by Gjelten, Tom
The thirty-six-page joint venture agreement committed the Cuban authorities to “follow the usage of the market economy” in operating their rum business, something they had virtually no experience in doing. A “non-compete” clause obligated the Cuban government not to promote any of its other rum brands in export markets where Havana Club was sold. The agreement was drawn up under the close attention of Pernod Ricard lawyers, who knew their company could face litigation over the deal. One provision required the Cuban side to guarantee there was “no claim in or out of court against the owner of the [Havana Club] trademark... and that it is not aware of any reasons or circumstances that may cause a claim of this nature.” The Arechabalas had last registered the mark in 1953 for a period of twenty years. Because the registration had since expired, Pernod Ricard was satisfied that the family had abandoned its claim to the mark.
Neither side divulged the price Pernod Ricard paid for its half of the Havana Club operation, though Forbes magazine reported it was fifty million dollars.
Juan Prado, the veteran Bacardi rum salesman, felt some envy when he heard Pernod Ricard had completed the Havana Club deal. The fact that Pernod Ricard had been willing to work hard and spend a lot of money to get half of the “rights” to the rum trademark vindicated his earlier judgment that the Havana Club brand was a valuable asset. On the other hand, Prado was angry that Pernod Ricard had agreed to do business with Fidel Castro, a dictator responsible for driving a million Cubans into exile and imprisoning or executing thousands more. Prado had chosen Pernod Ricard to distribute Bacardi rum in France,24 and along the way he had become friends with Thierry Jacquillat, the chief executive. When news of the deal with the Cuban government appeared in the press, Prado wrote to Jacquillat to chastise him:December 3, 1993
Dear Thierry,
Because I am retiring at the end of the year and will be consulting for Bacardi in the area of Cuba issues, I have perhaps been more sensitive to the news of your agreement to distribute Havana Club worldwide. I must confess I was surprised.
In case you are not aware, the Arechabalas are an honorable family whom I have known since I was a child, were illegally expatriated [sic] of all their properties in Cuba and obviously believe they own the brand.
Please accept my apologies for commenting on your commercial decisions, but I felt our friendship has been sufficiently long standing to allow me to express my opinions.
Regards,
Juan Prado
Prado sent copies of the letter to his Bacardi boss, Manuel Jorge Cutillas, to Patrick Ricard, and to Ramón Arechabala in Miami, the former Havana Club sales manager with whom Bacardi executives had discussed a deal twenty years earlier in Nassau. The 1973 talks had gone nowhere, but the news of the Havana Club deal made the Arechabalas players in the Cuba drama once again.
Eleven days after hearing from Juan Prado, Ramón himself sent a letter to Patrick Ricard, saying he and other members of his family were “concerned” that Pernod Ricard had agreed to market the Cuban government’s rum under the Arechabalas’ old label. More than thirty years had passed since the Arechabala family had given up their rum business, but Ramón said he and his relatives still intended to take steps “to recover possession of our property and also to seek appropriate compensation from those who have exploited and misused those properties when we were deprived of their possession,” language that appeared to be lifted almost word for word from the letter Manuel Jorge Cutillas had sent out six weeks earlier. Pernod Ricard executives interpreted the Arechabala letter, with its echo of the Cutillas warning, as an indication that Bacardi might join forces with the former Arechabala shareholders and take Pernod Ricard to court. Thierry Jacquillat said later that he took the Bacardi message to be: “Cuba is ours; don’t touch it.”
There was little Bacardi could do to stop Pernod Ricard from becoming the lead Cuban rum distributor in Europe and elsewhere, but the company directors were determined to try. If the Arechabalas would sell Bacardi their historic “rights” to the Havana Club trademark, the Bacardis could take the lead in opposing Pernod Ricard’s use of it. Thierry Jacquillat may not have been far off when he characterized the Bacardi viewpoint as “Cuba is ours.” For nearly a century, it had been. The Bacardis’ ties to their homeland had been broken only when they lost their business and were compelled to leave the island. The idea that a European company like Pernod Ricard could now claim to represent “genuine” Cuban rum was simply unacceptable to the Bacardi old-timers.
