just On Call - Pernod Ricard believes China potential still “huge”
The spirits market in China is now performing along the lines of other emerging markets, according to Pernod Ricard
Pernod Ricard has quantified its claim that China is showing signs of improvement, but conceded that growth will be driven by the more “affordable” SKUs in its spirits portfolio.
Late last week, the company posted slides in both sales and profits for its fiscal-2014, with sales in China tumbling by 23%. International spirits sales in the country have been hit hard by anti-corruption measures introduced in late-2012.
Speaking in London earlier today, Pernod's CEO Pierre Pringuet conceded that the company had been surprised by the depths of the anti-extravagance programme's effects. “The decision made by the Chinese authorities to curb lavish spending and encourage a more frugal attitude among officials was deeper and wider than we anticipated,” he said.
“The authorities clearly wanted to respond to some of the frustrations of the population. Some people were clearly spending in an extravagant manner, while the wider country witnessed cases of air pollution, water pollution and food poisoning.”
Consequently, Pringuet noted, sales of Pernod's Royal Salute Scotch whisky in the higher-end KTV karaoke outlets “plummeted”.
However, the firm believes that the future outlook for international spirits in China is positive. “We now anticipate a gradual improvement of the situation for us in China,” Pringuet added.
“While our volumes were down by 20% (in the full-year), depletions were down by 13%. We are at lower inventory levels now than we were a year earlier. And, in the last quarter (three months to the end of June), we saw good signs of improvement. Martell depletions were up by 5%.”
Laurent Lacassagne, the head of Pernod's Chivas Brother's Scotch whisky unit added: “We've seen brands like Ballantine's Finest and The Glenlivet develop well in the country. The Chinese population is now moving exactly like every other emerging market.
“Yes, we probably have to adapt our business model," he added, "but the profitability of the market is still huge.”
On Russia, when asked about the threat of sanctions on imports, in light of the country's disagreements with the West over Ukraine, Pringuet said: "We have responded by importing as much as we can in order to be in a position to face any embargo."
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