Club Caribe: A new rum is born in PR
Club Caribe Distillers, LLC, already has agreements to produce bulk rum for third parties but is looking to break into the U.S. market with three new products: Club Caribe, a white rum; Black Roberts, a spiced rum, and Ron Carlos, a dark rum. The long-term goal is to bring production to plant capacity, which is 10 million gallons a year.
The startup carries a $10 million investment in private capital and will employ 25 workers initially with an annual payroll of $1 million. The distillery will be located at the site of the former Glaxo SmithKline plant in Cidra, where the company already runs a water bottling operation and has made a $30 million investment.
“We see a great opportunity to increase the demand for local rum in the United States,” said Alberto Rivera, senior vice president and principal finance officer for Club Caribe. “We are transforming the facilities of the former pharmaceutical Glaxo SmithKline, closed in Cidra in 2009, into an industrial production center.”
Economic Development & Commerce Secretary José Ramón Pérez-Riera said the new operation “will be the third rum distillery in Puerto Rico and will generate new sources of revenue for the federal rum rebate.”
The federal government returns most of the $13.50 per proof gallon tax on rum distilled in each territory and in foreign countries to Puerto Rico and the U.S. Virgin Islands. The territories keep the revenue produced in their jurisdiction, and taxes collected on foreign rum are split between the two jurisdictions based on their ratio of the U.S. market.
Puerto Rico has been sweetening its rum incentives since Captain Morgan bolted the island for the U.S. Virgin Islands and will begin selling its rum from there at the start of next year, a move that will cost about $140 million annually in rum rebate revenue. Diageo, the maker of Captain Morgan, set up shop in the neighboring territory after the government offered to basically share evenly the rum rebate revenues with the producers.
While Puerto Rico has been urging Congress to cap the amount of rum revenues that can be shared with private firms, no action has been taken and earlier this year Puerto Rico passed legislation allowing it to increase the portion of rum rebate revenues it can share with producers.
Under the new deal, bulk rum producers will receive 25 percent of rum rebate revenue from their production, while brand named rum will get up to 44 percent depending on the amount of the rum produced.
The Puerto Rico Economic Development & Commerce Department has signed a 20-year agreement with Club Caribe.
Earlier this year, it reached an agreement to ensure that production of Bacardi rum will continue on the island for the next 20 years. The government agreed to provide the rum giant with a $95 million grant from the federal rum rebate program that will be invested in the next five years to renovate its production plant in Cataño, near the capital of San Juan.
The deal also promises Bacardi production and marketing incentives that will equal 10 percent of federal rum rebates from Bacardi sales in the U.S. In return, the company has to maintain a minimum level of production in Puerto Rico for the next 20 years, an agreement that translates into more than $230 million in yearly revenue for Puerto Rico through federal rum excise taxes.
Pérez-Riera said he hopes to reach a similar deal with Destilería Serallés, the producers of Don Q, who have complained to top government officials that the deal being offered them falls short of what has been offered to Bacardi. Serallés is being hit hard by the loss of Captain Morgan, which it produces under contract with Diageo that runs out in 2012.
The Economic Development chief said Wednesday that the same deal is being offered to all producers, but that under the deal, the more rum a company produces, the greater its share of the rum rebate revenue stemming from its production.
The rum industry has created 4,500 direct and indirect jobs and provides the government with about $400 million annually in rum rebate revenue.