In early 1994, Manuel Jorge Cutillas flew to Spain to discuss a possible purchase of the Arechabalas’ claim to the Havana Club trademark. When he arrived in Madrid, Cutillas found out that Bacardi was not the only company with that idea. A Pernod Ricard lawyer had offered the Arechabalas one hundred thousand dollars in exchange for abandoning any Havana Club claim they might have. The family had rejected the offer outright, but it was talking with another company, International Distillers & Vintners, the same British company that just a few months earlier had been negotiating with the Cuban government for a piece of the Havana Club business. Having lost out to Pernod Ricard, IDV was proposing a joint venture with the Arechabalas to redevelop the “Havana Club” trademark outside Cuba. After a few months, however, IDV suddenly lost interest. The Arechabalas’ door was finally open to Bacardi.
The new Havana Club operation in Cuba got off to a promising start. With Pernod Ricard’s informal assistance, the Cubans strengthened their quality control procedures and upgraded their bottling operation, with a higher grade of glass and better bottle caps. Efficiency concerns did not figure very highly in the Cubans’ approach to business, but this factor may actually have worked in favor of higher-quality products. Even their young rums were aged for three years in old barrels, a practice that more profit-oriented enterprises would have been less likely to follow, given that it made it more difficult to achieve high-volume, low-cost production. As a result, the Cubans’ “white” rum product was slightly yellow, like white wine. The Cubans had never highlighted this difference, but the Pernod Ricard team immediately recognized it as an advantage. A clear white product would have been harder to differentiate from the much-better-known Bacardi brand, but a straw-colored rum could be presented as distinctively Cuban, more highly aged, slightly more flavorful, and marketable at a premium price. The new advertising strategy for Havana Club rum in European markets featured a heavy emphasis on its age and its Cuban origin. Every bottle carried a bright red banner with the phrase “El Ron de Cuba” (The Rum of Cuba).
To the Cuba-born Bacardis who remembered their own company’s old advertising on the island, the slogan grated. To younger Bacardi executives who focused more on marketing, the French-Cuban venture was worrisome for the commercial challenge it presented. Six months after the establishment of Havana Club International, the Bacardi distributor in Spain sent a memorandum to his company headquarters advising that Havana Club already had “a high image level” in the country and that he and his sales agents were seeing “steady growth in HC brand awareness.” The Pernod Ricard strategy in Spain was to tie the rum marketing to the promotion of Cuban tourism; any bar owner who could move a hundred cases of Havana Club was offered a free trip for two people to Cuba. “When the bar owners come back from Cuba,” the distributor reported, “they are the best public relations for the brand, and they recommend it as the authentic rum.” Havana Club International was flying Cuban bartenders to Spain and sending them on tours around the country, demonstrating how to make genuine mojitos, daiquiris, and Cuba libres, thus spurring new demand for Cuban rum. The Madrid agent warned that the French-Cuban brand would soon present “a real threat” to Bacardi commercial interests in Spain.
The report on Havana Club’s success in Spain raised two concerns for Bacardi marketing strategists. The first was the likelihood that demand for the Cuban rum would spread throughout the European market, as more Europeans visited the island as tourists. The second concern was even more sobering. With Fidel Castro appearing
to be losing his grip on Cuba, the possibility of major political changes there seemed greater than it had been in many years. President Bill Clinton was considering a diplomatic opening to Cuba. An end to the U.S. trade embargo was a real possibility, meaning that genuine made-in-Cuba rum might soon become available again for sale in the United States. As things now stood, that rum would be Havana Club, marketed and distributed by one of Bacardi’s top corporate rivals.
For more than thirty years, Bacardi advertising in the United States had made no mention of the rum’s origins in Cuba. The island was associated with Communism and revolution, and few Americans visited. But the prospect of the island’s opening sparked a sudden surge of interest in all things Cuban. For the first time, Bacardi executives began exploring the possibility of developing and introducing a new Cuba-themed rum of their own, to be promoted with reference to Bacardi’s own Cuban heritage.
But it would take more than another product and a new marketing campaign to address the Havana Club threat. Bacardi needed to challenge Pernod Ricard directly, on political or even legal grounds. After all, Havana Club’s entrance into the U.S. rum market presented more than just commercial issues; behind it was a European company partnering with the Castro regime, just as Cuba was changing. The joint venture raised the possibility that the post-Castro scene could be dominated by foreign corporate interests in collusion with the Communist elite, to the exclusion of exiles and other marginalized parties.
