Beverage Industry

Bacardi's Breakout Year

February 1, 2005

Bacardi’s Breakout Year
By JAMIE POPP
Acquisitions, product launches and strong branding create record results
Coming off a year of record sales, multiple successful product launches, new packaging and the acquisition of big-name Grey Goose vodka, Bacardi U.S.A. Inc. is making headlines around the world. The wholly owned subsidiary of Bacardi Ltd., Bacardi USA in Miami is the U.S. import, sales and marketing resource for its global parent company. The past year has broadened its portfolio, but rum remains its focus. It just launched Island Breeze, a low-calorie line, and expects to debut Bacardi Big Apple, a new addition, to prove its commitment to the high-proof-flavored rum category.
In 1862, Don Facundo Bacardí Massó founded the brand and La Compañía Bacardi in Cuba. It liquidated its U.S. assets before Prohibition, and after Prohibition created its U.S. division in 1944. Since then, Bacardi USA has gone from being Bacardi Imports Inc. to Bacardi-Martini U.S.A. Inc., after it acquired Turin’s Martini & Rossi S.p.A. In 1999, the company officially shortened its name to Bacardi U.S.A. Inc.
The relationship with Martini & Rossi expanded the company’s portfolio to include wines and spirits, including vermouth. With brands purchased from Diageo plc in 1998 and its most recent $2-billion investment in Grey Goose, Bacardi USA is a leading U.S. spirits marketer.
“Grey Goose has rounded out the Bacardi USA portfolio and completed a strategic goal for the company,” says Eduardo Sardiña, president and chief executive officer of Bacardi USA and Bacardi North America. “The addition of Grey Goose has allowed Bacardi to be a significant participant in the single largest segment in distilled spirits. Grey Goose has also become the second most profitable brand in the Bacardi USA portfolio.”
In addition to the French vodka, Bacardi owns Bombay Sapphire Gin, Dewar’s White Label and Dewar’s 12 , Cazadores Blue Agave Tequila, Martini & Rossi Vermouth and Asti, and represents two premium liqueurs, Disaronno Amaretto and Drambuie. The parent  company, Bacardi Ltd., claims more than 250 brands and labels, but it retains the title of spirit and rum-market leader with Bacardi, Bacardi Gold, Bacardi Select, Bacardi 151, Bacardi 8, flavored rums Bacardi Limón, Bacardi Razz, Bacardi Cóco, Bacardi Vaníla, Bacardi O, and for the Hispanic market, Bacardi Añejo and Bacardi Solera.
“Bacardi rum is performing very well as rum continues to be one of the fastest-growing segments in the spirits industry. We’re adding a new flavor to our flavored-rum portfolio,” Sardiña says. “Grey Goose is a great addition and we expect to continue to drive sales in the United States. Vodka is the top-selling spirit in the United States, and Grey Goose leads in the ultra-premium sector of that business.
“Likewise, Bombay Sapphire performs well and has had an excellent track record under the Bacardi ownership. Sapphire’s deft marketing program, tied with design, keeps it on the cutting edge with consumers. We expect The House of Dewar’s to continue to grow in volume and share, and we see Dewar’s 12 becoming a ‘call brand.’”
According to Euromonitor International, Bacardi USA relies heavily on brand recognition and consumer perception of prestige, especially for its signature rum brands. Bombay Sapphire and Dewar’s, a blended Scotch, are held in high esteem among American consumers. Using this to its advantage, Bacardi products are positioned in the market as high-end premium offerings. But the company also recognizes the importance of appealing to a broad audience and has its hands in mixers and malternatives.
In 2002, in conjunction with Anheuser-Busch, the company decided to expand its beverage line by introducing Bacardi Silver, the malt-based flavored alcohol beverage that replaced its Bacardi Breezer line in the United States. It also introduced the highly successful medium-proof Bacardi Party Drinks line in Zombie, Hurricane, Rum Island Iced Tea and Bahama Mama flavors.
