Lifting the lid on Bacardi
Campaign News | Monday, 1 July 2002
Rum giant pays bars not to sell Cuban rival
Lifting the lid on Bacardí
Rum giant pays bars not to sell Cuban rival
Over the past few issues we have been following closely the Bacardí campaign
against the Cuban rum Havana Club.
Now for the first time we can reveal the truth behind this commercial
vendetta and make some startling revelations.
In this article, investigative reporter Laura Milne reveals how Bacardí is
now under the gaze of the Office of Fair Trading for offering "exclusivity
deals" to various rum outlets up and down the country.
These include Cuban theme bars and restaurants but the latest and biggest of
these is a £625,000 sweetener for the National Union of Students purchasing
company NUSSL, paid out in return for them not buying Havana Club.
It means that Student Unions will in future effectively be obliged to sell
Bacardí and not Havana Club, a move which could be illegal under new
anti-competition legislation.
This article also contains background information about how Bacardí was
linked to the formulation of the Helms Burton Law. It proves that CSC has
been correct in its leaflet 'Think before You Drink Bacardí' which says that
by its actions Bacardí is helping to keep alive a policy that the UN has
condemned as illegal and the US Association of World Health has said causes
deaths among children.
STUDENTS are not normally shy when it comes to defending their political
beliefs and British students are no exception. Whether they are boycotting
Barclays Bank over its links to apartheid South Africa or demonstrating
against "Margaret Thatcher, the milk snatcher' British students have never
been afraid to voice an opinion - until now.
Last month the commercial arm of the National Union of Students voted to
accept a three-year sole supply deal with Bacardí, the world's largest rum
company. The deal, worth around £625,000, means that student bars will in
future only stock Bacardí white rum and not Havana Club, its emerging Cuban
rival.
Unless individual Student Unions vote to ban Bacardí, they will be only be
supplied with it and be effectively denied Havana Club, which is produced by
the Cuban government in partnership with French drinks giant Pernod Ricard.
Lawyers for Pernod-Ricard are now examining whether Bacardí's "exclusivity
deal" with the NUS contravenes new competition legislation. Bacardí already
has 95 per cent of the student white rum market and could be guilty of
abusing its dominant market position.
The decision to accept the deal has sparked a row in the NUS. Last year,
student unions from Oxford, Sheffield, London and Middlesex universities
asked the NUS to stop buying Bacardí in line with its ethical mandate. Their
concerns centred on Bacardí's links to the extreme right wing Cuban American
National Foundation (CANF) who have been associated with terrorist activities
aimed at destabilising Cuba and its tourist trade.
The universities who have opposed the deal have called the NUS 'morally
bankrupt'. They claim it has allowed its commercial arm to commit students
to a deal, which contravenes the ethical mandate. Annaliese Dodds, president
of the Oxford student union says, "how can they speak out against other
companies like Nestle when they have accepted this deal."
Their concerns prompted the NUS ethics committee to ask Bacardí a series of
probing questions last year. Interestingly the questions were submitted
before Bacardí's approach to the NUS with its three-year sole supply deal.
As part of the ethical study Bacardí was asked about its involvement in the
formulation of anti Cuban legislation in the US and its funding of the Cuban
American National Foundation (CANF) based in Miami. In a carefully worded
reply, the drinks giant makes some revealing admissions.
n Bacardí admitted that it has 'historically supported' the 38 year old US
blockade of Cuba as a method of establishing democracy and human rights in
Cuba. The blockade has been condemned for eight consecutive years by the
United Nations for violating principles of international law and the UN
charter. The British government supports this ruling.
n Bacardí also admitted donating money to CANF, a US government funded body
with extreme right wing views. It boasts high profile supporters, like the
singer Gloria Estefan and it was at the centre of the political tug-of-war
over the Cuban boy, Elián González. CANF is also accused by the Cuban
government of sponsoring terrorist attacks in Havana, including the bombing
of hotels in 1997 which killed an Italian businessman. Bacardí told the NUS
none of its officers or directors have any position with CANF but employees
and shareholders act in a "personal capacity."
n Bacardí's outside lawyers helped draft the controversial 1996 Helms-Burton
Act, which tightened the US blockade and was designed, say critics, to
protect Bacardí's commercial interests and undermine the Cuban government.
