was back in Cuba, and his next challenge was to deal with the fifty or so Bacardi family members—his wife’s relatives—who between them held almost all the stock in the company he was set to manage. They were a diverse group. Some had only a few shares, some had many. Some were industrious and eager to be involved in company operations, some only wanted to be sure their dividend check arrived on time. None held a controlling interest. Bosch was closest to those family members with actual business responsibilities, such as his brother-in-law Víctor Schueg. Brilliant but temperamental and an excessive drinker, Víctor had known he would not make an ideal company manager, and during the Bacardi leadership struggle he had thrown his considerable family clout behind Bosch.

  Bosch also leaned heavily on Daniel Bacardi, the youngest family member in a position of responsibility at the company. Daniel was the son of Facundo Bacardi Lay, one of Emilio’s twin sons from his first marriage. Just thirteen when his father died suddenly in 1924, Daniel started work in the Bacardi factory as an errand boy. Like other Bacardi children, he was sent to the United States to be educated and learn English, but Daniel was not the most diligent of students. His law schooling in Havana was cut short when President Machado closed the university in the face of political unrest, and he did not return after it reopened. Within the Bacardi family, Daniel was known as a fun-loving young man who liked to tear around town on his motorcycle, terrifying his mother but making friends everywhere he went. He got his first official job in the Bacardi factory in 1935, while still in his early twenties; to his older relatives he would always be known as Danielito. An eager and enthusiastic apprentice, he learned the secret Bacardi filtration techniques and blending formulas, and by the time Pepín Bosch took over the company, Daniel was a rum “master blender” in the tradition of his great-uncle, Facundo Bacardi Moreau. Away from work, he carried on the Bacardi partying tradition as a warmhearted, woman-chasing carouser. But each morning found him somewhere in the distillery or on the factory floor, a short and cheerful figure in a white guayabera shirt and black horn-rimmed glasses, sampling products, grilling the workers about their procedures, or solving the latest technical problems.

  Another key figure was Joaquín “The Brewer” Bacardi, the sober, Harvard-educated son of José Bacardi Moreau who had been the technical director of the Hatuey brewery virtually since it opened. The company’s union troubles had been acute in the brewery, and the quiet, sometimes taciturn, Joaquín had not been especially adept in labor relations. He was highly competent and hardworking, however, and Pepín Bosch held him in high regard. Joaquín’s brother Anton, on the other hand, had barely worked a day in his life and promoted the family business largely by buying Bacardi rum drinks for himself and his friends.

  While most of the stock-owning family members had little to do with day-to-day operations at the company, that did not mean they could be ignored or their concerns brushed aside. Among the most important shareholders were the eight daughters of Emilio and Facundo Bacardi Moreau, all of whom had inherited sizable holdings.12 None played a significant role in the company, but they were far more independent than most Cuban women of their era and followed the development of the family business carefully. Having grown up with the company when it was run informally, they were comfortable calling on company officials or employees for personal favors or assistance. Some of their husbands were influential players behind the scenes.

  The most colorful family member was undoubtedly “Emilito” Bacardi, Emilio’s firstborn son and the bearer of his father’s revolutionary mantle as a decorated veteran of the independence war. In the early 1930s, he resided in Paris as a representative of his family’s company but without significant work obligations. His four years fighting under Antonio Maceo and other independence heroes constituted the high point of his life, and he never tired of telling his war stories. After his time in Paris, Emilito settled in Havana, where he took it upon himself to make sure the family’s rum products were up to his standards and those of his friends. When his investigation displeased him on one occasion in December 1943, he immediately notified his nephew Daniel, in a letter typed on Bacardi letterhead.

  “Dear Danielito,” he wrote. “With genuine sincerity, I must warn you that the public consumer of añejo [Bacardi’s aged rum product] is beginning to complain about its bad quality, and based on what I have tasted myself, I must say the complaints are justified.” Emilito said he had been unhappy with the añejo he was served at his favorite social club one day and promptly purchased a bottle directly from the invent
ory at the corporate office in Havana. “I opened it myself,” he told Daniel, “and found that its flavor was most disagreeable.”

  Daniel Bacardi, barely thirty at the time, responded tactfully to his sixty-six-year-old celebrity uncle, challenging his assertions ever so gently. Daniel said he was sure the complaints Emilito had heard were “part of an attack against our product by the competition.” He noted that the criticism of the añejo rum came “just as a new campaign began against our Carta Blanca label here in Santiago, and it is reminiscent of what you describe.” He suggested the campaign was instigated by “subversive” elements and assured Emilito that nothing had changed in the way the company made its aged rum. “All I can imagine,” Daniel concluded, “is that between the bad bottle you were given in the club and all the propaganda against us, you may have been predisposed to be critical and momentarily lost your taste for it.”

