Last year you decided to take over St. Teresa, which was on the brink of bankruptcy in August of 1999 with a net loss of 14.7 billion bolivares and a 4.6 billion bolivares debt
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Actually, it was higher than that.
Today it had gained its place of leading producer of rum in the world. So first can you give us a brief historical background on St. Teresa? Tell us what motivated you take over of the company?
Brief history. Founded in 1796 by Count of Tovar, when exploitation was already agricultural, not only sugar cane, there were many other types of products; wheat, coffee, there still is. After that it (hacienda St.Teresa) came in the family around 1885 where there was "papelon" (small lumps of brown sugar). Rum started being produced formally at the end of the 19th century. Then at the beginning of the 19th century my great-great grandfather brought the first distillery from Germany, also aging barrels from France. Then in 1909 the trademark was registered as Ron St. Teresa, the concentration continued to be on sugar and rum. In 1930 the first modern sugar mill was installed and practically twenty years later, the business separated. Sugar was the business of "El Palmar" which is "Azucar Montalban" it is twenty minutes away from La hacienda. Ron St. Teresa started concentrating on rum as a corporate business around 1950. Normally in agricultural exploitation was very diverse back then. So in 1950 rum became a Corp business. In 1982 there was a severe crisis for us because the company was highly in debt because of investments made, like new bottling lines, facilities, new distillery and there was a strong devaluation as well. The company almost went broke in the 80's. There was a turnaround situation back then, the company was able to take off. There was a boom around the early 90's, in the mid-90 the company began having trouble again. They were in major debt because the interest rates were soaring. There was a lack of leadership, in February of 1999 my brother and I stepped in.
What motivated you then to go into the company?
I was in export management. My brother was in sales. In 1995 St.Teresa bought the rest of Benedetti, which was a big distribution company. In that moment two very different philosophies combined. There was a lack of vision and direction on behalf of the board of directors. At that moment we both felt motivated. First we saw a very interesting challenge that could be taken advantaged from. We also saw the value of the company and the possibility of putting things back on track. There was the fact that this had been in the family for so long and it always had worked. Just crossing our arms to this situation would have been sad. The results of a commitment with the past and with the future not only with our family roots but also for what St.Teresa represented to Venezuela.
What were the financial interests in St. Teresa? I think your family owned seventy-percent?
There was almost twenty percent belonging to ALLIED-domecq, they own brands like Valentine Beefeaters, there was a strategic alliance with them. In 1993 it did not work out. In 1999 we could see that the company still had significant sales, the volume of sales was high close to forty million dollars a year in net sales. Because there was no leadership we had lost opportunities. The reason the company was falling apart was because the structure of it was too heavy. By stripping it apart quickly there was a better chance of saving the company. The other motivation would be saving 200 years of history; we saved an entire community, because the community of "El Consejo" in this area depends on the company.
How many employees work for St.Teresa at the moment?
In the company there are 335 employees. We have been successful so far because we broke patterns. We had to change ways of thinking, change ways one focuses and confronts a problem or situation. In the worst crisis one always gets the best opportunities to prove them. An example of this was the invasions on our lands lately, but that was solved and that too became an opportunity to learn and grow from.
What was the restructuring of the organization of financial partners and the restructuring of the organization itself (in the Consejo) like?
In the negotiation with financial partners, the approach has always been the same one and quite disarming as a matter of fact. The method of the truth, the problem we had before was a management who was embarrassed with what they had, they were uncomfortable. In Venezuela anyone with certain social status drinks whiskey. If you are a rum drinker it is considered embarrassing. Venezuela has always been traditionally a rum drinking and producing country. Then came the booming years of the oil and the money that came along with it. Venezuela became an import-oriented country, where we started believing anything imported was good, national was bad during, that time everyone began drinking whiskey. So maybe you would prefer rum but socially you drank whiskey.
The management and directors seem embarrassed to be on the board of a rum company. They did not believe in what they were doing. They felt as if they were doing the stockholders a favor. We approached the negotiation with our financial counterparts. The formal management had done it with this particular embarrassment not only caused by the company they represented but also about talking about the truth in general. They seem frighten to explain what was happening, what was the capacity of the company, what was needed to be done in order to save the company. This sent out a very negative message. When we came into the picture all this changed. We came talking about the problems. We told them we were practically broke, but if we could count on their support, the SENIAT's cooperation in helping in the restructuring process maybe we could still save the company. If we could convince the workers to do the same, convince the suppliers to take in some of the sacrifices being made. Since the beginning the attitude was all about putting the truth in front of us. It is very obliging when someone on the other side is being completely honest about the situation. The plan we were showing inspired confidence and credibility St. Teresa was willing to sacrifice all they could. Then things made a lot of sense to them. We got rid of the excess; five regional offices were closed. We cut the payroll down by fifty percent. We centralized operations and focussed on corporate rum business. That was the basis of the restructing program. Getting things back on track, focusing on one objective at a time. Shareholders were asked to put in the part by capitalizing debts. Banks represented credibility in other negotiations so we worked together in the restructuring program. That gave continuity to the company. We were sure we could bring to the table Seniat (tax authority), suppliers, the labor force. When we agreed on that it was easier to bring the debtors around.
