In the spotlight - Bacardi & Patrón
In its elegant decanter, Patrón is a symbol of the maturing Tequila market. Its traditional 'shooter and slammer' image is long gone and in its place is a much more sophisticated drink now sipped by suits in nightclubs and trendy bars.
Yet there's nothing genteel or sophisticated about the legal bar-room brawl that broke out over the US$1bn brand last year.
The battle, which began in September last year with Bacardi launching a lawsuit against owner and co-founder Martin Crowley's estate, ended last week with the drinks giant announcing its acquisition of a "significant" - albeit unspecified - minority stake in The Patrón Spirits Company.
Bacardi initially launched the lawsuit over a disagreement regarding Crowley's stake in Patrón's parent company, Carribean Distillers Corporation (CDC). Crowley's estate had intended to spend around US$755m on educating underprivileged children around the world - a dictation from Crowley's will upon his death in 2003 - when, in January 2007, Crowley's executors agreed that co-owner John Paul DeJoria could acquire Crowley's 50% holding in CDC for $755m. Bacardi moved to block the deal, however, claiming it had a prior agreement with Crowley's executors to buy the stake for $175m.
The ferocity of the battle is surely a reflection of the rising importance of premium liquor.
Until a few years ago, the ultra-premium Tequila market scarcely existed in the US, but by 2007 it had reached nearly 2m cases, led by the phenomenal growth of Patrón.
When Tom Cruise drank it in Vanilla Sky in 2001, people took notice. Then, rappers like Snoop Dogg began mentioning Patrón in their songs.
While not paying any musical artist to mention the brand, Patrón still does not leave its marketing to chance, spending about $25m a year to promote the Tequila.
Of the 1.96m cases of US$40-plus-per-bottle Tequila shipped last year, Patrón accounted for 1.62m cases, continuing a remarkable curve, which has seen the brand enjoy a six-year CAGR (compound annual growth rate) of 49%. Its sales target this year is 1.9m cases, which should push revenues past the $1bn mark for the first time.
Whatever one may think of Patrón, the brand has helped create a new market segment for Tequila and an explosive growth that has attracted interest from the industry's heavyweights: Brown-Forman paid $776m for Herradura 18 months ago, while Gruppo Campari forked out $80m for an 80% stake in Cabo Wabo, a small-volume, luxury brand created by Sammy Hagar of Van Halen fame.
Last week's deal means Bermuda-based Bacardi can appoint its vice chairman Barry Kabalkin a seat on the board of CDC.
DeJoria will become the principal owner of CDC and an unspecified payment to Martin Crowley's estate will go to the Windsong Trust, the charity set up by Crowley prior to his death in 2003.
Upon announcing the deal, Bacardi's chairman, Facundo Bacardi paid tribute to the co-founders and congratulated them on creating an "extraordinary, hand-crafted product and achieving its enormous success in the marketplace" thanking the pair for their contribution to the growth of the Tequila industry.
Although the two companies said that they intend to operate independently from each other, and that the agreement does not provide for changes in the day-to-day operations of Patrón or in Patrón's management or distributor network, the relationship is expected to lead to "beneficial synergies".
The deal plugs a significant gap in the Bacardi portfolio and adds to the spirits giant's growing range of premium spirits. It also guarantees Patrón the kind of marketing muscle and expertise already behind Dewar's, Bombay Sapphire and Grey Goose - a powerful cocktail indeed.
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