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International Marketing Part 2

(KFK International Marketing)

Ass.-Prof. Dr. Klaus Schöfer Chair of International Marketing

Global Strategy Report: Bacardi & Co. Ltd.

SS 06

Luis Cisnal Gözdem Becerik Katrin Moser Jürgen Skopal

Table of Contents

TABLE OF FIGURES TABLE OF TABLES 1 2 3 4

4.1 4.2

II II 3 3 4 4

5 5

INTRODUCTION A LITTLE HISTORY BACARDI TODAY GENERAL STRATEGY

The Single Brand Company The Global Company

5

5.1

ALCOHOLIC BEVERAGE INDUSTRY

Competition in the Spirits Industry

6

7

6

6.1 6.2 6.3 6.4

MARKETING MIX

Advertising/Promotion Product Price Place/Distribution

7

7 8 9 11

7 8 9

9.1 9.2

CONCLUSION APPENDIX RESOURCES

Articles Online Resources

12 13 15

15 15

I

Table of Figures

MAJOR GLOBAL SPIRITS COMPANIES BY VOLUME, 2004 (ICAP, 2006).................................................................. 13 GLOBAL BRAND SHARES OF SPIRITS, 2004 (ICAP, 2006) ....................................................................................... 13

Table of Tables

TABLE 1: COMPARISON OF BACARDI RUM PRICES................................................................................................. 14

II

1 Introduction

Cuba, bats, and rum ­ with which brand would you associate these three items? Everyone would answer to this question with "BACARDI"! This report wants to give an insight on the global strategy of this famous brand. First, we will give you some facts about the historic development of Bacardi and about its current situation. The next part will deal with the general strategy: The formerly single brand strategy as well as the global strategy, which the company pursues today will be described. Furthermore, it is essential to have a short look on the alcohol industry as a whole to understand the actions Bacardi has taken and respectively takes today. We also put an emphasis on the marketing mix, by investigating Bacardi's activities concerning each of the four Ps. Additionally, we will examine the competitive environment, too.

2 A Little History

Bacardi's successful campaign to conquer the world of rum started in 1862 when Don Facendo Bacardi Massó decided to acquire a small distillery in Santiago, Cuba. Due to his ambition for science and his other various skills he found a way to revolutionize Cuba's national drink, the dark rum, into the today so well known white version. In 1944 Bacardi launched its first U.S. subsidiary in New York City vastly expanding its business and by 1987 it became the number one in the spirits brand sector. While in 1960 the Bacardi family fled from Cuba to the Bahamas, after the regime confiscated the local subsidiaries, it took along the world famous brand, showing a flying fruit bat ­ which is considered as an omen of good luck in Cuba ­ originating from a bat colony in their rafters. During its exile Bacardi continued to grow and became one of the largest spirits selling companies in the world.

3

Until today Bacardi still refuses to agree on a settlement with Cuba, in contrast to other companies, seeking to overthrow the existing regime to be able to return to its homeland. In 1999 the management proposed to transform the company into a publicly held enterprise, which was rejected by the majority of the company's shareholders ­ many of them being family members.

3 Bacardi Today

Today Bacardi's product line includes various brand extensions, for instance Bacardi Breezer, Bacardi Razz, Bacardi Cóco as well as the well known brands like Martini & Rossi vermouth, Dewar's Scotch whisky and Bombay Sapphire gin, all of them contributing to Bacardi's average rate of growth of about 2% a year. Being the fourth largest spirit company after Diageo, Allied Domecq and Pernod Richard, Bacardi holds 5000 employees in offices distributed all over the five continents and another 100 employees in the company's headquarter in Hamilton, Bermuda. Its annual sales are estimated at 1.5 billion ($ 2.8 billion) (Townsend, 2004) a year with

more than 240 million bottles sold in 170 countries. This makes especially Bacardi's white rum the largest premium spirit brand in the world.