Bacardi Bottling Corp., Bacardi USA’s only production facility for Bacardi products in the United States, is located in Jacksonville, Fla. The site is privy to Bacardi Ltd.’s Bacardi-Martini Product Development Laboratory, which handles the company’s global research and development needs, and Bacardi Global Manufacturing. Needless to say, the Product Development Laboratory prides itself on product innovation, and Global Manufacturing for packaging innovation. For example, Island Breeze, was developed in the facility and will be available in stores in April.
The company’s flagship brand also has undergone some recent packaging renovations. Instead of two overlapping labels, the Bacardi signature and 1862 embossing on the front, one label with the Bat Device logo now appears on every bottle.
Bottling proof
Jacksonville-based Bacardi Bottling Corp. is one of 20 Bacardi production facilities worldwide. It boasts the only and largest manufacturing site in the U.S., with enough raw ingredients such a fructose and rum to supply the facility for one month.
High-proof rum is shipped from Puerto Rico and bottled in Florida, then distributed to centers across the country. Thirteen varieties of Bacardi products are produced in Jacksonville. Production is managed in a 225,000-square-foot space, while 80,000 square feet are dedicated to storing finished goods. Believing in the power of change and importance of efficiency, the company strives to improve its production facility every five or six years. Recent renovations include the addition of a new bottling line and warehouse space.
The company uses six lines to bottle everything from 50 ml. bottles to 750-ml. bottles at 400 bottles per minute, to 1.75-ml. bottles on a line capable of producing 280 bottles per minute. Plant employees work four days per week in two 10-hour shifts.
In addition to production and warehouse facility, Bacardi USA has a distribution center located a few miles from the plant, which handles imported product, readying it for distribution throughout the country after it passes through customs at Jacksonville’s port.
“Since the Grey Goose acquisition, all [imported] products arrive in the off-site distribution center,” says Sergio Arellano, bottling operations manager. 
Going to market
Bacardi says it places a premium on evaluating a product’s viability. It conducts focus groups, launches new products, tests the market and evaluates it quickly to avoid going two steps forward and three steps back. The company also takes steps to make sure a product is introduced in the proper channel and package to ensure its success.
The company’s global manufacturing group, which encompasses packaging, quality assurance and production, is housed in the Jacksonville facility along with the product development laboratory, which handles the liquid development.
Bacardi recognizes that packaging plays a major role in a product’s image, and dedicates time and resources to ensure that bottles reflect what its consumers want and expect. From small details such as an embossed circle at the base of the neck on all flavored rum bottles to large components such as Bacardi Limón’s clear label and indented swirls on Ciclón, Bacardi keeps up with the times.
“Trends are crossing over from one category to another, especially for high-end categories,” says Yousef Zaatar, vice president packaging, Bacardi Global Manufacturing. “Consumers are upgrading. We have liquor bottles that look like perfume. If you look at the past, the packaging was the lowest component. Over the years we saw the liquid development become more important, there was no investment in the package. During the past eight years, that trend has changed and packaging has become as important as the liquid.”
Fortunately, more packaging standardization across the Bacardi network has created more synergies and efficiencies. Regardless of the intricacies of a particular package, a packaging team is responsible for monitoring any regulatory changes and keeping the product up to date.
“The global packaging team is responsible for the Bacardi brand globally,” Zaatar says. “So if India, or Spain, or Mexico wants to develop a new package for Bacardi, the global packaging department will develop the new package for them. So far we’ve seen benefits [from increased synergies]. The efficiency and speed to market is very important to us.”
Regardless of where each new product launches or for which market it is intended, products destined for an international market are created within the company’s global product development divisions. The company’s latest tequila creation, Corzo, which was released in the U.S. market and soon will be released in Mexico, was created for future global distribution.
“We build infrastructure for certain products to build a global product strategically,” Zaatar says.
