just the Answer - Laurent Pillet, MD of Pernod Ricard Sub-Saharan Africa
Laurent Pillet, MD of Pernod Ricard Sub-Saharan Africa
After 18 years in Latin America, Laurent Pillet moved to sub-Saharan Africa in 2011 to head up Pernod Ricard's operations in the region. At the French company's Capital Markets Day this week, just-drinks sat down with Pillet to discuss the past, present and future for Pernod in the region.
just-drinks: How does Africa compare to Latin America?
Laurent Pillet: It's very different. LatAm is pretty much homogenous; same culture, same religion, only two languages. It's not too fragmented, considering it's made up of around 15 countries. Africa, however, is totally fragmented, with around 48 countries, you've got thousands of tribes with different languages, a lot of different religions.
Both regions were colonised in the past, but African countries gained independence in the 1960s. Latin American countries gained independence at the very beginning of the 20th Century. In this aspect, Africa is where Latin America was 40 years ago. That said, the catch-up is quite quick: Around 30% of the population in Africa today has a smart-phone, for example.
The big difference is the infrastructure: Outside South Africa and some individual countries, there aren't so many roads or ports.
j-d: What is the split for you between domestic and international spirits brands?
LP: In Africa, we almost only focus on international brands. In South Africa, we have a local brand in Martell brandy and Red Heart rum brand – the rum comes from the Caribbean, but it's a local brand. Apart from these, we're only importing international brands into Africa today.
It's changing, though. We're about to start producing some local goods in other countries outside South Africa. This is a very big opportunity – in plenty of countries, you have a lot of local spirits dominating the market. They're very affordable, because we're not paying import duties. The countries that have glass and cap manufacturing facilities are markets where we would like to produce local brands. We're not looking to buy domestic brands or to create new brands, we'll recycle the brands in our international portfolio. It's like Indian Made Foreign Liquor. In fact, India is the model that we're looking at to replicate in Africa.
j-d: Diageo's spirits strategy in the region has been led by domestic brands. Why do you approach Africa so differently?
LP: We don't have the same story as Diageo. They've been operating in Africa for around 60 years. We've not had that. By default, we've started with the international imported brands.
j-d: Your region contains many former French colonies. Has that proved a plus point?
Not really. In a way, Pernod Ricard neglected Africa for many years. We were a European company that had a stronghold in markets like Australia and the Americas. Then, in the 1990s, we decided to go for Asia. That was a key decision – we put all our resources into Asia. Then, through purchases like Seagram and Allied Domecq, we realised there were big markets in the US and in Latin America. So, we tried to develop the Americas at the start of the 21st Century. In the last two or three years, we realised that we were about to miss an opportunity in Africa. So, we're trying to catch up now.
j-d: Give us a broad idea of the sub-Saharan Africa region in the company context.
LP: Africa's contribution to group net sales is around 5%. South Africa is by far the lead country in the region. We have been there since 1994: We were nowhere else in Africa at the time. What has worked in South Africa for us in the past is resonating in other African markets.
Africa is a whisk(e)y continent – the category dominates everywhere. In South Africa, there is a brandy category, but it's declining quite rapidly. In the eastern part of Africa, the Anglo-Saxon part, gin has always been important. Then, on the French side, it's pretty much about French wines and whisk(e)y.
Beer is all over the continent. The big guys have bought pretty much everything in Africa. Of what is left, none of is is affordable to us, so there is no point in us making an acquisition. The only thing along the lines of beer that could give scale to our business is cider, which is big stuff in Africa. But, we are not there.
j-d: Is the lack of a beer presence in Africa a disadvantage?
LP: When you have a beer system and a logistic arm, you can put spirits in it. It's not a natural fit, you have to almost force your customer to hold stocks. It can work, but you need to have the beer system first. When you work the other way – spirits is totally different to beer, with high margins on small volumes – we take care of the structure costs, but it's not as much of an obsession as it is for the beer guys. It's very difficult to retro-adapt yourself to the beer environment. That said, we have some very good relationships with some beer operators in Africa, such as Castel in Cameroon. We are exclusive with them in Cameroon, we have put some people in their organisation to promote our spirits internally. The results are spectacular.
Castel does direct, door-to-door delivery – that's not normally the case for beer operations, who tend to work with re-distributors or wholesalers.
j-d: Can we expect more of these kind of partnerships?
LP: We are speaking with Castel now to extend the relationship into other countries. Cameroon was a pilot that we started about two years ago. The key factor of success is their delivery model, so we're looking at the markets where they implement the same model. We'll hopefully be able to make an announcement along these lines in other western African countries in a couple of months.
j-d: Two years ago, Pernod began setting up its own subsidiaries in some markets. How has this performed and what future plans do you have?
LP: In the last 12 to 18 months, we've put our own people on the ground in Namibia, Angola, Ghana, Nigeria and Kenya. It's been particularly successful to date. The intention would be to look at the opportunities market-by-market and, in the absence of setting up our own operations, we'd consider solutions like a joint-venture or a third-party distribution deal.
We've de-leveraged on ex-pats and and have made a lot of progress in recruiting local talent. When you look at the executive committees at our newly-created affiliates, with the exception of the MD, all of them are local talent.
j-d: What's the preferred solution for you?
LP: It's horses for courses, you have to look at the markets individually. There's no one size fits all. We do prefer to sell our brands with our people. We're not interested in buying third-party distributors. We don't need to buy a distribution skill-set, we already have it. We would look at potential local acquisitions, but again there's not too much to buy. Our main competitor has done a great job on that: Diageo has acquired a lot of local brands in many countries. So, there's not much left for us.
j-d: Do you own any production facilities in sub-Saharan Africa?
LP: Not at all. Again, wheels and walls are not our speciality, we realised that a long time ago. In sub-Saharan Africa, we use co-packers and, in the future, our new products, which are very close to launch will be done by co-packers. That said, we don't give the full responsibility for production to the co-packers. We source the raw materials and the liquid ourselves, and we have people inside the co-packer companies to do the blending.
We try to put our cash behind the brands rather than into wheels and walls. That's certainly a way to speed up the development of our company in Africa. We can't afford to invest too much in facilities, when there's a branding exercise and a point-of-sales battle that we need to win.
j-d: What's your forecast for the region in the years ahead?
LP: Our share of market inside Pernod Ricard will certainly grow quite rapidly, and even faster if the rest of the world is not growing so fast. We haven't set a target but, by 2017, we want to double net sales from Africa from last year's levels. We're in a good way to do that and are experiencing extremely rapid growth, albeit from a small base.
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