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HavanaJournal.com: Cuba Business

Havana Club rum moves up the rum ranks

Posted March 30, 2004 by publisher in Cuba Business.
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BY LARRY LUXNER | Special to The Miami Herald

HAVANA—‘‘I’m just a humble rum merchant,’’ says Alexandre Sirech as he sits in an office decorated with posters of 1950s Havana and shelves lined with liquor bottles of every size, shape and brand imaginable.

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RAPID GROWTH: ‘There were many doubts about the Havana Club brand. It’s funny to remember, because now it’s the fastest-growing spirit brand on the market,’ says Alexandre Sirech, director-general of Havana Club International.

But in reality, the 37-year-old Frenchman from Bordeaux is director-general of Havana Club International S.A. and presides over one of the most successful joint ventures ever launched between foreign investors and Cuba’s communist government.

In 2003, the company—a partnership between French drinks giant Pernod Ricard and Cuba’s Ministry of Food Industry—shipped 1.92 million nine-liter cases of Havana Club rum. That’s up from 1.73 million cases in 2002, when the brand ranked No. 53 on Impact magazine’s list of the world’s top 100 premium distilled spirits. 

‘‘Demand has been exploding in Europe,’’ he said, noting that Havana Club is now 50th on the Impact list. “If we keep up with this momentum, we should rank in the top 40 very soon.’‘

Havana Club has been able to score these gains even though the U.S. embargo bars sale of Cuban rum in the United States where 42 percent of the world’s rum is consumed.

Earlier this month, the venture celebrated its 10th anniversary in a three-day extravaganza attended by Patrick Ricard, Pernod Ricard’s president.

U.S. GOAL

Although it is embroiled in a long-running trademark dispute with rival rum giant Bacardi over the Havana Club name, Ricard was encouraged by a recent decision by the U.S. Patent and Trademark Office and would like to get into the U.S. market as soon as legally possible.

‘‘If the U.S. lifts the embargo tomorrow morning, we’ll be ready to begin selling rum to the United States,’’ Ricard told reporters at a Havana press conference.

He added: ‘‘We’ve won the battle but not the war’’—a reference to a Jan. 29 decision by the U.S. Patent and Trademark Office to reject motions by Bacardi to cancel the U.S. registration of the Havana Club trademark.

In its ruling, the Patent Office’s Trademark Trial and Appeal Board upheld the validity of the U.S. registration and its most recent renewal by Havana Club International.

At issue was a petition requesting the cancellation of the registration on the grounds that the trademark was registered in the United States under allegedly fraudulent circumstances.

The Trademark Trial and Appeal Board also ruled that Havana Club Holdings had filed a proper renewal application in 1996 on behalf of Cubaexport and the Patent Office had acted appropriately in accepting the renewal and registration in Havana Club Holdings’ name.

BACARDI DYNASTY

For Bacardi, the issue of who has the right to the Havana Club trademark is far from over.

‘‘Contrary to that (the appeal board decision), Bacardi has the right to use the Havana Club brand in the United States,’’ Patricia Neal, a spokeswoman for the rum giant, said last week. “The Pernod Ricard joint venture with Cuba has lost in every U.S. court.

‘‘Under U.S. trademark law, trademark registration and usage rights are two distinct things,’’ she said. ‘‘Bacardi has the rights to use the brand having purchased them from the legitimate owner.’’ Bacardi also established use in the United States, said Neal, when it sold rum under the Havana Club name in this country in 1995 and 1996.

Before the 1959 Cuban revolution, Bacardi was the leader in the Cuban market, but its facilities were nationalized by the Castro government.

Starting in 1934, the Arechabala family produced an aged rum in Cuba that was called Havana Club. But after the revolution, the Castro government took over the Arechabalas plant, the family went into exile in Spain and the government formally expropriated the assets of Jose Arechabala in October 1960.

The Bacardi and Arechabala families had known each other in Cuba. Through the years, Bacardi had made several attempts to acquire the brand before the Arechabala family finally agreed to sell it in 1995 and the sale was completed in 1997, Bacardi has said. But Sirech said the trademark wasn’t theirs to sell: “Legally, the Arechabala family more or less abandoned the brand before the revolution. That’s why a Cuban entity, Cubaexport, could register it. Anyone could have done that, because the brand had been abandoned and was free to be registered.’‘

COMPANY SECRETS

For Bacardi the issue is the legitimate ownership of the Havana Club brand—something that the the Patent Office appeal board didn’t address, saying “it has little or no experience in determing violations of statutes or regulations that do not directly concern registration of trademarks.’‘

Such matters as fraud, said the appeal board, should be determined in court or by a “government agency having competent jurisdiction.’‘

‘‘We have until [this week] to make a determination whether we will take this to court,’’ said Neal.