4 General Strategy

Looking at the general strategy of Bacardi we have to distinguish between two different time periods. From the beginning on ­ and for quite a long time ­ Bacardi focused on the wellknown Bacardi Rum. However, in the early 1990s the economic environment changed and so did the strategy of Bacardi. Nowadays it holds an extensive portfolio of diverse brands and products. The changes also had a tremendous influence on the corporate strategy and the business of the company. 4

4.1 The Single Brand Company

As a single brand company Bacardi focused on selling and positioning its rum in the premium segment throughout the world. Its corporate strategy was "to be in the `light spirits' business" whereas its business strategy concentrated on "becoming the number-one-selling spirits brand in the world" (Bourgeois, 1997). Bacardi has always been a company entirely controlled by members of the extended Bacardi family. Before the strategy changed in the 1990s, the Bacardi empire comprised 5 more or less independent companies servicing North and Latin America, most parts of Europe, Australia, Japan, and some other Asian countries: Bacardi International Ltd. (operating from Bermuda), Bacardi Imports (Miami), Bacardi Corp. (headquarters in Puerto Rico), Bacardi & Company Ltd. (Bahamas) and Bacardi Mexico. This loose cooperation with no central control or coordination perfectly fitted the economic situation of those days. It allowed Bacardi to market its product locally and to customize its strategy according to the regional needs (Marshak, 1997).

4.2 The Global Company

In the early 1990s the economic situation changed: Global competition and the number of mergers and acquisitions increased while consumer consumption stagnated moreover respectively declined. This was inducement enough for Bacardi to undertake some fundamental internal modifications. The former five independently operating companies were reorganized into a single one, named Bacardi Limited, with its headquarters in Hamilton, Bermuda. Furthermore the single brand strategy became abolished by the merger with Martini & Rossi (which is well-known for its vermouth but actually had more than 100 brands and products) and the acquisitions of Dewar, Bombay and Grey Goose.

5

The company's mission therefore has changed from the focus on one single brand to a focus on the sale of a variety of alcoholic beverages. The corporate strategy is now to manage a diverse portfolio of brands and products instead of only one. But how does a company whose identity was so defined by one brand for so many years, assimilate a new family of brands? Bacardi's marketing strategy is partially integrated and due to the recent changes in advertising policy with regard as how to canvass juveniles and young adults, Bacardi is restructuring its strategy to a mix of a global advertising as well as global product strategy. The organization is highly decentralized and a large private network (including IT applications like Lotus Notes, Oracle and SAP) connects all Bacardi offices throughout the world to facilitate the day-to-day business. Still today the company privately held even though three outside directors have been appointed to the board. There have also been recurrent rumours that Bacardi considers a floatation for gaining easier access to capital for the future, but so far these rumours have always been denied my the company.

5 Alcoholic Beverage Industry

For firms in the beverage industry innovation plays an important role. Even though only 20% of all innovations succeed, the market is full of large multinationals with the necessary money. A significant trend here is the huge increase in diet drinks. According to Datamonitor "sales of diet-related foods and beverages will grow $16 billion in the United States and Europe by 2008, creating a $100-billion diet market". And also Bacardi tried to jump on this profitable train by introducing the Bacardi Island Breeze (a sucralose-sweetened spirit) in 2005.

6

5.1 Competition in the Spirits Industry

The spirits industry is highly competitive business, where the major global spirits producers hold approximately 60% of the market share. Most of the major spirits brands are nationally specific; only Bacardi rum and Diageo's Smirnoff vodka could be found according to their sales volume, in the world's top 10, in 2005 (International Center for Alcohol Policies, 2006). Competition not only takes place between brands but also between categories (i.e. beer, spirits and wine compete against each other). For additional information see appendix figures 1 ­ 2. The two main competitors of Bacardi are Diageo PLC and Pernod Ricard: Diageo PLC was founded in 1886 and is based in London. It is the number one spirits producers of the world but also manufactures wines and beer. Among their best-known brands are Smirnoff vodka, Johnnie Walker Scotch whiskies, Guinness stout, Baileys Original Irish Cream liqueur, J&B Scotch whisky, Captain Morgan rum, and Tanqueray gin. Pernod Ricard possesses a large portfolio ranging from anise drinks and liqueurs (Pernod, Ricard, Zoco) to clear spirits (Wyborova vodka, Havana Club Cuban rum, Beefeater and Seagram's gins). In 2005 it allied with Fortune Brands to acquisition its competitor Allied Domecq which had been the second largest spirits producer after Diageo until then.