The Bacardis’ political activism on Cuba issues until then had been largely private, prompted by the family’s own sense of betrayal by Fidel Castro, but their political and commercial interests were now coinciding. It was time to go to Washington as Bacardi Limited, the corporate heavyweight, rather than as individual Bacardi family members. The company prepared to join the Arechabalas in arguing that it was unfair of Pernod Ricard to “purchase” co-ownership of the old family trademark from a dictator who had confiscated it without compensation years earlier. If the argument was successful, the French company might be thwarted in its attempt to bring Havana Club rum to the U.S. market. But there was more at stake than a commercial rivalry. Cuban rum was indeed a “national jewel,” and the maneuvering for control of the industry in the post-Castro years was a fight for the future of Cuba itself.
Chapter 22
Rum Politics
The Biltmore Hotel in Coral Gables was built around the same time as the Hotel Nacional in Havana, in the same grand Mediterranean revival style, with a towering orange belfry, sprawling grounds, and a driveway lined by palm trees. The hotel is in the heart of the Coral Gables residential area, where the wealthiest Cuban exiles in south Florida live in verdant splendor, surrounded by tropical gardens and exotic banyan trees. With its vaulted ceilings and Moorish colonnades, the Biltmore is the favored local venue for gatherings of the exile elite, perhaps because it is reminiscent of the glamour and beauty of Old Havana.
It was at the Biltmore, on a hot and humid Monday in April 1995, that about 150 prominent members of Miami’s Cuban-American community gathered in a chandeliered ballroom for a $500-a-plate luncheon in honor of Republican Senator Jesse Helms of North Carolina. Helms was one of the most vociferous foes of Fidel Castro in the U.S. Congress, and he had come to Miami for the anniversary of the 1961 Bay of Pigs invasion, an occasion that each year prompted noisy demonstrations in the streets of Little Havana. He was introduced at the Biltmore that day by Jorge Mas Canosa, the head of the Cuban American National Foundation (CANF), and by Rodolfo Ruiz, the president and chief executive of Bacardi-Martini, the U.S. subsidiary formerly called Bacardi Imports.
The luncheon cohosts represented an alliance born more than thirty years earlier. Jorge Mas Canosa had gotten his start in exile politics as a director of Representación Cubana del Exilio (RECE), the exile action group founded by Bacardi boss Pepín Bosch, and the political firebrand had risen to prominence in the Cuban-American community as editor of the Bacardi-funded RECE newsletter. By 1995, Mas was himself a political kingmaker and multimillionaire businessman, having long since traded his milkman uniforms for expensively tailored double-breasted suits, but when he needed help sponsoring a CANF fund-raiser for Jesse Helms, it was to Bacardi that he quietly turned. Bacardi family money had underwritten CANF activities for years. Rodolfo Ruiz was not a family member, but, like other key Bacardi executives, he was a Cuba native, and when it came to Cuban matters he shared the Bacardi ethos. In his introductory remarks at the Biltmore luncheon, Ruiz praised Helms’s commitment to the cause of freedom for the Cuban nation. Ruiz had come to the United States alone at the age of twelve, one of the approximately fourteen thousand children whose parents sent them unaccompanied out of Cuba under the U.S. government program known as Operation Peter Pan, and he was as committed to the anti-Castro struggle as anyone in the room.
The luncheon at the Biltmore netted about fifty-six thousand dollars for Helms’s reelection campaign war chest, according to Federal Election Commission records. Among the Bacardi people in attendance, besides Ruiz, were the Bay of Pigs veteran José Bacardi, Juan Prado, the veteran salesman who had been assigned to coordinate Bacardi company planning on Cuba-related issues, Jorge Rodríguez, a Bacardi public relations executive married to Daniel Bacardi’s niece, and several guests who came at the company’s invitation. The fund-raiser was not a big event, and it was hardly the first time individual Bacardi family members or executives had rallied behind a Washington politician who was willing to speak out against Fidel Castro. The Bacardi participation in the Helms luncheon was noteworthy, however, because it coincided with an important new development: The company itself was staking out a position in the U.S.-Cuba policy debate. While it had previously made known its determination to reclaim its confiscated properties on the island, Bacardi as a corporate entity had largely steered clear of Washington politics around the Cuba issue. That was now changing.