Sirech, meanwhile, is wary of Bacardi. He refuses to say exactly how many distilleries Havana Club operates, how big they are or even where they’re located, outside of the large bottling plant in Santa Cruz del Norte, along Cuba’s northern coast east of Havana.

‘‘You have to be paranoid,’’ he said. “We need to be extremely cautious, because we know we are being listened to.’‘

Sirech also wouldn’t discuss revenue, though Impact puts Havana Club’s annual sales at $250 million.

Last year the Pernod Ricard conglomerate reported revenues of 4.836 billion euros, or around $5.3 billion. According to Forbes magazine, the Castro government earns $23 million a year in hard currency from the venture.

When the Havana Club joint venture started, it wasn’t a sure bet. Havana Club produced only 300,000 cases of rum in its first year, Sirech said, and most of that was exported to Russia under a barter agreement.

‘‘There were many doubts about the Havana Club brand. It’s funny to remember, because now it’s the fastest-growing spirit brand on the market,’’ said Sirech.

Even so, Havana Club’s total worldwide sales are less than a tenth of Bacardi’s. As in previous years, Bacardi is still the world’s most popular spirits brand, with 19.7 million cases of rum sold in 2003, a 1.5 percent gain over the 2002 figure of 19.4 million cases, according to Impact Databank, a leading source on the worldwide drinks industry.

PATIENT ATTITUDE

‘‘We’re suffering a lot at the moment from our absence in the American market,’’ Sirech said. “But we’re patient. We’ll wait to see what evolves before embarking on anything.’‘

Sirech was interviewed for two hours at Havana Club’s headquarters in the Vedado district of Havana. ‘‘Outside of production, everything’s done here in this little building—strategy, pricing, advertising and promotions,’’ he said.

Sirech was sent to Cuba four years ago to head the Havana Club venture. He oversees 203 employees, of which 136 work in the local division; the rest are in exports, marketing and finance. That doesn’t include another 800 distillery workers, with whom Sirech has little or no contact.

He said ‘‘fewer than five’’ Havana Club employees know the brand’s proprietary formula. ‘‘Because of our legal battles with Bacardi, we keep our production process extremely secret,’’ he said.

At present, Havana Club ranks as Pernod Ricard’s sixth-biggest spirit brand in volume after Ricard, Seagram’s Gin, Chivas Regal, Pasils 51 and Larios.

The company says the successful launch of two new products, Añejo Blanco and Añejo Oro, has contributed to Havana Club’s strong performance. The Añejo Blanco, a pale straw-colored rum, is the base for most popular Cuban cocktails including the mojito. The second, which acquires its golden hue through aging in oak barrels, is particularly popular in Spain, where it’s mixed with Coca-Cola to make a Cuba libre.

CUBAN MARKET

Since May 2003, the company has distributed its own products in Cuba. Currently the brand controls about 30 percent of the local market by volume and around 75 percent by value. Prices inside Cuba range from $3.90 to $10.90 per bottle, making the product expensive for Cubans.

‘‘For some Cubans, a bottle of Havana Club would be a once-in-a-lifetime occasion,’’ said Sirech. “Other Cubans have access to dollars through their families in the States, and these people have the means to buy Havana Club on a more regular basis.’‘

The brand’s main local rivals are Ron Varadero and Ron Santiago de Cuba.

To raise the brand’s profile, there is a Havana Club Rum Museum, located along the waterfront in Old Havana’s restored historic district. The museum features a scale model of a 1930s sugar mill, complete with a working train. Housed in a colonial mansion dating from 1875, the museum was visited by 110,000 tourists last year.

Last summer, Havana Club launched a product called Loco. The ready-to-drink beverage is made with Havana Club rum and fruit juices. It’s available in two flavors—lemon and passion fruit—and sells in hard-currency shops for $1 per 275-ml bottle.

At the other end of the price spectrum is Máximo, which took four years to develop and ‘‘is a mix of very old things and very young things.’’ Sirech wouldn’t say much more about Máximo, except that it will be distilled in Cuba, and that total production will be just 400 cases every year.

Locally, it will sell for an astounding $200 a bottle—more than the annual salary of the average Cuban worker.

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