6 Marketing Mix

6.1 Advertising/Promotion

As competition in the alcoholic beverage industry is quite high, advertising and promotion activities play an important role. Generic advertising are not very useful in this industry sector. Bacardi uses a pull strategy and extremely depends on promotion. The advertisement spending outside the US in 2000, for example, accounted for $129 million (source: Advertising Age, Table 15.2., p. 424, Global Marketing). 7

They also profit from one of the world's top advertising organisations, the WPP group, with its headquarters in London. Bacardi is actively engaged in sponsoring music and sports events, to communicate its brand. However, the Bacardi group competes in a crowded music sponsorship market in which rival spirits marketers Jim Beam and Jack Daniels already have a grip. Marketing will focus on driving presence and recognition of Bacardi's two strongest symbols ­ its bottle and logo. A new global advertising campaign was being launched in Australia, in November 2005, which featured artists with a musical theme. Known for using sexual imagery in its advertising, Bacardi changed its advertisements, as well: "The Way It Should B" focuses on ordinary people. This change in direction marks a new stage in Bacardi's relationship with its customers. The company has also done some co-branding with one of the world's most famous brands, Coca Cola. In 1966, the Coca-Cola Company agreed to advertise with them. Co-branding may help usage extension, like it was the case with Bacardi and Coke advertising together. This helped Bacardi's market penetration strategy because the advertisements demonstrated another way to drink Bacardi. Thus the pairing benefited Coke.

6.2 Product

In terms of product strategy, Bacardi follows a uniform product design, whether concerning the liquor itself or the packaging, without any exemption. This is achieved by a centralized facility, the Bacardi-Martini Product Development Laboratory in Jacksonville, which designs and develops all new products and product changes, too. Bacardi's product portfolio includes such well-known brands as Bacardi rum, Bacardi Breezer, Bombay Sapphire gin, Dewar's Scotch whisky, Martini & Rossi vermouth just to name a few. Grey Goose vodka recently joined the Bacardi brand family as a new member to complete Bacardi's portfolio. All of Bacardi's products are sold worldwide with the only 8

exception of Bacardi Añejo and Bacardi Solera who were only introduced to the Hispanic market (Popp, 2005). Products are positioned in the high-end, premium segment and highly depend on brand recognition as well as Bacardi's consumer perception of prestige. Before it launches a new product, it conducts focus groups and tests the market for a quick evaluation of the products appeal. This includes the evaluation, the choice of the according distribution channel and the adequate packaging to ensure success. As Bacardi's success has shown, packaging plays an important role in the product's image, which legitimate the amount spend on research in that field to represent the wanted and expected image of the consumer. Due to standardization of the packaging, many efficiencies and synergies have been achieved, which results today in the non-customization of Bacardi's products. According to Bacardi, its portfolio consists of six major core brands, namely Bacarid Rum, The House of Dewar's, Bombay & Bombay Sapphire Gin, Martini & Rossi, imported liqueurs and Cazadores tequila. One of Bacardi's most successful product launches in the recent years has been the flavoured mix-drink Bacardi Breezer. It was a very sufficient exploitation of the flavour fad that occurred during the mid 1990s, which developed into a continuous trend. May it once been only on one single brand it has today changed to a small and highly lucrative set of brands, of which most of them turned out to be category leaders.

6.3 Price

Managing global pricing is very difficult for most companies. With the advent of global branding, international firms are more aware of the need to set profitable global prices. As in the case of Bacardi, they rarely dictate uniform prices in every country but do establish a 9

