Middle-class Millennials, working with Tencent and using Big Data – Pernod Ricard's operations in China - Focus

Last week, Pernod Ricard hosted analysts, journalists and investors at its latest Capital Market Day, in China. The company outlined its ambition to double the size of the imported spirits sector in the country by 2025.

"Our vision is to build Pernod Ricard brands to become part of the everyday drinking repertoire of middle and affluent classes," Pernod Ricard's MD China Jean-Etienne Gourgues said. The group has been through "a few winter days" in the market, he admitted.

Gourgues was keen to share how Pernod has "transformed itself to adapt to the fast-changing Chinese market". He started by outlining the huge potential among middle class, upper middle class and affluent consumers, defined by the company as having a monthly household income of more than CNY8,800 (US$1,375). This equates today to around 437m consumers – by 2024, the cohort will be 611m.

Among these consumers, Gourgues said, there is a rise in sophistication and individuality, leading to new drinking occasions in China, empowered by the country's hugely-influential digital environment. He outlined several other sizeable trends, including health & wellness, smartphone connectivity and the rise of younger consumers.

"The young generation is becoming the major driver of business growth and adopting new media and consumption behaviour with new demands," he said.

Millennials in China

While many of these trends apply to Millennials in other markets, Gourgues told just-drinks there are some big differences when it comes to the country's Millennial consumer.

"Millennials [in China] have quite a lot of resources – either because they work for a tech company or because of a unique situation: most Millennials here don't have any brothers or sisters," he said. "They are single kids and most of the time, the parents are single kids, so you are concentrating the fortunes of two families - sometimes more - into one person. This is the opposite of what you see in the western world, where you divide more than you concentrate."

Younger Chinese consumers, he noted, have a level of resources "far beyond" what we see in other countries. This is good news for luxury. "Millennials represent 40% to 50% of luxury consumers in China. That's the biggest difference with Millennials in the rest of the world."

Digital ecosystems

The Millennial is never without their smartphone, particularly in China. "Under the boom of smartphone and mobile internet," Gourgues said, "consumers are using digital in every single aspect of life."

Within China, tech giants such as Tencent and Alibaba, have created digital 'ecosystems' - consumers can use connected apps within a closed loop to do everything from socialise, watch the news, shop, pay and play games.

Last year, Pernod signed a deal with Tencent to maximise exposure of its brands across digital platforms. To give you an idea of the scale of Tencent, the company's neighbouring skyscrapers in Shenzhen are connected on the 24th floor by a full-sized basketball court. The buildings, designed to accommodate around 10,000 employees, also feature a gym, a garden and the Tencent university. The company's WeChat social media and payment platform boasts 1bn monthly active users – and that's only one part of it.

"It's a partnership that we will review and renew on a yearly basis," Gourgues said. "It's a lot about media communication, content co-creation - such as TV series and shows - as well as a technological partnership."

Although he would not specify numbers, Gourgues noted that "digital is the biggest part of our investment in China in terms of communication - beyond classical advertising - and Tencent is a significant part of it".

Activations across the Tencent platform include a tie-up between Chivas and the NBA, with Tencent also holding exclusive rights to coverage in China of the US basketball league. Gourgues credited the tie-up with helping the Chivas brand return to growth in the market.

"We are leveraging NBA as one of the core elements (to reach younger consumers)," he said, describing the basketball league as the number two "passion point" for young Chinese consumers, after Chinese movies and series.

The group has also used the powerful presence of digital to create content for its other brands: "Content is king in China," said Gourgues, highlighting one of the company's biggest activations, for Absolut, with talent competition The Rap of China. "The activation achieved 2.8bn views across 12 episodes," he noted.

In 2017, Absolut also rolled out a competition to win a private party. Consumers were invited to post a three-minute video online with viewers voting for their favourite. "We started to have one or two videos and then it gained traction far beyond tier one and tier two cities. We decided for 31 December to run 100 Absolut parties in 100 different cities – up to tier six and tier seven cities." The activation stretched even beyond Pernod's distribution footprint.

Media reports after the event suggest the parties were attended by 10,000 Millennial consumers with near-5m online viewers.

Regional differences

One of the challenges in China is tackling the country's many regional differences, although the rise of big tech is making localised campaigns easier. Gourgues said the company leverages "big data and social listening", which can be done by region and by city.

Pernod prides itself on its decentralised approach, which is also true of China. "We have five regions and each region has its own sales force, marketing, finance and HR teams. We have more than 40 offices in China. We have a lot of local presence in tier one, tier two cities, even beyond that."

The China MD says the team leverages real-life experience as well as social listening and data to "try to blend our strategy as much as possible into something that makes sense locally".

Staying with data, and as part of a co-created white paper, Pernod and Tencent will provide industry insights around consumer preferences. At a meeting in the tech giant's offices, Kiki Fan, Tencent's general manager of key accounts shared findings with us, such as Champagne drinkers are not usually the people who purchase Champagne. "When you want to engage your consumer," Fan said, "your end-user might not be the person who makes the purchase. You need to be able to analyse these two different people to understand the differences, so that when you use media communication on a digital platform, you will be able to use the right content on the right platform to engage the user."

Diversifying growth opportunities

In a note following the day of presentations, Jefferies analyst Edward Mundy said the company's success with digital will help Pernod to "widen its sources of growth away from Martell and access a wider population of middle-class consumers". The results should be more diversified and sustainable sources of growth in China.

"E-commerce should accelerate growth in Absolut, Ballantines & Chivas and is an important platform to drive volume, brand awareness & consumer engagement," Mundy wrote. "The on-line strategy, therefore, is a key enabler of China's strategy, along with the establishment of two separate sales forces, one for prestige and one for premium brands."

From Tencent's many windows, the sprawling city of Shenzhen - a fishing village less than 30 years ago - stretches further than the horizon. Among its 12.5m inhabitants today, there are plenty of young, middle-class consumers; hooked on mobile connectivity and seeking to drink premium brands.

Pernod Ricard Capital Market Day 2018 - Asia overview - Focus

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