Ignacio Sanchez was one of those lawyers. Based in the Miami office of the
New York law firm Kelley Drye and Warren, he worked on the Helms team
drafting the most controversial sections of the Act. Sanchez is also a
trustee of the Cuban American National Foundation. His law firm is a charter
member of the US-Cuba Business Council. Bacardí have denied that Sanchez was
acting for them when he worked in the Helms-Burton law but the company has
admitted that it released its own lawyers to advise on drafting the bill.
Bacardí anticipates a large commercial and political role for itself in a
Cuba without Castro or socialism. The company claims it was "driven out at
gunpoint" in October 1960, after 98 years, while the distillery was still in
full production. No compensation was made or offered, it told the NUS. The
Cuban government maintain that Bacardí's owners and managers fled Cuba for
the US soon after the revolution leaving the rum plants abandoned. It claims
Bacardí is unwilling to take up its offer to resolve the issue at an
international tribunal.
Annaliese Dodds says, "Money shouldn't be blinding people in the NUS to the
ethical implications. They haven't looked at it properly." Ms Dodds believes
the NUS should not leave decisions which affect its ethical mandate to its
commercial arm.
The NUS is only the latest battleground in a long-running dispute between the
drinks giant and the Cuban government, which has so far involved the US
government, the European Union and the World Trade Organisation. Since 1997
the Castro government has been locked in a multi-million dollar battle with
Bacardí over the rights to market 'Havana Club' rum.
The Arechabala family first registered the 'Havana Club' trademark in 1935.
Originally from the Basque region in Spain, they began making rum in Cuba as
an offshoot of their sugar and molasses business. By the 1950's the company
was running into difficulties and the family began to allow the trademark to
lapse. After the revolution in 1959 the Cuban government took over the
distillery, nationalised it and claimed the trademark. They went on to
register it in over 80 countries including the US in 1976. Since 1993, it
has marketed Havana Club in partnership with Pernod-Ricard. Since then
Havana Club rum sales have increased tenfold selling around a million cases a
year world-wide.
Bacardí has closely monitored the growing success of the venture. In 1997 the
company responded by 'buying' the trademark from the Arechabalas but not
before they had launched their own version of "Havana Club" which went on
sale in the US in 1996. They also lobbied for and invoked a series of
controversial laws in the US, which penalise foreign companies like
Pernod-Ricard for investing in its former properties in Cuba.
In July 1999, on behalf of Pernod-Ricard, the European Union filed a
trademark infringement complaint against the United States at the World Trade
Organisation. The focus of its complaint was the violation of an
international trademark pact under which the US and other WTO members pledge
to treat all countries, including Cuba equally.
Now the dispute has reached Britain where the white rum market is worth
850,000 cases a year. Bacardí enjoys the dominant market position while the
Havana Club brand was still virtually unknown until last year, with sales
barely reaching 5,000 cases a year.
As the rum wars heat up, lawyers for Pernod-Ricard are now examining whether
Bacardí has been abusing its dominant market position by offering
'exclusivity deals' to bars across the UK.
The new Competition Act, which came into force in March, gives the Office of
Fair Trading powers to clamp down on secret price fixing, cartels and
bullying tactics by large companies aimed at driving smaller competitors out
of business. Competition lawyers believe that the biggest impact of the Act
will come from the OFT's new powers to stamp out the abuse of a dominant
market as opposed to blatant price fixing.
An OFT spokeswoman said that up until now, they had been forced to play by
gentleman's rules. "First we had to find the anti-trust abuses, then we had
to take the companies to court to ask them to stop doing it. Only if a
company then broke a court order could we fine it. All that has radically
changed."