particular pricing policy across countries- relatively higher prices for premium brands and lower prices for value brands. Factors that affect the market are normally the Income level, competition, and the buyer power of each country. Also, taxes on cigarettes and alcoholic beverages, called "sin taxes" increase the price level. Therefore, Bacardi follows a modified uniform pricing strategy, setting premium prices for their exclusive drinks. To show the effect of the Gross domestic Product of each country on the pricing of the Bacardi drinks, we compared the prices in Austria, France, Germany, UK, Italy, and the US, of one bottle Bacardi Rum (0,7litres), showing also the Income level, to analyse the changes in the price value. As table 1 in the appendix shows, the absolute prices in Italy and Austria are relatively lower than the price set in the US. Still compared in relation to the purchasing power parity (PPP) the US prices seem to be the lowest priced. What also seems to be interesting is that prices in Germany and in the UK are more or less the same, as well as their PPP. In the European Union, the relative prices tend to rise with the adequate income level. One question remains, how Bacardi is selling its products in countries, in which alcohol consumption is forbidden. If we take Morocco as an example, the results are the following: Alcoholic drinks in Morocco displayed a moderate growth during the review period recording a 5-year volume growth of 21% between 2000 and 2005, and a 5% development over 2004 to account for over 153 million litres by 2005. Similarly value sales went up by nearly 6% in the same year. This increase shows that Moroccans are interested in alcohol consumption in spite of its prohibition by the Islamic religion. As gambling venues advertise through premium Moroccan channels, alcoholic beverages also benefit from advertisement in luxurious locations. 10

Despite these restrictions, the muslim countries could be an attractive market for Bacardi. (Euromonitor, 2006)

6.4 Place/Distribution

As the past has shown Bacardi uses mostly the strategy of acquisition to ensure the distribution of its products worldwide. One such step happened in 1993 when it purchased Martini & Rossi to diversify its brand portfolio. In the course of this event it also acquired a vast distribution network in Europe, which further enhanced its possibilities to market its products. In August 2002 Bacardi-Martini Ltd. entered an agreement with Brown-Forman to advance its distribution network. This deal included the combined usage of storage, transportation, logistical expenses and distribution but still each firm kept control over their own brand portfolio. (Beverage Industry- New York: Sep 2002. Vol. 93, Iss. 9; pg. 10, 1 pgs) In addition to its existing distribution network, Bacardi starts to sell its products via the internet and offers online retailing to appeal to the fast, new generation of internet users. On the other hand distribution channels in the United States are wholly owned and operated by Bacardi U.S.A. Inc. Here every step from the import of the raw material till the placing in the respective outlet. is controlled by the Bacardi subsidiary. But still today the company is undergoing a recent change by outsourcing its in-house logistics management, which makes use of third-party carriers, to a third-party logistics service firm that uses conventional carriers. Due to changes in and enhanced technology Bacardi Bottling Corp. today offers in-time production for its clients therefore being able offer fresher products, as stock turns over every two to three weeks enabling them to store more resources for production.

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7 Conclusion

Bacardi stands for tropical feelings, is synonymous with eye-catching nightclubs, seductive dancers, and a Latin way of life- with this brand image, Bacardi became one of the biggest dominators of the world rum market. And still they are well- performing, with nearly $ 2 billion annual sales revenue. As a part of their global strategy, Bacardi tries to attract people from all over the world with attractive events, and advertisement campaigns. For example, in Thailand, where Bacardi Breezer is the flagship of the Bacardi brand, a "Bat Stage by Bacardi Breezer" campaign was rolled out at bars and pubs, where trendy brands performed and a party atmosphere was created, to bring the brand personality to life. This shows that, although Bacardi operates in the beverages industry for more than 100 years, the company goes with time, and has definitely proved consistency and success. The fruit bats, which gave the brand its symbol, turned out to be real good luck omen.

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8 Appendix

Figure 1: Major global spirits companies by volume, 2004 (ICAP, 2006)

Figure 2: Global brand shares of spirits, 2004 (ICAP, 2006)

13

Austria France United Kingdom Germany Italy United States

Bacardi price* PPP** excl. VAT- results in US $ % 11,99 minimum price 12,83 0,0382% 12,99 33615 13,903 0,0414% 13,95 29316 14,981 0,0511% 11,89 17,9 10,99 30470 30579 28760 19,033 19,8198 11,763 0,0625% 0,0648% 0,0409%

14,81

41399

14,81 Average percentage

0,0358% 0,0494%

* **

prices in the according national currency figures in international dollar

Table 1: Comparison of Bacardi Rum Prices

14

9 Resources

9.1 Articles

Alcoholic drinks: Nothing left in the bottle?, Marketing Week, May 11 2006, p. 30

