Interview

"Not being in the American whiskey category has been something we wanted to change" - just-drinks speaks to Pernod Ricard CFO Helene de Tissot - Part II

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In the first part of our exclusive interview with Pernod Ricard CFO Hélène de Tissot, we learned more about her experiences in Asia and in M&A. Here, in part two, de Tissot discusses Kentucky Bourbon, Castle Brands, Chinese whiskey and Pernod's wine operations.

just-drinks sat down with Pernod Ricard CFO Hélène de Tissot earlier this month

just-drinks sat down with Pernod Ricard CFO Hélène de Tissot earlier this month

just-drinks: Earlier this year, Pernod returned to Kentucky Bourbon in buying a majority stake in Rabbit Hole Whiskey, ten years after selling Wild Turkey. Is this the year that Pernod admits it was wrong to sell Wild Turkey?

Hélène de Tissot: I don't think it was a mistake. You need to look at what the options were at the time of making that choice. We were revisiting our portfolio as well as deleveraging.

In the US, we want to deliver more, we want to beat the market, that's our ambition. Having said that, not being in the American whiskey category has been something we wanted to change. That's what we've been doing with these bolt-on acquisitions.

j-d: Then, last month, Pernod made another Kentucky Bourbon play, lining up the acquisition of Castle Brands. The US company has a handful of other spirits brands beyond Jefferson's Bourbon.

HdT: It's too early for me to comment on this. The offer is being launched in the coming days - we have a process we have to go through. Our intention is to buy the full company and to merge it into our affiliate in the US.

Jefferson's is the most strategic brand for us to add to our portfolio.

j-d: What do you intend to do with Castle's Irish whiskey brands, Clontarf and Knappogue?

HdT: Irish whiskey isn't the priority of this acquisition, for sure. But, it's very early days: We first need to make the acquisition happen. Then, we'll see what we can do with those brands.

j-d: Staying with acquisitions, Pernod has been busy recently in Spain, buying two e-commerce platforms in the space of a year.

HdT: We want to really fast-track the e-commerce opportunity, not only in Spain but also in other markets, through our Drinks & Co platform. It's a question of whether we invest capital expenditure or make an acquisition, or both. It depends on how much you can accelerate your e-commerce strategy with this type of acquisition.

j-d: Why the increased interest in the route-to-consumer?

HdT: We want to be relevant to consumers beyond the more traditional channels. E-commerce is growing for our industry and we want to be part of it. Building our own platform is very relevant, so we've been accelerating our e-commerce strategy through these two acquisitions.

Our strategy here is much more global than just Spain.

j-d: August was a busy month for Pernod, with plans announced to build a whisky distillery in China. You've pledged to invest US$150m in the project over ten years.  Considering Edrington's outlay of almost $190m on The Macallan's new distillery last year, that's quite a small spend.

HdT: We're building a new business and a new brand. It's a starting point. For us, it is a significant investment. If we're successful, we can probably spend more. This is just the beginning. The intention is to show that we are doing things in an ambitious way.

j-d: Will the Chinese whisky be limited only to domestic availability?

HdT: Let's age the product, taste it, and then see. We'll start with the domestic market then we'll see later on if there's an export opportunity. We'll start distilling in 2021 and will be ready to taste in 2023. It's obviously a different pilot to Scotland or Ireland - we'll see what the quality will be.

j-d: Turning to the US spirits market, how concerning is it to Pernod to see Diageo doing so well there (sales +5% in fiscal-2019)?

HdT: For us, what really matters is the very strong strategic priority that the US is in our 'Transform & Accelerate' plan. It's our number one market. We're extremely focused on delivering the ambition we have to beat the market. We didn't do that this year, but this was linked more to our inventory optimisation in the country, which is why our sales came in flat.

It's not changing the level of priority, in terms of investment and ambition, we're putting behind the US. We're extremely motivated to deliver on that ambition. Do we need to accelerate our investment? We did that already by increasing our A&P investment in the US. Do we need to do more? That's a good question. I think we're quite clear in terms of resources and innovations. This is a very important market for us, which is also very profitable.

The fact that our competitor is accelerating as well just shows how important this market is for many groups.

j-d: What was the reason for the flat performance in the US in your fiscal-2019?

HdT: We used the opportunity from the renewal of our wholesalers contracts, which took place in fiscal-2019. We started those negotiations about six months ago. There were things we believed we could leverage in our negotiations with wholesalers, such as our stronger activations behind our brands. Then, there are additional operational efficiencies that we are bringing into our group. The flat performance was the implementation of what we wanted to do.

We believe our route-to-market now is much stronger, more agile to launch innovations and better-positioned to monitor our price-increase strategy.

We believe our sales figures in the US will be more dynamic in fiscal-2020.

j-d: Finally, Pernod's wine performance in the 12-months to the end of June was poor - sales down by 5% overall and by 14% in the UK. How much longer can your wine operations remain core to Pernod?

HdT: That question has two different angles. What we saw in fiscal-2019 was the impact of our value strategy on wine, especially in the UK. We also faced some very competitive pressure in markets like Australia and New Zealand.

Putting this to one side, we saw a strong performance from Campo Viejo in markets like the US. Jacob's Creek also did well in some key emerging markets for us, China, India and Russia, for example.

There are trends within wine that are quite relevant to the consumer, such as low-alcohol, female consumption and the meal occasion. There are many things that make a lot of sense from a strategic point of view when we talk about our wine portfolio, whatever the short-term performance could be.

j-d: You're not alone in adopting a value strategy in wine, though.

HdT: We're ready to accept some significant delistings where we believe there is no room for value creation for us. We believe that everything we've been doing with our wine brands is consistent in terms of a value proposition to the consumer. This can support a more aggressive pricing position.

If the competition is playing the value game as well, it's usually helpful!


Expert Analysis

Key Trends in Alcoholic Beverages: Powerful changes shaping the wine, beer, spirits and alcohol-free beverages industry

Key Trends in Alcoholic Beverages: Powerful changes shaping the wine, beer, spirits and alcohol-free beverages industry

Key Trends in Alcoholic Beverages: Powerful changes shaping the wine, beer, spirits and alcohol-free beverages industry...

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