Pernod profits boosted by 'premiumisation'

- Last updated on GMT

Related tags: Pernod ricard, Patrick ricard

A shift towards higher sales of premium products has helped
France's leading drinks group Pernod Ricard to post a 5.1 per cent
increase in net profits for 2004, shrugging off the impact of
exchange rate fluctuations.

The company, which is the third largest wine and spirits producer in the world, reported sales of €3.5 7 billion for the year, just 1.1 per cent higher than in 2003 as a result of foreign exchange impacts and disposals, but said that organic growth - excluding both these factors - was 5.4 per cent, a direct reflection of the shift towards more upmarket products.

Gross profits from the wine and spirits business (which accounts for all but 2.3 per cent of sales) grew by 7.1 per cent on an organic level, and rose more quickly than sales as a result of the 'premiumisation'.

This was also the reason for the solid profit growth. Net profits rose by 5.1 per cent to €487 million, and while operating profits were just 0.5 per cent higher than 2003 at €742 million, this reflected an 8.6 per cent negative impact from currency fluctuations. Organic operating profit growth was 8.9 per cent.

The move towards a greater mix of premium brands began with Pernod Ricard's acquisition of part of the Seagram portfolio back in 2000. That deal gave them two brands in particular - Chivas Regal Scotch and Martell Cognac - that have led this shift.

Both brands had always benefited from a premium image, particularly among Asian consumers, but both had also been left to stagnate a little under the Seagram management. Pernod Ricard understood the potential of the brands and immediately began investing in new marketing and promotional campaigns to support their development.

Indeed, this strategy has now been expanded to the whole of the group's portfolio, with increased marketing expenditure seen as the best way of developing brand growth in the long term, especially in light of the ever growing competition from the likes of Diageo and Allied Domecq. Organic growth in advertising and marketing expenditure during the year was 10.5 per cent, but was largely offset by the strong profit performance and tighter cost control.

It is perhaps no surprise, therefore, that the main drivers of growth for Pernod Ricard in 2004 were the Asian and American markets, where Chivas and Martell have a strong following. Chivas and Martell sales in Chinese Asia, and Chivas sales in South and Central America, were singled out for particular praise.

Patrick Ricard, chairman & CEO of Pernod Ricard said: "These are good results. The factors which enabled us to achieve them, like the development of our premium brands and our leading position in high potential markets, are in place and growing the business. I look forward to the future with confidence."

With its restructuring complete (focusing the company on its wine and spirit business after the sale of various operations such as Orangina, its fruit preparations arm and its drinks wholesale unit), Pernod Ricard is very well placed to benefit from ongoing growth, provided it can continue to invest in marketing and product innovation.

The company is particularly keen to move further down the premium route in sectors which have traditionally been perceived as more downmarket, in particular pastis. The anis brands after which the company is named have disappointed (Pastis 51, the main Pernod brand, saw its volumes drop by 6 per cent to 1.8 million 9-litre cases in 2004, while stablemate and arch rival Ricard slumped 3 per cent to 6 million cases) as French consumers have switched to more upmarket products, and the need for a new image is nowhere more necessary than for these products.

The company has already revamped the bottle design and marketing for these two brands, as well as rolling out spin offs such as premix Ricard Bouteille, the lemon-flavoured 51 Citron and Djangoa, a liqueur mixing chocolate and anis, but it is still too early to tell whether this will have the desired effect and attract new drinkers to the category.

Innovation will continue to play an important part in the premiumisation of the company's portfolio as a whole, however. The recent launch of a premium liqueur, Gloss de Suze, is just the latest in a long line of product launches building on established brands, and this strategy - along with a return to the takeover market - is likely to form the crux of Pernod Ricard's business for the next few years.

Related topics: Premium Indulgence

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