Why trio of deals could mark significant shift for Pernod Ricard in North America
Pernod has described its bid to outpace its rivals in North America as “turning a big ship” but its recent hat-trick of deals is a significant pull on the tiller, writes Richard Woodard.
Long, long ago, when I first started writing about the global drinks industry, the big story of the day was the sell-off (and carving up between Diageo and Pernod Ricard) of Seagram’s wine and spirits assets – the likes of Martell Cognac, Chivas Regal Scotch and Captain Morgan rum.
The multi-billion dollar mega-deal in late 2000 set the scene for the development of the industry over the next two decades. It cemented Diageo’s global leadership position and elevated Pernod Ricard to become the UK multinational’s nearest rival, overtaking Allied Domecq – a business it was to acquire a few years later in partnership with Fortune Brands.
The Seagram deal transformed Pernod Ricard in many ways. In terms of global footprint, it handed the business excellent routes to market in the emerging economies of Asia, something which the French group has since exploited to good effect.
Brands such as Chivas and The Glenlivet added to Pernod Ricard’s strength in the US but it still trailed Diageo by some distance. And, largely, things have stayed that way, despite the Allied buy and the acquisition of Absolut owner Vin & Sprit.
The gap has been accentuated by the unstoppable rise of Tequila. Diageo’s smart bit of trading around Cuervo, Don Julio and Bushmills – coupled with the big-money signing of George Clooney’s Casamigos – has helped it to cash in on the luxury agave boom in the US.
And Pernod Ricard? Well, it had Olmeca and Altos, and acquired Avión – but, considering Tequila in the US is now a more lucrative category than American whiskey, industry observers have cast the company in the role of spectator, more than participant.
That characterisation might help explain the mildly weary tone adopted by Ann Mukherjee, CEO of Pernod Ricard’s business in North America, during the company’s Capital Markets Day in June. “It is probably the number one thing I get asked about,” she said of the company’s perceived underrepresentation in Tequila, before putting the case for the defence: market leader in mezcal via Del Maguey, still investing behind Olmeca, Altos and Avión.
Mukherjee’s insistence Pernod Ricard “didn’t need” Tequila in order to win in the US because of the company’s diverse portfolio is an arguable point but when you’re accused of lacking ambition by only targeting mid-single-digit revenue growth in the world’s most lucrative spirits market – well, a bit more involvement in agave certainly wouldn’t hurt.
Now we have a slew of announcements from Paris in recent weeks: the financial backing for the sotol brand Nocheluna (though no equity stake), increased investment in Sovereign Brands; the acquisition of a majority stake in high-end Tequila Código 1530.
None of these deals is transformative in isolation but, taken together, they could mark a significant shift for Pernod Ricard in North America. I say “could” because there’s still a fair bit of uncertainty surrounding them.
Will Nocheluna take off? The agreement builds on Pernod Ricard’s existing association with Casa Lumbre, maker of Ojo de Tigre mezcal and Abasolo whisky. It ticks the zeitgeist boxes in terms of celebrity endorsement (rocker Lenny Kravitz), positioning (ultra-premium, US$80 a bottle) and the “Mex factor”. It isn’t agave but it might as well be in the eyes of the consumer.
The Sotol or Dasylirion plant takes years to mature and has a piña that is cooked, fermented and then distilled. With its Chihuahua desert provenance, it’s clearly to be placed in the alt-agave pigeonhole alongside mezcal, raicilla and bacanora.
As Tequila moves up the value chain – and as agave prices remain high, thanks to continued demand – this creates opportunities for alternatives, such as mezcal, sotol, raicilla and bacanora, as well as agave spirits from other origins, such as the US, South Africa and Australia.
However, there’s a long way to go. Mezcal is firmly embedded in the US consciousness but remains dwarfed by the scale of Tequila. How many Americans, so far, have even heard of sotol? Outside the US, there’s still a huge amount of work to be done to persuade the punter that even Tequila is a connoisseur spirit, rather than rough and ready headache juice. Adding sotol (et al) into the mix may only complicate that process further.
By comparison, Código 1530 is a far more obvious move. Widespread US distribution, plus a presence in about 30 overseas markets; priced at $50 for the blanco but also including a rosa, a reposado, as well as añejo and extra añejo bottlings that extend up to more than $300.
We don’t know the financial details of either transaction but Código 1530 is a firm bet an established category will continue to fly; Nocheluna a more speculative punt on something new.
Mukherjee said during that Capital Markets Day Pernod Ricard’s mission to outpace its rivals in North America was a long-term one – the metaphor was one of turning a big ship around – but these deals (plus the expanded investment in Sovereign) represent, in combination, a significant pull on the tiller. And you can bet there will be more to come.
But let’s just revisit that Seagram deal once more. Amid all the excitable chat about Chivas, Martell, The Glenlivet and Captain Morgan, Diageo also quietly picked up Seagram’s stake in another relatively unknown brand: Don Julio Tequila.
Since then, the company has acquired it outright, built enormous sales momentum and transformed into one of the jewels in its portfolio. I have no idea if, back in 2000, Don Julio was regarded as a deal-breaker by then Diageo CEO Paul Walsh – but I somehow doubt it. Had Pernod taken it instead, how might that have transformed the company’s fortunes in Tequila and, by extension, in the US?
Main image: Facebook / Codigo