Why Bacardi North America Launched an Unusual Strategic Alliance
By Pete Carr
Brand owners often begrudge America’s three-tier system for distributing alcoholic beverages, protesting that it is archaic and lowers their profits. Still, it has remained the law of the land since Prohibition came to an end. In the system, the three tiers consist of importers or producers; distributors/wholesalers; and retailers. The regulatory regime allows for producers only to sell their products to wholesale distributors who then may only sell to retailers, and only retailers may sell to the end consumers. It keeps producers of spirits, like Bacardi, at two arms’ lengths from the end consumer. To exercise the leverage still left to them, brands have traditionally bid out their business―pitting various local and regional distributors against each other in a “divide and conquer” strategy, believing this will secure the best route-to-market deals.
But lately, the landscape has changed. M&A has forged a number of national distributors with comprehensive operational and commercial footprints. This creates fresh possibilities for brands to experiment with a new strategy: “unite and conquer”. This is precisely what Bacardi North America is doing via an unprecedented, exclusive strategic alliance with a distributor whose North American footprint covers virtually all open, control, and franchise markets.
Bacardi’s North America alliance gives unfettered access to our distributor partner’s sophisticated sales and marketing expertise, supply chain capabilities, and advanced technology―a recent example being their trademark online platform, which we now use for joint customer order management and building bridges between our brand and on- and off-premise customers. This best-practice platform allows our distributor’s salesforce to focus on higher-value consultative marketing and selling with their customers—versus the lower-value administrative activities of the past.
Similarly, joint business planning and vendor-managed inventory initiatives have delivered improved supply chain visibility, highly efficient demand planning, and substantially smoother execution on promotions and product launches. Most recently, when the COVID-19 pandemic disrupted nearly everyone’s business operations, our alliance was able to make finely coordinated, real-time adjustments across our entire nationwide footprint. Another benefit has been in building trading partner relationships within franchise and control states—which have different laws and regulations regarding the sale of spirits—allowing for closer extended-enterprise levels of collaboration.
In sum, Bacardi’s North America distributor alliance has evolved into a clear competitive advantage that improves practically everything we do, every day.
Know the System, Change the System
Before forming the alliance, Bacardi North America worked with a network of several distributors―a multi-pronged and traditional operating structure that made close cooperation on a national scale virtually impossible. In contrast, the new alliance enables a few key people to collaborate in frequent virtual meetings to size up the rapidly changing post-pandemic situation and commit to clear action plans which we can then rapidly cascade across North America. Through this unique structure, we can closely manage the entire North American footprint as a single entity, rather than as a set of disconnected “fiefdoms.” Working closely with our distributor partner, Bacardi North America is able to deftly balance inventory to address stockouts and meet priorities that others would be helpless to address.
Honestly, I imagine a lot of people expected our alliance to fail at the start… And I can see why. We broke the mold. Brands and distributors had traditionally worked at arm’s length. They had different visions, strategies, priorities, and mindsets—and often struggled to see eye-to-eye. Add to this the old adage of not wanting all our portfolio “eggs” in one distributor “basket”, and this was an unprecedented big bet―one our competitors hedged by spreading their business across multiple distributors. Our alliance would cut against the grain of everything that felt typical, familiar, and safe. We had blazed a bold, new, unproven path.
Believe me, I felt the risk. But from personal experience, I also had solid reasons to believe this big bet would pay off for Bacardi—and also for our distributor. First, they say you have to know the system to change the system. And I understood this system inside out. I had previously served as an EVP at one of the distributor’s legacy companies out of Dallas. Earlier in my career, I had worked for other wine and spirits suppliers as well as for other distributors. So I had seen how the system works from multiple vantage points. I was not operating under any illusions.
Personally, I have a lot of pride about having come from the distributor side. I love the energy, the drive, the strong personal connections distributors make with retailers, and their up-close understanding of what might excite consumers. A great distributor is a force to be reckoned with, and I wanted that force to be squarely on our side. In return, I was prepared to make Bacardi North America an ideal supplier from the distributor’s perspective. I knew both our desires and our distributor’s desires as well. This allowed me to bring the two sides closer together, to complement each other’s business, and find success together.
Grounded in Trust
In 2014, I asked the company to support my untested “unite and conquer” strategy—at a time when nearly all our competitors were still locked into the old “divide and conquer” mindset. My rationale was straightforward: by shaking up the system, we can lead Bacardi North America to new heights. I imagine they saw the risks as clearly as I did, but to their credit, they recognized the opportunity to differentiate Bacardi’s route to market strategy by doing something new and bold. I received their full support.
I also had the advantage of solid relations with the distributor’s founders, who I hoped would join us in this plunge into a new kind of partnership. I believed in their vision and, as a former executive in one of their legacy organizations, thoroughly understood the strengths and opportunities of their business. They were quick to grasp the growth and profitability potential of the envisioned partnership. The common ground of our past experience and complementary and respectful thought processes provided an essential measure of mutual trust—as well as adding confidence that we could make a strategic alliance work. It also measurably eased the processes of due diligence and dealmaking.