Getting the finished product on the shelf can require a number of steps, depending on where the beverage originates. In the case of Corzo, it is bottled and shipped from Corzo’s production facility in Arandas, Mexico to Bacardi Bottling Corp.’s distribution warehouse in Jacksonville, similar to other Bacardi imported products. Distribution centers receive product in the Midwest, on the East Coast, West Coast and other strategic locations in the United States, according to Zaatar. The company doesn’t customize its beverage offerings by region or country.
Fifty percent of the company’s products are shipped by rail and 50 percent are handled by common carrier. Electronic orders from sales staff in Miami are accessed by warehouse employees through the forklifts used in Jacksonville for scheduled deliveries throughout 50 states.
“Drivers pick from the order and every pallet has a barcode,” Arellano says. “They will scan the barcode, which will tell them if they are picking the right product according to the order; it also tells [the driver] what to pick in a first-in-first-out system. Orders from Miami come automatically to Jacksonville.”
The Jacksonville facility handles a small portion of export orders.
Changing from in-house logistics management with third-party carriers to a third-party logistics service provider that uses common carriers, Bacardi Bottling Corp. has reaped the benefits of increased efficiency. It also uses special software for inventory and tracking. The logistics provider and software have been important components in the company’s streamlined operation.
“Customer satisfaction is a big thing at Bacardi — top-quality products are shipped when they want it [as a result of improved logistics and technology],” says Bruce Crapse, manager of logistics and distribution at Bacardi Bottling Corp.
Technology has allowed Bacardi Bottling Corp. to offer in-time production to many of its customers. Product freshness is paramount and inventory turns every two to three weeks, according to Crapse. With less inventory in the warehouse, the facility is able to store more raw materials from its global suppliers in house.
“We have approximately 70 days supply of glass on hand, and a 60- to 90-day supply of caps and labels,” says Ron Nelson, procurement manager at Bacardi Bottling Corp. “We recently took over storing the glass.” Moving warehouse space for its imports off-site also increased the storage space that Bacardi Bottling Corp. now uses for its raw materials.
Consistent quality
Quality control personnel in Jacksonville handle local quality issues. The team ensures that the first bottle and the 1,000th bottle meet the same product specifications. The onsite Bacardi Martini Product Development facility provides a location for testing and tasting what is being produced, and it serves as an analytical resource for Bacardi Ltd.
“We have a set of guidelines we have to follow globally, and we have ‘military’ inspections on every production line,” says Jennifer Thompson, quality assurance manager at Bacardi Bottling Corp. “We adhere to those policies and standards. We have quality assurance inspectors who also make sure we stay within guidelines.”
Bacardi quality inspections are structured around a statistical sampling plan used by the military, which is based on volume and efficiency.
“You know that you have product that is meeting the standard within a certain confidence level; or you can say ‘we’re willing to accept that 2 percent of the product is outside of that range based on these results,’ or something to that effect,” Thompson says.
The division of liquid and package quality control is apparent throughout the process of creating a new product. For packaging, there is a dedicated analytical laboratory that handles quality control, production and new product analytical work as well as research. Close to 25 people work to ensure that packaging leaving the Jacksonville facility meets global standards. There also is a team dedicated to the quality of what goes into every bottle and tasters who are instrumental in determining what is acceptable.
“We have panels of people who test the flavors to make sure that product is within the tolerance of the specs,” Zaatar says. “We do all kinds of analysis on the liquid so there is a profile that is kept on file [that is used by the lab.]
Comparison and triangle tastings are done on a routine basis for products made in the United States as well as for imported products. In addition to tasting for quality assurance purposes, there are a variety of reasons the lab may taste a product.
“Depending on the product, you can have some shelf-life issues,” Thompson says. “Bacardi Gold and Superior don’t have flavor ingredients that can degrade over time, so those don’t have a shelf life. Something that can affect their taste is a packaging component that may be leaching into the product, so we make sure, prior to using any packaging component that comes into contact with the product, that it doesn’t affect the product.