  Bacardi executives knew they had to be sensitive to the concerns of family members. Pepín Bosch maintained that tradition, realizing that the environment of intimacy in a company like Bacardi was a corporate strength. But Bosch also believed that a firm the size of Bacardi Rum had to be efficiently managed if it was to compete and grow. He established an atmosphere of openness by setting up his own desk in the middle of the administrative area of the company offices, with no doors or walls between him and his associates, and he made it clear to family members that they were welcome at all times. He assured them they could call Bacardi staff for help with their special needs, no matter how trivial. At the same time, however, he promoted discipline in the company management by having the office staff keep a careful record of all “personal” transactions, and at the end of the year, each Bacardi family member was presented with a detailed account statement, down to the penny, with a debit for each postage stamp taken, each cash advance on a dividend, each bottle of añejo delivered to their home, each gift parcel sent out to a family friend.

  The policy was typical of Pepín Bosch’s management style, which involved flattery and intimidation at the same time. Exceedingly polite and charitable, he managed also to convey such seriousness of purpose and strength of conviction that his “suggestions” were taken without question as commands. He was by no means a physically imposing man, being rather short and almost bald, with blue eyes that twinkled behind his wire-rimmed glasses when he spoke. His voice was soft, even squeaky, and people sometimes had to strain to catch what he was saying. But there was not a trace of self-doubt or weakness in his manner, and his friendliness stopped short of genuine warmth, so that his subordinates were never entirely certain they had satisfied him, no matter how hard they tried. His lawyer and aide, Guillermo Mármol, who for many years worked as closely with Bosch as anyone in the company, recalled years after Bosch’s death that he could not remember ever calling his boss anything but “Señor Bosch.”

  When Bosch wanted to communicate his management philosophy to someone, he gave them a copy of A Message to García, an inspirational tract written in 1899 by Elbert Hubbard based on an incident that is said to have happened during the Spanish-American War in Cuba. A young American army lieutenant named Rowan was supposedly dispatched to deliver a message from President McKinley to General Calixto García, the Cuban rebel commander, whose whereabouts were unknown. Against all odds, Lieutenant Rowan did exactly what he had been instructed to do, tracking García down in the Cuban jungle and delivering the message. The business world, Hubbard argued, was in great need of men like Rowan, the dutiful soldier who, “when given a letter for García, quietly takes the missive, without asking any idiotic questions, and with no lurking intention ... of doing aught else but deliver it.” Hubbard’s essay neatly summarized an idealized work ethic for the industrial age, and millions of copies were sold. Pepín Bosch ordered leather-bound copies by the dozen and distributed them widely to his employees, smiling broadly but making clear that he, too, did not appreciate “idiotic questions” or excuses for unfinished assignments. Having been so forewarned, Bacardi employees thought twice before approaching Bosch to ask a favor or make a complaint.

  In company matters, Bosch shared his father-in-law’s strategic commitment to international expansion. Having succeeded in setting up distilleries outside Cuba, Schueg and Bosch took their ideas a step further in 1944 by establishing a Bacardi importing subsidiary in the United States, Bacardi Imports, Inc., thereby cutting out Schenley Distillers. The subsidiary would buy Bacardi rum from Puerto Rico and Cuba and sell it at a markup to U.S. distributors, just as Schenley had done.

  The elimination of Schenley as the importing middleman seemed to make great economic sense, but in practice it was another gutsy Bacardi move. For an import company to have only one brand in its portfolio was unheard of. Bringing liquor into the country involved paperwork, promotion, advertising, and office expenses. The importing companies with a wide assortment of products could spread their overhead costs across a much bigger business operation. The Bacardis were relatively small-time players, and in the tightly organized and highly competitive U.S. liquor market, the big importers moved instinctively to crush them. Schenley Distillers, furious that Bacardi had canceled its importing deal, immediately purchased Carioca Rum Co., another Puerto Rico-based firm. A decade earlier, Fortune magazine had dismissed Carioca as “an American imitation of Cuban rum,” but with its acquisition of the brand, Schenley was prepared to mount a challenge for the dominant position in the U.S. rum market.