According to Doug Nave, a partner specialising in EU competition law, with
law firm Weil, Gotshal & Manges, "companies in a dominant market position
have special responsibilities not to restrict or attempt to exclude the
activities of smaller competitors."
He also explains that while 'exclusivity deals' are common, in certain
circumstances they can be illegal, "It depends on two things. Firstly if the
company holds the dominant market position, it may well be illegal. It also
depends on the length of time the agreement is for. For example, an
agreement to deal exclusively for one week is not the same as one that lasts
for five years."
Derrick Sutherland, owner of Cuba Norte bar in Edinburgh says he was offered
cash by a sales representative from Bacardí in return for taking Havana Club
off the shelves of his Edinburgh bar, "The sales rep said they could make it
financially worth my while. I said I wasn't interested. After he left, I
had a think about it and decided to make Havana Club my pouring rum. I don't
stock Bacardí in Cuba Norte, but I do have it in my other bars."
Jonathan Downey, owner of Match bar in central London says he turned down a
"substantial amount" of cash offered by Bacardí in return for listing the
brand. "Bacardí would love to get their brand into key West End bars like
Match, but we prefer Havana Club."
One bar which has accepted a one year sole supply deal with Bacardí, is
Cubana, a Cuban theme bar and restaurant in London. Cubana is owned by the
former Conservative MP Phillip Oppenheim. After losing his Amber Valley seat
in 1997, the former treasury minister set up the Cuban style restaurant. He
says: "Bacardí give us quite substantial support in return for only listing
their brand." On the subject of the new competition legislation he says,
"when we did the deal it was perfectly legal, but if it emerges they aren't
we will unravel."
Ian Tottman, general manager at Pernod-Ricard in the UK, says: "We are of
course disappointed that such a strong and rich competitor feels it needs to
go to almost paranoiac lengths. Such actions are against consumer choice."
A spokeswoman for the OFT confirmed recently that they have received a
complaint against Bacardí and are looking into the issue.
Both companies are keen to capitalise on the vogue for all things Cuban. The
island's status as one of this years most popular holiday destinations has
created a whole host of fashionable market trends including music, food,
cigars and of course rum. Bacardí has taken advantage of the Latino craze by
trading heavily on its Cuban roots and origins, including high profile
publicity campaigns in Britain portraying its rum as a Cuban product. The
famous bat logo carries the legend, 'established Cuba 1862' although the
small print at the bottom reveals that it is manufactured in the Bahamas.
Bacardí denies deceiving British television viewers with its ubiquitous
advertising campaign aimed at the young adult market. Student leaders claim
that Bacardí is falsely portraying itself as a product of that country, when
it is an enemy. Bacardí told the NUS it is "proud of its Cuban roots" and
regards itself as an "exiled Cuban company, driven out at gunpoint."
Bacardí have also been involved in a recent spat with film director Tony
Kaye. In line with its new image, the DJ Ray character was pensioned off and
the company commissioned Kaye to shoot a commercial in the Dominican
Republic, which features a boxing match set in 1950's Cuba. Bacardí's agency
McCann Erickson decided to reshoot the ending without consulting Kaye.
Known for being protective about his work Kaye 'declared war' on Bacardí and
McCann Erickson, "I'm going to sabotage its products" he said. He also
claims to have sided with Havana Club. "I'm now representing Havana Club
which by all accounts is a much preferred drink."
Cuban company officials say they just want their rum to compete head to head
on the world markets against Bacardí's rum. They claim that Bacardí is going
after Havana Club rum because they are afraid of the competition, a charge
that a Bacardí spokesman says they find ridiculous. "When you see Bacardí
selling 20 million cases around the world and someone is going to complain
that the reason we're doing all this is because we're scared of someone that
claims to be selling one million cases. It just doesn't add up."
It might not add up now but given that President Clinton has been hinting at
changes in US policy towards Cuba, in five years time it might be a different
story.