Bacardi-Martini picks UK head for global role, Marketing Week, May 11 2006, p. 9

Bacardi unveils new image with ads that eschew sex. Marketing Week, Sept. 15 2005, p. 14

Campbell, D. (2002): Bacardi accused of campaign to oust Castro, The Guardian, August 15, online in the WWW under URL: cf. http://www.guardian.co.uk/cuba/story/0,11983,774849,00.html (called up on the 5th of April)

Martini revamps Web site as part of digital strategy overhaul, Marketing Week, March 30 2006, p. 3

Mulchand, S. (2004): Bacardi, Media. The Marketing and Communications Newspaper for Asia, Dec. 17 2004, p. 8-9

9.2 Online Resources

American Medical Association (2004): Alcohol Industry 101 ­ It's Structure & Organization, online in the WWW under URL: cf. http://www.alcoholpolicymd.com/pdf/AMA_Final_web_1.pdf (called up on the 5th April)

15

Bacardi denies floatation rumours, April 2003, online in the WWW under URL: cf. http://www.foodanddrinkeurope.com/news/ng.asp?id=17288-bacardi-denies-floatation (called up on the 7th of April)

Bacardi moves closer to IPO?, (2003), online in the WWW under URL: cf. http://www.foodanddrinkeurope.com/news/ng.asp?id=17721-bacardi-moves-closer (called up on the 7th April)

Company

Profile:

Diageo,

online

in

the

WWW

under

URL:

cf.

http://finance.yahoo.com/q/pr?s=deo (called up on the 10th of April)

Company

Profile:

Pernod

Ricard,

online

in

the

WWW

under

ULR:

cf.

http://biz.yahoo.com/ic/46/46900.html (called up on the 10th of April)

How Sweet It Is, Beverage Industry, April 2005, online in the WWW under URL: cf. http://bevindustry.com/content.php?s=BI/2005/04&p=14 (called up on the 8th of April)

International Center for Alcohol Policies (ICAP) (2006): The Structure of the Beverage Alcohol Industry, online in the WWW under URL: cf. http://www.icap.org/Portals/0/download/all_pdfs/ICAP_Reports_English/report17.pdf (called up on the 15th of April))

Luxner, L. (1995): PuertoRico's Bacardi gets out of Coke bottling business, Impact International, July 15, online in the WWW under URL: cf. http://www.luxner.com/cgibin/view_article.cgi?articleID=929 (called up on the 6th of April)

16

Marshak, S. (1997): Bacardi's Strategic Technology Thrust, online in the WWW under URL: cf. http://compaq.billyoungprod.com/TRK/MESS&COLL/download/domino/bacardi-95.doc (called up on the 9th of April)

PICO Far East Holdings Ltd. (2005): Annual Report, online in the WWW under URL: cf. http://www.picoworld.com/annreport2005_e.pdf (called up on the 7th April)

Popp, J. (2005): Bacardi's Breakout Year, Beverage Industry, February 2005, online in the WWW under URL: cf. http://www.bevindustry.com/content.php?s=BI/2005/02&p=10 (called up on the 5th of April)

Steadman, L. (2003): Havana laugh, Corporate Watch, Dec. 2002/Jan. 2003, online in the WWW under URL: cf. http://www.ethicalconsumer.org/magazine/corpwatch/bacardi.pdf (called up on the 5th April)

Swinburn, A. (2005): Bacardi Dances to a Different Tune, online in the WWW under URL: cf. http://www.bandt.com.au/news/20/0c037b20.asp (called up on the 5th of April)

Townsend, M. (2004): Bacardi's smooth image sourced by charges of death plots and terror, Observer, April 2004, online in the WWW under URL: cf. http://www.guardian.co.uk/print/0,,4899568-110689,00.htm (called up on the 6th of April)

Wolfe Bieler, K. (2004): Bacardi Breaks New Ground, online in the WWW under URL: cf. http://www.bevnetwork.com/pdf/FEB04_bacardi.pdf (called up on the 4th of April)

17

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