Most of the tasters are trained in house, based on standards set by the sensory companies with which Bacardi has worked. In order to maintain tasting consistency, the company calibrates the standards every two years. Its chemists test the ingredients before they go into the product and the end result.
Quality assurance personnel on the global side of the business determine the policies for local quality assurance labs at each plant. If there is an issue that requires a higher ruling, global quality assurance steps in to make a decision, according to Zaatar.
“Packaging, purchasing and quality are structured the same way,” Zaatar says. “There are global groups for each area [that establish policies and procedures] and local groups handle the local issues [within the global structure.”
Innovative development
Bacardi Ltd. invests in product development, which is apparent by the expanding research and development facility connected to its largest production facility.
“The R&D process is consumer driven,” Sardiña says. “This is seen by our most recent announcement for Island Breeze by Bacardi, the original ‘lite’ spirit. Consumers are asking for more options in their lives, wanting to make smart choices while enjoying themselves. Our parent company invests strongly behind research and development, and innovation is key in our business.”
The onsite laboratory is beneficial to both the global research and development team as well as production. Analysis is provided for products that are made in the Jacksonville facility as well as for imported products. Additionally, other divisions of the Bacardi Ltd. network use the lab to test samples.
The research center in Jacksonville also provides assistance to international companies from which Bacardi imports products in the event there are complaints or concerns about quality.
Distillation, microbiology and wet chemistry are divided areas in the Jacksonville lab, where one of the most important instruments is a densitometer, which guarantees a product’s alcohol proof. The lab tests metal contents in the waters used in all the products on site as well as fusels and hard fatty acid content and carbohydrates. The equipment also can determine whether a product has artificial sweeteners or regular sweeteners present. In addition, an electronic nose detects scents that a human nose cannot.
“For us, because we introduce quite a few new products each year, it is very beneficial to have the R&D facility here,” Thompson says. “It’s difficult to go from a live batch to full-scale production so it’s very nice having them here so if there is any problem, they can solve it.”
Premium tequila launch
Designed for the luxury-brand consumer, Corzo tequila was recently introduced by Bacardi USA. The package, which was designed to reflect its Mexican roots, and premium quality have impressed patrons in premier clubs throughout the country.
“Tequila is one of the fastest-growing segments in the spirits industry, and Americans are ‘trading up,’ wanting luxury items in their lives,” says Eduardo Sardiña, president and chief executive officer of Bacardi USA and Bacardi North America. “The product is top quality and also has a stunning presentation.”
The process of making the concept a reality involves teams of product and package developers at the R&D facility in Jacksonville, Fla.
“We have a meeting at the beginning of the project with the marketing people,” says Yousef Zaatar, vice president packaging, Bacardi Global Manufacturing. “They come to us; they initiate the project. Liquid development and packaging development take place simultaneously. Once the liquid team is satisfied with what has been produced, the packaging parameters are established.”
Packaged properly
The process of creating the right package for the new product was no simple task. Zaatar and his global packaging team were involved from the beginning. Working with an agency that designed the image and a marketing team that determined the message, he worked on ensuring the production team could create what was imagined on paper.
“Eventually we had to combine [liquid and package] because I had to know the characteristics of the liquid so I could make sure the cork was compatible with the liquid, or the cap was compatible,” Zaatar says. “I needed to know if there was treatment on the bottle that might or might not interact with the liquid. I needed to know if the package needed to be protected from ultraviolet light or if the liquid was sensitive to oxygen.”
After many tries to create the bottle the designers and development team had in mind, it was taken to a glass company in Europe. The package resembles a perfume bottle and “the idea was to capture the modern art of Mexico,” Zaatar says. Corzo’s package was created by designer Fabien Baron and features high-end materials and components, which includes a tie from Japan that is secured around the opening.
“We used super-premium materials on this package,” Yousef says.
Available in Silver and Reposado varieties that are produced in Mexico, the tequila ranges from $44.95 to $54.95  per 750-ml. bottle.