  Bacardi, however, had the notable advantage of brand familiarity. In the first year of its operation, Bacardi Imports earned more than a half million dollars for its parent company above and beyond what the royalty payments from Schenley would have brought. Pepín Bosch reported the results in a memorandum to Enrique Schueg in October 1945. “It would be my suggestion that we continue on the path we laid out a year ago and that has given us such good results,” he wrote. Bosch also noted that Schenley had paid four million dollars for the Carioca company and that the Bacardi facility in Puerto Rico was three times bigger. “It’s reasonable to think,” Bosch concluded, “that the Puerto Rico operation could be sold for more than twelve million dollars, so the stockholders ought to be very happy with this empire you have created with such little economic pain.”

  It was about the last good news Enrique Schueg and the Bacardis would get for a while. Within a year, Schueg suffered a major stroke, leaving him mentally weakened and unable to continue working. At about the same time, Bosch himself had a devastating accident, when an engine fire caused his yacht to blow up in the Santiago marina just as he and Joaquín Bacardi were preparing to set out on a fishing expedition. The yacht captain was killed, and Joaquín and Bosch were injured—Joaquín from swallowing toxic water, Bosch with a smashed leg. He would never walk normally again. Bosch had barely been released from the hospital when a warehouse fire in Santiago caused hundreds of thousands of dollars in damages to facilities, aging stock, and equipment. As a final blow, Bacardi’s U.S. business prospects dimmed in 1946. During World War II, U.S. rum sales had boomed as a result of a reduction in European whiskey shipments and a rationing of U.S. whiskey production, but whiskey stocks were replenished when the war was over, and many consumers who had switched to rum went back to drinking whiskey. By the end of 1946, U.S. liquor dealers had about three million cases of unsold rum in their inventories.

  After analyzing the rum surplus, Pepín Bosch and the president of Bacardi Imports, Bartolo Estrada, decided to halt all new Bacardi shipments to the United States, opting to meet the rum demand instead through a redistribution of existing inventories. Over the next year, Bacardi Imports bought up excess rum stock from dealers who were oversupplied and shipped it to dealers who needed more. The effort cost the company a half million dollars, but it restored good relations in its distribution network. By 1948, Bacardi rum sales in the United States were on the upswing again, and the company had reestablished its position there as the favored rum brand.

  Most of the Bacardi rum sold in the Unite
d States by then came from the company’s facilities in Puerto Rico, with the exception of the premium and aged Bacardi rums, which were still produced in Cuba. The Puerto Rico operation accounted for an even larger share of the business after Cuba lost its preferential tariff status under the new General Agreement on Tariffs and Trade (GATT), negotiated in 1948. The new agreement committed the signatory nations, including the United States and Cuba, to reduce tariff differentials in order to promote freer world trade, and the preferential arrangement for Cuban rum was dropped. The preference had meant Cuban rum entered the United States with a fifty-cent-per-gallon advantage over rums from other Caribbean producers, and after the preference was eliminated, Jamaica overtook Cuba as the top foreign rum supplier, behind Puerto Rico.

  The decline of their U.S.-Cuba rum trade disappointed the Bacardis, at least from the standpoint of family and national pride. Company advertising in the early 1940s had declared that the Bacardi factory in Santiago made “The World’s Finest Rum,” while the Bacardi products made in Puerto Rico carried a far more modest claim: “Puerto Rico’s Finest... at a Popular Price.” By the end of the 1940s, however, the company had so much invested in its Puerto Rican facilities that a drop in rum shipments from Cuba was of little commercial consequence. Pepín Bosch and Enrique Schueg had years earlier settled on Puerto Rico as their point of entry to the U.S. market, and the Bacardi Rum Company had been steadily expanding its Puerto Rico facilities.

  Bacardi’s Puerto Rico operation was also boosted during this period as the result of a new million-dollar advertising campaign launched by the Puerto Rican government on behalf of all rums from Puerto Rico. Under the terms of the 1900 Foraker Act, which defined Puerto Rico’s relations with the U.S. main-land, all excise taxes collected on rum (and other products) made in Puerto Rico and sold in the United States were returned to the Puerto Rican government. The rum boom in the U.S. market during World War II had brought a cash bo nanza to Puerto Rico, and in the postwar years the island’s territorial government was so anxious to see a continuation of U.S. rum sales that it was willing to underwrite a huge promotional effort on behalf of all rums produced in Puerto Rico. The free advertising helped Bacardi more than any other company, though it came with a condition that struck at the heart of the Bacardis’ long attachment to Cuba. From that time on, the label of almost every bottle of Bacardi sold in the United States carried the words “PUERTO RICAN RUM.”