A year earlier, Bacardi took a lead role in organizing the U.S.-Cuba Business Council, a corporate group established to focus on U.S.-Cuba trade and investment issues in advance of the expected transition to the post-Castro era. About a dozen U.S. companies, from Chiquita Brands and Amstar (a sugar company) to the Coopers & Lybrand accounting firm, also joined the Council, but Bacardi was the instigator, and Bacardi CEO Manuel Jorge Cutillas was the first chairman. At the time, many U.S. companies were eager to invest in Cuba, but the Council recommended that the U.S. government move slowly in restoring trade with the island. The Council’s founding mission statement, issued over Cutillas’s name, said it would argue that the rule of law and respect for private property rights should be seen “as necessary conditions for U.S. commercial activity and economic development in Cuba.”
An even clearer sign of the new Bacardi outspokenness around Cuba questions came in October 1994, when Miami-based Bacardi-Martini fired its public relations firm, Burson-Marsteller, after two of the PR agency’s vice presidents criticized the Cuba trade embargo in a public forum. As soon as news of their comments reached Rodolfo Ruiz at Bacardi headquarters in Miami, he canceled the firm’s multimillion-dollar contract. At the time, the Clinton administration was weighing a relaxation of the trade sanctions. “It is exactly because of the increasing pressures on the Administration to change the embargo that we came out strongly,” Ruiz told a reporter. He said Bacardi-Martini was ending its relationship with Burson-Marsteller in order “to make the [U.S.] government aware that to lift the embargo is the last thing that should be considered.” Such unambiguous political pronouncements were virtually unprecedented for the company. Bacardi support for exile causes had generally been low profile. The funding of the tiny RECE operation, for example, amounted only to a few thousand dollars a month, largely for office expenses and one or two salaries, and few people outside Cuban exile circles even knew about it.
Ironically, the new Bacardi corporate interest in the U.S. government’s Cuba policy came just as the company’s own Cuban character had been diluted as a result of the Martini & Ross
i acquisition. Bacardi Limited had become a big, multibrand global corporation, and each year the shareholders paid more attention to dividend returns and stock value and less to the old Bacardi mission “to raise high the name of Cuba” and reclaim their Cuban heritage. To be sure, family members were enraged when they discovered that some of the “Havana Club” rum marketed internationally by Pernod Ricard had been produced at the old Bacardi factory on Matadero Street in Santiago. But by 1994 the company’s involvement in U.S.-Cuba policy discussions was driven less by revanchist exile passions than by concerns about the commercial threat that a Cuban rum backed by Pernod Ricard would present in the U.S. market. More broadly, Bacardi worried that the French company (and other Western partners) could prolong the life of the Castro regime by providing it with badly needed capital and professional expertise. Given its own history on the island, Bacardi would be able to return to Cuba only after Castro was gone, so any action by Pernod Ricard or any other firm that postponed the regime’s definitive collapse was injurious to Bacardi interests. Family passions aside, the company had a clear strategic interest in supporting U.S. policies that would bring a clean end to the Castro era, as opposed to a gradual or negotiated transition.
In February 1995, two months before his visit to Miami, Jesse Helms had introduced new sanctions legislation that targeted foreign companies investing in Cuba. Republican congressman Dan Burton of Indiana sponsored companion legislation in the House, and their proposal became known as the Helms-Burton bill. One of the bill’s novel features was that it took up the cause of Cuban-Americans whose properties had been confiscated by the Castro regime. The original U.S. trade embargo against Cuba had been prompted by Castro’s seizure of the property of U.S. citizens and companies, but the interests of Cubans who had suffered losses were not taken into consideration. Helms-Burton changed that, by offering Cuban-Americans the opportunity to sue, in U.S. courts, any foreign firm that was making use of their confiscated assets in Cuba. That provision, Title III of the bill, was largely the work of Daniel Fisk, the staff director of the Senate Foreign Relations Committee (which Helms chaired) and Ignacio Sánchez, a young Cuban-American lawyer from Miami. Bacardi was not originally a prime mover behind the Helms-Burton legislation, but the bill soon caught the attention of company lawyers. Title III offered a weapon Bacardi could potentially use against any firm that touched former Bacardi properties in Cuba, including Pernod Ricard. The legislation would not apply to a non-U.S. firm like Bacardi Limited, the parent company in Bermuda, but its Miami-based subsidiary, Bacardi-Martini, in theory could initiate a lawsuit. The company was soon tagged as the leading corporate backer of the Helms-Burton legislation, and critics took to calling it the Bacardi Claims Act.