Talk about the present structure of the company. Who are the members of stocks? How is the management divided?
Seventy percent of those shares belong to the Vollmer family. Twenty percent belong (according to the book of shareholders) to Allied-domecq, they commissioned us to work with that twenty percent, see if we can place it with other investors. There is five percent belonging to the Benedetti family, another five percent is on the stock market.
After the restructuring program is done this will all vary slightly. The banks will have thirteen to fifteen percent maximums. The Vollmer family will have their shares reduce to a sixty-five percent. That amount of shares of Allied-domecq would proportionally go into the market, but we are not sure. This way there will be more activity on the stock market. Since we started the restructuring program there has not been any transaction on the market, because no one is selling because of the prices.
So you believe you have a future in the stock market?
Yes I think so.
Despite what that the analysts say about the stock market being stuck?
It does not have to do with the stock Market. It is about St.Teresa and where the company is headed. The reason I believe in the improvement in the price of the share is because there is a definite direction in the company. Its' strength and leadership in Venezuela. It is also the only Venezuelan rum owned company. Completely Venezuelan. The competitions are United Distillers, "Pampero" and they are closing operations in Venezuela. There is "Cacique" belonging to Seagram just bought by Vivendi. Palma just bought "El Muko". We are important, when they are all changing around we are trying to move forward. Internationally we want to focus on premium aged rum products. That is our vision and mission together. One of the growing categories in the world is that of rum, aged rum specially. For the moment there is no international leader. In the case of Vodka, everyone knows who's out there, which owns the image of premium producer. There is Bacardi, which is the biggest selling brand, but they too are still trying to get into the premium made rum category and they have not been able to. The consumer's perception is that of cheap rum. We can go after that segment. Internationally being an independent company that is one of the things we look to defend.
| When everything is becoming so global, controlled by multinational it is appealing to be an independent company. Finding our way alone. 200 years of tradition backed up by an excellent product. Concentrate on a niche that has not been taken out yet.
What is the strategy?
We want to concentrate on the high value markets, where the rum is at growth. With a strong base you can become strong internationally. In Venezuela there are so many problems going on and maybe because of this, everyone recommends to look on exports as an alternative. Seeing the situation in Venezuela. We must focus in growing horizontally, taking market shares from Cacique and Pampero. Trying to achieve the client-consumer commitment nationally. Establish a strong leadership in Venezuela from that as base built the export market more successfully. Without having to depend on the export market to grow, we will depend on our base. The next step would be to focus on brand. Potential markets with a lot of growing capacity like Spain, where our products are being distributed since last September. The growth has been quite significant, last year we were doing close to 5000 cases a year. This year was doing close to 70000 cases a year. The fact is that it is an interesting market. Also the Canary Islands are a rum market as well as Italy and the U.S. In the U.S there is an existing growth in the rum market. Another possibility could be Germany and England.
Could you give us some figures? What is the volume of exports?
Production wise ten percent is exports and ninety percent is national market. Three years ago it only two percent was exports. There has been an increase. There is a big possibility of growing in Europe and the U.S in the next three to four years. The export forecast we have is to reach close to 400,000 cases in five years. Our objective is the international markets, we will do this by finding a good partner in the country that helps us get into the market, knows the market and can become a long term partner. One must also be very intelligent with the resources, the funds that one plans to invest in the market. Quality recognition, premium recognition etc. All this should be done in a focus matter. For example if we want to get into the U.S market, we will focus on one brand, built that brand slowly at first then back it. From the bottom up.
Regarding the financial results of the economy, last year it was under restructuring, this year you are finishing the financial excersive. What are your expectations for this year?
