DI's Christian Davis on Pernod's roundtable

16 February, 2015

Drinks International's editor Christian Davis was at Pernod Ricard's roundtable. 

New Chairman and CEO Alexandre Ricard opened the press and analysts’ briefing on the half year results 2014/25 to December 31 today (February 16), by paying tribute to his family and specifically to his uncle, Patrick who built the modern global company and died suddenly in 2012 and aunt Danièle who is chairwoman of the board of directors. He also paid tribute to his predecessor, Pierre Pringuet, whom he said had set up the company for the 21st Century.

Uncle Patrick would look down approvingly at his nephew.  With a distinct American accent having studied in the States, the new Ricard is assured and appears to have everything at his fingertips. Frankly the results are not great (see the news story on drinksint.com <http://drinksint.com> ). Sales totalled €4.621 million for the first half of Pernod’s financial year 2014/15. Sales growth amounted to a modest 1% and organic profit growth from recurring operations is between +1 and 3%.

Like its major rival, Diageo, Pernod Ricard has been hit by the Chinese government’s anti extravagance measures and by fierce competition among vodka brands in the crucial US market.

Royal Salute, Pernod’s super premium scotch whisky blend is -9% down and Absolut is -6% down.

Just as Diageo has badly misjudged its pricing policies with Smirnoff, trying to maintain premium pricing while fierce competition has driven down vodka retail prices.  So, Absolut has experienced the same. Just like Menezes at Diageo, Ricard said they would not be reducing the overall price of Absolut but would be concentrating on promotions which would involve some discounting. “Every brand in the US gets promoted,” explained Ricard. “You need to prompt consumer intake.”

He stressed Pernod’s strategy of “premiumisation” and to that end the company had set up a separate company to promote the Absolut Elyx super premium expression. “We want to focus on quality. Absolut is made in one place in southern Sweden, an area known for its winter wheat. We want the Millennials (in the US) to believe that Absolut is the best vodka in the world,” said Ricard.

On China, Ricard pointed out that sales of its cognac expression Martell Noblige have held up. Asked why Jacob’s Creek, the Australian wine brand, had fared badly in China as well as in the UK, he defended its premium positioning. “Ninety percent of (Chinese) wine consumption is local. Jacob’s Creek is in the very premium segment, compared to local wine. It is a completely different story, like baijiu. A different game completely,” said Ricard.

Spanish wine brand, Campo Viejo, has been streaking ahead followed by its New Zealand brand Brancott Estate. Meanwhile Jacob’s Creek remains in the doldrums. Pernod Ricard UK finance director, Ed Mayle put the decline down to oversupply in Australia which is forcing down prices. Ricard put is succinctly: “Three-for-£10 means that no one makes any money. We do not want to play that game.”

With wines representing 5% of Pernod Ricard’s business, Ricard explained that 70% of wine consumed in the US was Californian and the two premium regions are Napa and Sonoma valleys. Hence the company purchased the Sonoma producer, Kenwood, last year giving it “an additional half a million cases”.

Asked about travel retail, Ricard said the company was testing a concept looking beyond the boundaries of travel retail. Called the “Travel Trail’, its travel retail team was looking at known Chinese consumers before they arrived at the airport, while they are there, what they purchased and the after they have travelled, when they reach their hotel. He said once they have identified the opportunity, they will roll it out to Europe. He added that travel retail in the Americas and Asia had “had a good half”.  Whereas, Europe had suffered decline primarily due to what is happening on eastern Europe with the Ukraine, sanctions against Russia and a weak rouble.

Ricard faced intense questioning about the company’s lack of a major US whiskey brand. With Suntory buying Beam, that leaves Brown-Forman with Jack Daniel’s as an obvious future target for the world’s second largest premium drinks company.

The new CEO said the US consumer does not think in terms of sectors. He or she has a repertoire of brands they consume. “We have the largest portfolio in the industry,” Ricard claimed. “If there is an opportunity, we will look at it.  But we have a portfolio of brown spirits - North American, cognac, malts, Irish with Jameson and of course scotch. For bourbon I think we can cover with Jameson,” proposed Ricard.

“The US represents 40% of the global spirits market. We are slightly under exposed but we do have critical mass. The right price opportunity, the right time…,”  said Ricard.  He also added: “Africa is the last frontier for Pernod Ricard.”

Ricard finished the briefings and subsequent searching questions as assured as he had started. A class act. A company that appears to be in safe hands. The Ricard dynasty continues.

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