Editor's Viewpoint - Cuba-US Normalisation: Bacardi, Pernod Ricard both Winners?

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The announcement late yesterday that Cuba and the US have started on the road to normalised relations will be of particular interest to two spirits companies – one evicted from its home by the revolution, the other a co-owner of a rum because of the revolution.

News of the deal to begin normalising relations between the US and Cuba broke yesterday

News of the deal to begin normalising relations between the US and Cuba broke yesterday

When Fidel Castro's 26th of July Movement overthrew the government of President Fulgencio Batista in 1959, the Bacardi family fled Cuba, settling in Bermuda. The Arechabala family, who founded Havana Club, also left the country. Since then, Pernod Ricard has partnered with state-owned Cuba Ron to produce, market and sell Havana Club globally (except for the US), and the Arechabalas sold what little was left of their Havana Club brand to Bacardi.

What has followed has been an almighty legal tussle around the world between Bacardi and Pernod over the ownership of Havana Club. Outside of the US, the French company has emerged victorious, but it is in the US – viewed by many spirits companies as “the biggest emerging spirits market in the world”, that Bacardi has found support: It sells its own, Puerto Rico-produced Havana Club in Florida, albeit in nominal quantities. Pernod, meanwhile, can't sell its version there due to the trade embargo imposed by the US on Cuban products.

For the two companies, the restoration of relations between the two countries offers a golden sunrise: For Bacardi, it could mean a return to the family's original home after over 50 years in exile. For Pernod, it may open up the US for its Havana Club.

It would be hard to under-estimate the importance to Bacardi of its possible return to Cuba. When I spoke with the company's president, Joaquin Bacardi, earlier this year, I noted how passionately emotional he became when talk turned to the country. “Rest assured,” he told me last month, “when the embargo lifts, Bacardi is going to have a presence in Cuba again some day. There is absolutely no question of that.

Pernod, meanwhile, will be rubbing its hands together at the prospect of getting Havana Club into the US. The overall rum category is in growth, rising from global sales of 116m cases in 2006 to 154m last year, according to the IWSR. The US is also doing well: The IWSR calculates that volume sales in the country, the second largest market for rum after India, have increased from 21m cases in 2006 to just under 23.6m last year.

And, the company need not worry any more about Bacardi's version of the rum, having bypassed any legal minefield by registering the name Havanista in the US for its version.

For Bacardi, however, there is one fly in the ointment: The arrival of Havanista will surely put the squeeze on its namesake white rum, which relies heavily on the US. The country accounts for 43.6% of total brand Bacardi sales, although sales are slipping by a CAGR of 0.8% in the US between 2006 and 2011.

That the competition will grow fiercer comes as the company tries to contemporise Bacardi – and that's something Pernod is way ahead of the curve on, having long targeted people in their early 20s and the high-energy drinking occasion for Havana Club.

Today, the pair welcomed the joint Cuba-US announcement, but also sounded a note of caution. "We will need to wait and see what the impacts are," said Bacardi, while Pernod noted: "We will monitor the situation carefully.”

In the years to come, Bacardi will feel an emotional boost, but Pernod looks better placed to benefit from a sales boost.

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