Last year for every hundred bolivares we were selling, we were losing thirty-one bolivares. This year for every hundred bolivares sold (so far since June) we are earning seventy bolivares. It is a radical change. We cut down cost dramatically, administration expensive as any other unnecessary expense. We have increased prices and focused on the steps of the restructure, so we could understand how the financial situation was going to be like this year. First we decided we needed to recover, we did this by taking over the management of the company. By controlling the direction in which the company was headed. That took about two to three months, we had our parameters put in clear and analyze the numbers to get an idea of what we were doing which is not always easy. We went into a renegociation phrase, with the bank, the tax authority, workers, suppliers. Our last phrase of change I called it the "Conuco" which is a slash and burn method use by farmers. First they cut he trees, then burn them and finally pull out the roots. Then one can began the sowing process again. What we did was cut the cost and burned the culture around rum. We started sowing a new culture in the company. Redefine the vision, not changing it just making sure it stays on line. And what ever becomes excess to the company cut it once more. Communicate inside the company. Put together a new team, who believes in changes of this kind. People who are open to challenges.
We are putting together a new team. In the financial area we put someone who is very experienced number wise especially with the changes that took place with the restructuring and modernizing. The difficulty is having the changes reach every single person in the company. Production would be the next area we must concentrate on. Right now we are negotiating with the Union. It all went well. We brought the Harvard negotiation project called CMI to give several workshops on negotiation with the Union and the management. After we prepared a program that led us to these radical changes. They have been through a negotiation process that is taken about three months. We are still discussing options to later work on those options to see its outcome. The result was the change of attitude coming from everyone. I would and go out talk to the workers who then would participate in the negotiation. People got the chance to seem themselves as part of the future of the company. Through the eyes of Excellency and perfection everyday. I want everyone to feel that need for perfection so all the workers have the same vision, motivation, and intention, above all they will enjoy their work. On the commercial side we are competing with the giants there is still a lot of training to be done. A lot of professional work must be done as well. One can never feel too comfortable, which is a good thing, it makes you more efficient. In the commercial area of the company one of the things we must work on is growing, new strategies, effective tactics. Work on the partnership with our client, that is an area where the multinationals have failed. They have lost their clients' cooperation; we want to win them as allies.
You are a representative of your sector, the government must be quite proud of having St. Teresa representing Venezuelan rum. Which kind of support do you get from the government, diplomatic?
The minister of external affairs and several embassies have called up for us to participate in fairs or trips, representations, cocktails in Venezuela. By the 11 of August we hope to go to the club of rum in Spain. The president Humberto Marquez, poet, writer is one of the founders this club. To a certain extent it is the only kind of support that can be expected. As for incentives and tax deductions they do exist for exportations. Venezuela must still be more aggressive in two aspects. First defend national products, not by putting high barriers. The problem in Venezuela is that the monetary current exchange rate is not leveled with the inflation rate. It is very difficult to compete. The bolivar should be a thousand bolivares per dollar but it is only six hundred and eighty bolivares per dollar. It is cheaper for someone to produce a product outside and have it imported to Venezuela. There are three to four hundred bolivares to play with. I do not believe there is going to be devaluation because the president does not believe in it. That is harming national producers. It is the reason this year more than 8000 companies have gone bankrupt. One of the competitive disadvantages that we have is the exchange rate. If Venezuela does not want to devalue than it has to find a different mechanism for national producers to succeed.
I do not believe in protecting the country from imports. There has to be a free market. But at the same time we have in our economy flaws that do not allow the Venezuelan producers to compete aggressively in the internal market. It is a problem but it will not stop us from doing what we have to do. Things must be overcome. For exports Venezuela should pick several products in different categories and focus on them. The embassies must work as commercial offices around the world. I think that tendency is already starting. We've been invited to different embassies.
Many analysst and journalist say St.Teresa's experience should represent a case to study in business schools. How do you feel being an essential part in this success story?
First a good learning experience. I think the whole process had been a good opportunity to learn and change for me. I think it gives me a lot of satisfaction to lead a change. It creates a big sense of responsibility with all the expectations that arise from something like this. It makes it all more painful if you make a mistake later on. You have to stay on your toes. This is also a big chance to create chances in other areas in St. Teresa, like in the community. It gave me the opportunity to be in contact with other levels and also for instance to participate in other situations that go on in the country with other companies. My opinion and advice have been asked several times for other companies. It is great to be able to give crazy ideas break the mold.
It was not only your motivation to take over this company, your family supported you as well.
My brother and I have always been a team that works close together. My parents were not in the country but they supported this hundred-percent. Our sisters too. One of the best things is that we have been able to work by ourselves, concentrate on what we were aiming for, of course there was the family support. Inside the company even the workers that had to be dismissed have approached me saying that if the best way they could help was by leaving they did it happily. The workers that did stay took on more work; their bonus was cut by forty percent. They made a sacrifice. The backing within the company was hundred percent Now we are seeing the results.
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