"Africa is Asia in 15 to 20 years from today" – Pernod Ricard’s future growth
Pernod Ricard posted a 7.8% increase in sales from the six months to the end of December, with the top-line rising by 5.6% in the last quarter. Olly Wehring spoke to group CEO Alex Ricard about Pernod's performance and its vision for the future.
Image Courtesy of monticello / Shutterstock.com
In February, Pernod Ricard released results about their performance in the second half of 2018 that saw sales grow by just under 8%. After a strong five years- sales at the end of fiscal-2018 had grown by 13% over end of fiscal-2014 - the group is working out how to maintain success in their core brands while opening up new markets. We spoke to the group's CEO, Alex Ricard, to find out what challenges Pernod’s brands have faced in recent years and how he sees those brands, and the group, continuing to develop into the future.
You've already said plenty about activist investors and Brexit, so let's talk about your brands and markets. Starting with Beefeater, your flagship gin increased sales by 9% in the half-year, but volumes grew at a faster rate, rising by 10%.
Beefeater's price/mix was down 1%. This is clearly driven by Spain - it's a mix issue, not a price issue. Spain is one of the most profitable markets for gin and Beefeater is the country's top-selling premium spirit brand, with sales of around one million cases. Right now, Beefeater is struggling a little bit in Spain - it's not growing as it used to, because it's achieved sizable volumes in the country. Now that the rest of the world is growing at double-digits for Beefeater, the mix impact is clearly driven by a market mix with Spain underperforming the overall performance.
Are you concerned that Beefeater could become more of a cash-generator than a growth-driver?
No. Beefeater has huge potential; it's growing double digits in around 50 countries at the moment. Outside of its two largest markets - Spain, where the brand may have plateaued somewhat, and the US, where Beefeater is not one of our strategic focus brands - the brand is flying. The brand has been revamped, there's a new campaign coming out soon, there's Beefeater 24 and there's innovation like Pink and Blood Orange. There's a lot happening behind Beefeater.
Does Pernod risk being over-reliant on just one market for its gin stable?
Within our portfolio of gin brands, Plymouth is enjoying strong growth, while Monkey 47 was up 21%. Seagram's gin is also growing quite nicely, albeit in Spain. We have a pretty strong portfolio of gin brands.
How easy is it to encourage consumers to trade up from Beefeater to your more-premium gin brands?
Our emphasis is on super-premium. That being said, Beefeater itself is one of our strategic international brands, which is driving quite a lot of the growth. In spite of the performance in Spain and the US, I believe Beefeater is up for quite a successful run in the coming months and years.
Turning to Martell, how is your Cognac brand fighting its corner against Scotch in China?
Our success story in China started with Martell. Today, it's about Martell on one side and our other premium brands on the other. We drove this to diversify our growth sources in China. Over the last 18 months, we've seen our premium brands portfolio grow very nicely in the country, while seeing good double-digit growth across all qualities for Martell. Cognac is still pulling through, while the other premium spirits brands are pulling through as well.
From the affordability point of view, as soon as you get into VSOP-plus Cognac, you're into $70 a bottle and upwards. The premium brands are nearer $20-$25, that's tapping more into middle-class Chinese consumers.
Which one is more fun?
Irrespective of the macro side of things, the underlying consumer fundamentals in China are there and they're going to stay. It would have been ballsy three years ago, when we were down about 20%, to stand up and say: China's a sustainable high-single-digit/low-double digit growth market. It's a volatile market: we might have better years and worse years, but the underlying trends are there for us to grow at that rate sustainably.
We're happy with the current conditions - it's much more sustainable.
Staying in China, you don't have anything in baijiu, do you?
We used to have a baijiu brand but we dropped out of the category. We do have a Chinese wine brand. Baijiu is an interesting beast: You have those big, multi-billion-case national brands that are 'untouchable'. Then, there are local, regional brands. To try to drive a reg ional brand nationally means you have to compete with other regional brands in their strongholds, which is quite challenging and requires a lot of investment.
We regularly look at opportunities in terms of bolt-on acquisitions. Our local team has the mandate to identify opportunities and, so far, they have not. I speak to them quite regularly, but not necessarily on this subject!
You've often spoken about the opportunities for Pernod in Africa.
We've opened seven markets in sub-Saharan Africa in the last six or seven years. Historically, we'd only been present in South Africa, since 1993. Now, we operate in Namibia, Angola, Nigeria, Kenya, Ghana and, more recently, in Mozambique.
We have a clear vision - Africa is Asia in 15 to 20 years from today. That's because of demographics, urbanisation rates and economic growth. Our business has been growing consistently in the region over the last six or seven years.
Today, our growth engines in emerging markets consist of China, India and Eastern Europe, particularly Russia. These growth markets are here to stay for quite a while. At the same time, we're investing behind Latin America, principally Brazil and Mexico, some South-East Asian markets and sub-Saharan Africa - that's the long-term play for us. This allows us to drive top-line momentum today while thinking of top-line momentum tomorrow.
In 2018, the emerging middle class passed the 50% level of total population for the first time. By 2030, there'll be an additional two billion middle-class consumers. For a business like Pernod Ricard, which has half of its operations in emerging markets, that's a perfect position to be in, especially when two-thirds of global industrial growth will be driven by China and India alone - we're clear market leaders of premium imported spirits in both. We're also the only company to have that strong a leadership position across these two markets. We're so excited about the prospects there.
We're also preparing for the future with these additional markets and that includes sub-Saharan Africa, for sure.
It was only 18 months ago that you expressed dissatisfaction with Chivas, which was in decline at the time.
I'm starting to get happy. Our strategic portfolio in Scotch grew 9% over the first half. It was good to see that Chivas was up 7%, that The Glenlivet was up 11%, that Ballantine's was up 8%, that Royal Salute was up 15%. The mix for Chivas was 2% volume growth and 5% price/mix.
I think our strategic Scotch portfolio is starting to get where we want it to be, which is good news. Also, the sources of growth for our Scotch portfolio are expanding - it's across many markets and in all regions for Pernod Ricard. That's very good to see.
We've seen many drinks CEOs prepare their departures in recent months, including at two of your competitors, Beam Suntory and Brown-Forman. You're only 46 - are you planning on sticking around for a while longer?
I'm part of that new generation in charge! I've been CEO for just over three years. I have a vision for Pernod Ricard to out-perform its industry. I'd like to bring my piece to the Pernod Ricard monument, to be part of that transformational journey until it's handed to whoever will succeed me one day.
This article originally appeared on just-drinks.