The just-drinks interview – Patrick Ricard and Pierre Pringuet
Pernod Ricard's purchase of Absolut is the latest of three colossal deals that have transformed the company into one of the giants of the global drinks stage. A timely moment therefore to speak with two men who have done more than anyone to shape Pernod's progress. In what is by any measure a special just-drinks interview, Olly Wehring met Patrick Ricard, Pernod Ricard's charismatic chairman and CEO, and managing director Pierre Pringuet, who takes over as CEO when Ricard steps down in November, to discuss the future for Absolut, for Pernod Ricard and what the group's journey means to Ricard, who has been there from the group's creation in 1975.
It's been a lively year so far for Pernod Ricard. The France-based wine and spirits company already boasted its fair share of headlines in the last few years, with the acquisitions of Seagram and Allied Domecq. But the company's victory in the auction for Sweden's Vin & Sprit - the owner of the Absolut vodka brand - in March surprised many, especially with Fortune Brands widely expected to come out on top. There can be little denying that the money talked, however, with Pernod bidding a whopping US$8.8bn for V&S, an amount that prompted Fortune to concede defeat.
"We are very happy (with the acquisition)," says Patrick Ricard, Pernod's chairman and CEO. Ricard notes, however, that the company was forced to choose between V&S and Stolichnaya, the SPI-owned Russian vodka brand which Pernod marketed and distributed globally outside Russia. "We first worked hard to buy Stolichnaya," he says. "It would have been easier for us, because it would have been less money, but we weren't able to conclude it in due time. We bought Absolut, which was much more money, but it's a much more transforming transaction for Pernod Ricard. We would have been very happy with Stolichnaya and we are very happy with Absolut. We always said that we would be happy with the one we will buy. The worst position would have been not to buy one."
Ricard also believes that Absolut, the leading premium vodka in the US, will require little in the way of change once it switches to Pernod's ownership. "We don't have to reposition the brand, because it's very well sold, the marketing is good and there is plenty of money to invest in the brand," he says. "There is nothing we have to do. The only difference, compared to Vin & Sprit's previous shareholder - the state of Sweden - is that probably we are a bit more demanding of our subsidiaries," he warns. "We think they could achieve bigger results."
Pierre Pringuet, Pernod's managing director who will take over as CEO when Ricard steps down from the position later this year, concurs. But Pringuet notes that the issue of flavour variants may require consideration. "My feeling is that there have been too many flavours launched one after the other - something like twice a year, recently," he says. "On the one hand, this is useful for increasing Absolut's facings in a bar, but I feel there are still too many, lending themselves to some dilution of the brand's image at the turn of the century. In 2004, they clearly refocused the strategy around the blue label original vodka. We believe that's the right direction, and V&S's management agrees with us."
Pringuet adds, however, that flavour additions will continue going forward, "but at a much lower frequency and with something that will be distinctive. The marketing activity will focus on the (original flavour) blue label. It's too early to say if there will be a reduction in the flavour portfolio as it stands, but my opinion is that there will be. The final decision, however, will be taken by the new brand owner, which is the existing Absolut team."
As already mentioned, the amount Pernod offered for V&S raised eyebrows in the spirits industry, especially at a time when the credit crunch is pushing drinks companies to cautiously keep one eye on the balance sheet. Ricard, however, does not feel the company overpaid. "If you want to buy something and you want to win," he says, "you have to put down what you can afford. We probably could have bought the company for a bit less, but we'll never know. What is certain is that we own the company - that was our first goal. We saw what we could pay for it and we offered that amount to the Swedish state. You buy once, but you keep the brand for life. In the end, a million less or a million more the first year can make a difference, but in the long-run it makes no difference."
As the global spirits market continues to consolidate, then, how is Pernod Ricard placed for further acquisitions following such a major purchase? While Pringuet believes the company will not be away from the table for long, he says it will only consider further acquisitions "as soon as our debt is back to where we feel is a necessary level, which is about four times EBITDA - at the moment it's six times. But we're used to this level. Each of the three deals we've made - Seagrams, Allied Domecq and now Absolut - we've had debt at this level, and we managed to reduce it quicker than we anticipated with the first two. We're certainly out of the buying market for a couple of months, at least," he jokes.
Meeting, as we are, in Moscow, both Ricard and Pringuet believe the Russian market offers Pernod's spirits portfolio an impressive opportunity - although maybe not for Absolut. "In consumption terms, Russia is still primarily a vodka market," Pringuet says. "Absolut will never directly compete with the cheap vodka which is drunk with meals, at room temperature, in a shot glass. Absolut will definitely be seen as a premium brand, drunk in cocktails. Even though it's a vodka, it will not be drunk as a typical Russian vodka.
"We haven't yet made plans for Absolut's positioning in Russia, but I would have in mind double-digit growth for Absolut in Russia," he continues. Pringuet is keen to stress, however, that the Russian economy is well-geared for drinks companies to succeed in the country. "The Russian economy is growing, and the currency is strengthening," he says. "The rouble rate is now 23 to the dollar, down from 27 or 28 two or three years ago. There are also investments in industry - the Government has realised that it cannot rely on oil or ore and that they have to make investments in industry."
Ricard concurs. "The entire country is moving forward, which is good for the type of product we're selling. What we're selling here in Russia compared to total consumption is peanuts. We're able to achieve double growth for several years, but to be a big company with our imported spirits will take some time."
Russia does face future challenges, however. "This country desperately needs transportation, energy and even education infrastructures," Pringuet warns. "It's critical that these steps are taken by the authorities. They have a lot of money, they save a proportion - about 25% - of the oil revenue. So the state budget is in surplus, and now it depends on the direction they choose to take for the economy's future."
Patrick Ricard, company chairman and CEO, with managing director Pierre Pringuet.
With Ricard calling time on his tenure as operational chief at Pernod in November, it seems fair to take a look at how the company has changed in his time in charge. "When we created Pernod Ricard in 1975, it was a French company with three subsidiaries - the UK, Spain and Switzerland," Ricard says. "Sales outside France were 17%, and all our profits came from France. At that time, that was the equivalent of EUR348m. Last year we were at EUR6.4bn, and France represents 11% of that.
"If sales in France were decreasing, then I'd be sad, but sales in France in that time have been quite good. That means we've had new products and new countries, so, as a Frenchman, I'm quite happy."
So, how is Ricard going to fill his time? "I'll continue as chairman," he points out, "and will be the representative of the company's largest shareholder - that will take up one-third of my time. For the rest of my time, I'm not going to work - I'll take care of my friends, pursue my hobbies - like shooting and visiting the mountains.
"I'll be both sad and glad to leave. It's sad to stop what I have done, but I will not stop completely. I'll also be glad, because my time is going to be my time."
And what of his legacy? "I don't care," he says. "I didn't work for the history, I was in charge of Pernod Ricard and the group is much bigger now today than it was before. You could say that, as a father, I'm very happy that the babies grew up well."
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