"The consolidation of the spirits industry is not over" - just-drinks speaks to Pernod Ricard's CEO of EMEA & LatAm, Gilles Bogaert

Earlier this month, Pernod Ricard's former MD of finance, Gilles Bogaert, moved to head up the group's Europe, Middle East & Africa and Latin America division. just-drinks sat down with Bogaert at the company's Capital Markets Day in China to talk about the job transition, the future of M&A and how data has changed the business.

just-drinks: What are the biggest learnings from your CFO role?

Gilles Bogaert: As I look at the last nine years, when I was MD of finance and then also operations in the last three years, it has been a fantastic period. It was after a period of a big bang for M&A - 2001-2008.

This last decade has been one of deep internal transformation for the group, It's a period where we worked a lot on reinforcing innovation, digital and putting in place operational excellence initiatives. We globalised IT, we had stronger group global coordination on operations, made some progress on resource allocation, on monitoring group performance. I worked very closely on those topics, first with [former CEO] Pierre Pringuet and then with [current CEO] Alexandre Ricard. I am happy to leave at a time when growth is accelerating and the share price is not far from its top.

I work close to finance, but finance within Pernod has always been very close to the business. My new job will allow me to get closer to the business, closer to the people, closer to the consumer. It's the right moment for me to make the switch.

j-d: Is M&A on a big scale over in the spirits industry?

GB: No, I don't think it's over. The consolidation of the industry is not over.

Pernod went from a distant number six to a strong number two. It became a global player - delivering a vision that had been built in the late '90s to become a global spirits player. We made three big acquisitions to be able to deliver that ambition. Now, we have strong brands in all key geographies.

We have been able to do some portfolio management and we have sold brands with gross profits that are not attractive any more and brands that are not core any more. At the same time, we have invested in new-to-world brands through partnerships with the pioneers who created those brands, at a time when niche, crafted brands are appealing to Millennials and new consumers. So, there was some adjustment to the portfolio - nothing as massive as what we have done before.

We also reinforced the financial strength of Pernod Ricard. We have de-leveraged the company - after the Absolut acquisition, when the financial crisis started, our leverage was more than 6x EBITDA of net debt, we had more than EUR13bn of debt. We are back to normal levels – less than 3x EBITDA. We have again the financial power to seize sizeable opportunities if they arise. But, we are not obsessed.

j-d: A lot of spirits companies are making investments in craft operations via incubator funds. Do you think that's the future of M&A?

GB: It's not the only future. I think it's part of it. We need to innovate more than in the past. It's fair to say that historically the industry tended to be a bit conservative - we have brands that are a few centuries old. It's very important to remain loyal to the roots and the history of the brand. That said, consumers today want us to bring more newness. At the same time, they want brand authenticity and brand quality.

There is space to add new brands, allowing us to target new occasions of consumption and potentially different types of consumers. But, those niche crafted brands are not going to replace big global brands - it's something complementary to what we have.

I don't think that the emergence of craft brands means global brands have no future. I believe the emergence of those brands show that if you bring newness, if you have strong product quality and authenticity and you are able to engage digitally with your consumers, you can be successful. There is no reason why you can't do this with big brands - Martell in China and Jameson in the US are very good examples of being able to have trendy brands even though they are big.

It's fair to say that so far we have concentrated on marginal adjustment of the portfolio through these kinds of partnerships. Most of these partnerships, by the way, are with a route to control because, at the end of the day, we want to be the owner of those brands. But, it's important to rely on the know-how of the entrepreneurs that created the brands and work with them for four, five, six years together before we can develop the brand for the next frontier alone.

Gilles Bogaert, Pernod Ricard, CEO  EMEA & LatAm

So, M&A in the future in the spirits industry is both about adding some small, niche, crafted brands but also potentially adding some bigger brands. There is space for both.

j-d: Your new role covers quite a big area of the world….

GB: It is big - but from a business standpoint, in terms of size of business, Asia, North America and EMEA LatAm are similar sizes. There are 45 countries in EMEA LatAm, but they are organised by management entities. We have 11 management entities - eight in Europe, two in LatAm and one in sub-Saharan Africa. The principle is that you have one core country - the largest one -  and some smaller countries reporting to the main country. It makes the link with HQ easier. That said, I cover mature markets like Western Europe, emerging markets like LatAm or Eastern Europe and also very emerging markets like sub-Saharan Africa.

Clearly, development will be a priority in Africa and in LatAm, where we want to grow our share.  I will also have the responsibility of two group categories - Tequila and gin - because they are respectively linked to two countries in my new parameter: Mexico and the UK.

Business development in both geographies, innovation, digital transformation, operational efficiency, premiumisation - these are probably the five key transversal priorities I will have across the region. I will have specific priorities depending on the management entities. At the same time, I will have the responsibility to deploy the group transversal initiative across that new parameter.

j-d: Which brands are you excited about when it comes to Latin America?

GB: Whisk(e)y and Absolut. In whisk(e)y, Chivas and Ballantines are two well-established priorities. They are gaining share in Brazil, for instance.  Also, at the lower price point, we have Passport. Jameson is also quite attractive in most geographies because it's a different way to access whisk(e)y. Then, I will also rely on some local brands that will help give some muscle to the imported portfolio.

Also, Tequila is something quite important in the northern parts of LatAm - and it has strong export potential. Gaining share in LatAm will be a key priority.

I know the continent well because I lived in Latin America for six years - I was CFO of Argentina and CFO of LatAm when it was an independent region. Also, I was CEO of Brazil.

j-d: How has the increased availability of data changed the way that you do business?

GB: It's all about consumer engagement. We have the ambition to be a truly consumer-centric company. Data helps us to know what consumers want - and don't want - and also to engage with them. It's about being smart and personalised - the way we do marketing today is very different to even five years ago.

We are more holistic in the way we engage our consumers. We use this data to create loyalty, invite consumers to events and offer them promotions to bring them to the e-commerce opportunity. We are on the right track, but there are still improvements.

j-d: How do you deal with markets where consumers are not as willing to share data about themselves?

GB: In Europe, we now have the GDPR regulation to make sure consumers give approval for data to be used. We have to adapt to what consumers want or don't want - but that's the basis of marketing.

Also, data is not just about personalised data. We can also track consumer behaviours even without having personal data, we leverage cookies. It's also a way to understand what consumers like and a way to engage with them, even if we don't know who they are.

j-d: How do you go about foreseeing external factors that may disrupt the business?

GB: What we try to foresee are new consumer trends and we try to capture those trends early - sometimes they are things that may happen in five-to-ten years. We leverage consumer insights and we also look at what's happening in other industries. We talk to sociologists, artists, we try to be better at forward-looking. Our Breakthrough Innovation Group, which we created a few years ago, their objective is to invent disruptive innovation and to look at what the world will be in 10 or 15 years time. Based on that, we develop our innovation platform, hopefully on the right topics.

Pernod Ricard Capital Market Day 2018 - Round-up

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