Trust and mutual respect spread through our respective organizations as we arrived at a common concept of a true win-win partnership. This extended to “building a better mousetrap” in both our joint route-to-market strategy and associated organization as well as breakthrough operational and performance synergies across sales, supply chain, and in the back office. All of this has led to the creation and fulfillment of a compelling, joint, long-term, Bacardi-centric brand-building vision and strategy.
To enhance shared trust, we encourage both companies’ people to “think outside the (org chart) box”—quite literally—by considering taking on roles at the partner organization. In fact, I have made distributor-side experience a stepping stone to future growth into meaningful leadership roles at Bacardi North America. More than 100 people have crossed over to work for our distributor since we launched the new model. This has proven in an invaluable way to blur the cultural lines that have traditionally divided brands from distributors, so we can become more integrated, coordinated, effective operational partners.
Innovating for Effect
As stated above, a healthy alliance must strengthen both businesses with mutual benefits—and accelerating effective, synergistic innovation is an important way to do so.
Our vendor managed inventory (VMI) system―the first of its kind in the U.S. beverage alcohol sector―is a national-scale program that centrally manages, as a single pool of inventory, both the Bacardi finished goods inventory and our distributor’s inventory of Bacardi products. We also now work from a single monthly demand forecast for every product across every market across both companies.
Through our alliance, we have achieved virtually seamless brand activation—speeding turnaround and fueling the sustained growth of Bacardi brands across North America. Closely coordinated North America launches have delivered a very high speed-to-market. And our shared Bacardi execution platform feeds shopper insights to inform key decisions around sales execution and customer service.
At the same time, we are collaborating to minimize end-to-end operations and working capital costs. We have streamlined selling, general, and administrative (SG&A) expenses to realize more effective and efficient best-in-class commercial activity across both organizations. This has been driven in part by our joint commitment to lean operations and optimized integrated supply chains. SG&A and operational efficiencies have bolstered both our and our distributor’s profit and loss statements (P&Ls). Equally important, we are working to mitigate risks by building more robust, resilient shared infrastructure and business continuity capabilities, which can effectively absorb and adapt to supply shocks.
Powering Through the Pandemic
The unique power of our strategic alliance really came into focus when Covid-19 sent broad and deep shock waves throughout our industry. During the crisis, we beat the competition; in fact, for 10 out of the 12 months of the pandemic, our business outperformed theirs. We hit the ground running as soon as we saw indicators of change in day-to-day lives, and never lost momentum as we kept pivoting during closings, re-openings, and the creation of new occasions and channels.
Among our biggest wins was accelerating our e-commerce game. Fortunately, B2B and B2C tools were already a part of our joint business strategy with our partner. For example, back in 2019, we were the first company to launch a holiday portfolio campaign on their e-commerce platform—dedicated to communicating, educating, and selling to retail customers. We knew that buying spirits with the click of an online button was the way forward, and we just needed consumers and customers to get there. And they did, quickly. Prior to the pandemic, only 1% of spirits sales were made via e-commerce. Fast forward to April 2020 and our e-commerce partners were seeing growth of 300 to 400% in online sales of our brands. The groundwork and relationships we already had in place meant we could shift resources quickly to leverage this new sales channel.
For all of these reasons and more, Bacardi North America views our distributor partnership as an unqualified success and a clear, distinct, strategic, competitive advantage. The efficacy of our alliance model has attracted other suppliers who have expressed interest in entering similar partnerships with our distributor. As an early pioneering adopter, Bacardi encourages those explorations.
Finding Your Fit
Our experience suggests the most important factor in forging successful alliances is finding a good fit. There has to be a clear alignment of visions and strategies to lay the foundation for a path to a win-win partnership—and an authentic willingness to extend trust toward that end. Both parties need to be genuinely excited by all they might achieve by joining forces, so they can commit to win-win incentives and build strong relationships across both organizations at all levels.
To emulate what Bacardi has done, a national or global supplier would also need to cultivate a relationship with a distributor that has a strong North America infrastructure and leading marketing, sales, and supply chain operations abilities. We value the breadth and strength of our partner’s capabilities in that regard.
At the same time, we admire the quality of our distributor’s character. We would recommend companies only enter a strategic alliance with a distributor whose ethos they both respect and embrace. For us, as a family-owned company for nearly 160 years and seven generations, we also took into very careful consideration the values of prospective partners. It is vital to have a shared, united approach on how to run an extended organization that always seeks to do the right thing. We were fortunate indeed to find such a natural fit with another family-owned business.
The “divide and conquer” model may still have its adherents—but “unite and conquer” opens a range of performance improvement possibilities that wine and spirits brands should not overlook. Both partners benefit from the synergies of a unified, value-driven approach as they simultaneously avoid the inefficiencies of duplication and lack of coordination. This strategy has allowed Bacardi and our partner to channel more focus and energy into building long-term brand value and equity for Bacardi’s portfolio.
Thinking about this pioneering journey down this unique path, I resonate with the closing line of Robert Frost’s famous poem: “I took the one less traveled by, And that has made all the difference.”
Pete Carr is President of Bacardi North America. He joined the firm in 2014 and heads commercial operations across the continent. Prior to joining Bacardi, he worked in commercial leadership roles on the distributor side. Pete wishes to thank Arun Kochar, a partner in the Strategic Operations and Supply Chain practice of Kearney, a global strategy and management consulting firm, for his expert contributions to this article.
