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Pernod Ricard Capital Market Day 2018 - Asia overview - Focus

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Last week, analysts, journalists and investors from around the world travelled to Shenzhen in China for Pernod Ricard's Capital Market Day. The group's management was keen to show why Asia is a "key engine" for growth and why China, in particular, remains an exciting prospect. In the first of a series of features from the event, just-drinks takes an overview of Pernod's Asia business, which posted an overall sales rise in the nine months to the end of March of 11%.

In June, Pernod Ricard held its 2018 Capital Market Day in Shenzhen, China

In June, Pernod Ricard held its 2018 Capital Market Day in Shenzhen, China

The head of Pernod Ricard Asia, Philippe Guettat, describes the Asia business as "balanced" between China (34% of sales in the region), India (33%) and Rest of Asia (33%). Indeed, Guettat flags, China and India mark "two of Pernod Ricard's battlegrounds" in Asia.

(All figures quoted are from Pernod's year-to-date results for fiscal-2018, the nine months to the end of March)

Asia performance overview

China - sales up 19% versus +2% in the same period a year prior, thanks to Martell, Chivas and the company's premium brands. (To learn more about China, read our interview with Jean-Etienne Gourgues, MD, Pernod Ricard China, coming soon).

India – up 14%, vs +1% last year. Guettat says the company has been "cycling an adverse and challenging year" in India, owing to several factors, including demonetisation in late-2016 and the highway alcohol ban in April last year. Then, there is the goods and services tax, which was introduced in July.

"This year we are back to strong ... growth," he says. In value terms, the group has around 45% of the spirits market share in India.

Within the market, Pernod is championing premium brands - including Seagram's whiskies - as well as rolling out new Royal Stag packaging, supported by marketing activations to recruit new consumers.

The third and fourth largest markets for Pernod in Asia are Korea and Japan.

Declines are slowing in Korea, Guettat says, at -6% versus -14% last year. "We are seeing an improvement in difficult trends." He flags problems with local whisky brand Imperial, which is down 9% according to market depletion reports, although he says strategic international brands are helping to improve trends.

Guettat highlights the rising prominence in the country of lower-alcohol whisky. "Today, low abv whisky (35-37% abv) accounts for more than half of whisky consumption in Korea," he says. "We have been slow to react to this trend, but we have been reacting very promptly, very aggressively with the launch of three expressions of lower abv Imperial."

The company launched Imperial 35 in December 2016, followed by Imperial D-Light and Imperial Smooth. "After 18 months," says Guettat, "the lower abv variants account for 40% of total Imperial volumes."

Elsewhere, he says, Absolut has "resumed its growth trajectory after three years of decline" in Korea, thanks to "new consumers in different channels".

"We are not there yet, but we have good reasons to be optimistic".

In Japan, Champagne and whisky contributed to a 6% sales lift vs 7% last year. Guettat points to the Chivas Mizunara expression, which is aged in Japanese oak barrels.

In Taiwan - down 9% vs 'stable' last year - the company flags a "tough market combined with general destocking in trade".

Combined, the Hong Kong and Macao special administrative regions have posted a 15% sales lift after a "stable" prior-year, driven by Martell and the Champagne brands Mumm and Perrier Jouet.

South-East Asia (excluding Thailand) marked a "strong return to growth" - up 7% compared to "stable" last year. Guettat underscores Vietnam and the Philippines as the main engines.

Thailand enjoyed 9% (vs 3%) growth, thanks to the launch of Royal Stag at the end of the country's mourning period following the death of King Bhumibol Adulyadej in October 2016 .

Brands

Martell continues to fly, with the brand maintaining its number one Cognac brand status in China and South-East Asia, with growth coming from all price segments. "It's no surprise to find strong growth is being driven by Martell, at 16%," notes Guettat.

Seagram's whiskies reported the second largest sales growth, +13%, thanks largely to India as well as "the Gulf and some adjacent geographies".

Elsewhere, Guettat says: "New news for Asia is the return to growth for Chivas - up 5% for the first nine months. China, of course, is contributing sharply to this development," he says, adding that both Japan and India are also contributing.

The group's 'premium' push saw an 8% boost for Ballantine's Finest, +6% for Absolut and +44% for Jameson, which is still in the seeding phase.

"This is our future - the premium brands across our portfolio. We are putting a lot of effort, a lot of recruitment in order to ensure sustainability and better agility of our business model," he adds.

The future in Asia

Looking forward, Guettat outlines four key growth accelerators for the Asia region: Premiumisation and luxury; innovation; routes-to-market, and new geographies.

Starting with premium & luxury, he showcases Blender's Pride Reserve Collection and Royal Stag Barrel Select in India. Both are priced 20% above the master brand and enjoyed sales increases of 30% and 36% respectively, during the nine-month period.

He said the pair are starting to show strong momentum, "recruiting consumers and helping to premiumise the brands".

Within Champagne, the company has invested behind reinforcing Perrier Jouet's brand equity in Japan, as well as "correcting a value gap" with Mumm Grand Cordon by increasing the price by 15%. "Perrier Jouet and Mumm sales doubled in the last five years [in Japan]," he says.

Martell Cordon Bleu Extra, which launched in 2016 initially as a Global Travel Retail exclusive, is now available in China. Guettat describes the new expression as a "solid trade-up proposition" to Cordon Bleu. In China, Extra carries a price index of 135, compared to Cordon Bleu at 100.

Within innovation, Guettat underscores the group's lower abv whisky play in Korea as well as the importance of locally-relevant releases. He cites the example of the Chivas Mizunara release, which he says appeals to Japanese whisky drinkers in several markets.

Staying with innovation, in Vietnam, the company has launched a premium version of Chivas 18 while, in India, Imperial Red Rum is designed to be a "superior proposition to premiumise the rum consumer."

Within routes-to-market, Pernod Ricard Cambodge – the Cambodian unit of the company – has celebrated its first year of business, with the group prioritising the country's "emerging adult middle-class" When it launched, Cambodia became Pernod's 85th market. "We became the first international company in the wine & spirits sector to have a direct importing and distributing company in Cambodia."

Both emerging middle classes and young consumers were flagged in the rationale for Pernod's new geographies presence in Myanmar, which was announced at the end of last month. Guettat flags a "large and premiumising" local whisky market.


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