DIAGEO VS. PERNOD: THE PROS AND CONS OF THE INDUSTRY GIANTS
There was an interesting article in the Financial Times on Friday that discusses Diageo’s consistency vs. Pernod’s long term growth potential. In the article, author Jenny Wiggins asserts that Diageo has “an image of stolidity” and that it’s “a little too respectable for its own good.” Seems like a nice problem to have, doesn’t it?
However, Jenny suggests that analysts are shifting their interest from Diageo to Pernod because they believe Pernod’s profit margins have great potential for growth. For example, after Diageo reaffirmed a respectful 8% guidance for underlying profit growth last month, its share price dropped 2.5%.
Here are some facts she includes in the article that support her claim:
1. Pernod has expanded more quickly in emerging markets
2. Pernod has been more aggressive in recent years on acquisitions
Analysts say that Pernod has more room to make quick decision because of its smaller size and decentralized management structure. Diageo, meanwhile, makes most of its big decisions out of the London head office.
Pernod does have a downside. For one thing, it lacks a big name vodka and profit margins on its mainstream brands are lower than Diageo’s. Nonetheless, Pernod is planning to make a bid on Absolut while it simultaneously strives to buy the international distribution rights to Stoli vodka from SPI. Diageo’s size makes it much harder to make acquisitions.
The title of the article is “Mixing its drinks could be wrong policy for Diageo,” which touches on – you guessed it – the troubled Guinness brand. Falling Guinness sales in Ireland and the UK has hurt Diageo’s overall beer business, which many speculate could lead to Diageo selling the brand. Analysts have recommended that Diageo leave the beer business, but we don’t see that happening anytime soon. We believe it’s important to Diageo, as they’ve said many times, to have a toe (or a leg) in each alcohol beverage sector.
We tried to provide a link to the article, but it was no longer on FT’s website.
However, Jenny suggests that analysts are shifting their interest from Diageo to Pernod because they believe Pernod’s profit margins have great potential for growth. For example, after Diageo reaffirmed a respectful 8% guidance for underlying profit growth last month, its share price dropped 2.5%.
Here are some facts she includes in the article that support her claim:
1. Pernod has expanded more quickly in emerging markets
2. Pernod has been more aggressive in recent years on acquisitions
Analysts say that Pernod has more room to make quick decision because of its smaller size and decentralized management structure. Diageo, meanwhile, makes most of its big decisions out of the London head office.
Pernod does have a downside. For one thing, it lacks a big name vodka and profit margins on its mainstream brands are lower than Diageo’s. Nonetheless, Pernod is planning to make a bid on Absolut while it simultaneously strives to buy the international distribution rights to Stoli vodka from SPI. Diageo’s size makes it much harder to make acquisitions.
The title of the article is “Mixing its drinks could be wrong policy for Diageo,” which touches on – you guessed it – the troubled Guinness brand. Falling Guinness sales in Ireland and the UK has hurt Diageo’s overall beer business, which many speculate could lead to Diageo selling the brand. Analysts have recommended that Diageo leave the beer business, but we don’t see that happening anytime soon. We believe it’s important to Diageo, as they’ve said many times, to have a toe (or a leg) in each alcohol beverage sector.
We tried to provide a link to the article, but it was no longer on FT’s website.
posted at 2:35 PM
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