Pernod to Boost Investment Behind Strategic Brands

FILED SEPTEMBER 1, 2009

Dear Client:

While some companies are cutting back in Advertising and Promotional (A&P) spend, Pernod Ricard is investing more in its strategic brands, the company said today in its fiscal year (ended June 30) earnings call. And although 2009 was a “difficult” year for everyone marred by consumers shifting to the off-premise and distributors and retailers reducing inventory stocks, “we are also confident about our premiumization strategy which remains unchanged, in tact in fact,” said chief Pierre Pringuet.

Expect to soon see new marketing platforms behind Mumm and Jacob’s Creek; new packaging for Chivas Regal 12 years; and new advertising campaigns for Absolut Vodka, Malibu and Jameson.

In his closing remarks, Pierre said that “for the current year underway, our first priority will be to reinvest. When I say reinvest we must increase our marketing spend pretty clearly on our strategic brands. This is a matter of money. Of course we’ve been investing more money but there will also be an upshot of a whole series of initiatives we’ll be taking for a number of brands.”

At the same time, Pernod is doing a “number of things to contain our costs.” The company’s top priorities in 2010 are to strengthen A&P investment behind strategic brands and reduce debt.

BRAND PERFORMANCE IN THE U.S. The Americas experienced flat organic growth, while sales declined -1%. The US experienced a year of changes marked by distributor transitions and the integration of Absolut. Jameson and The Glenlivet proved most successful in fiscal 2009.

ABSOLUT declined in the US due to transitions, destocking and consumer shifts to the off-premise. Dollar value in the 12 months declined -4% based on Nielsen retail scan data.

CHIVAS experienced “continuing difficulties in the US,” although the brand is solid elsewhere. Pierre said “we have become the leader in ultra premium scotch whisky segment,” which is $42 or more per bottle.”

JAMESON continued “spectacular growth” in the US, with dollar sales up 28% in Nielsen and 19% in NABCA (control states) data. Irish whiskey “is the fastest growing segment in the US,” noted Pierre.

THE GLENLIVET experienced stable shipments and strong consumption growth. According to Nielsen, sales were up 10% and NABCA grew 1%.

BEEFEATER “remained difficult” in the US, declining -3% according to Nielsen.

MALIBU US shipments were down -15%. Nielsen sales grew 0.5% due to “severe” destocking and decline in casual restaurants.

KAHLUA shipments dropped 18%, while Nielsen sales were down -5% also due to destocking. “We’re going to have to work on this brand,” said Pierre.

JACOB’S CREEK saw Nielsen volumes grow 1%. “We’re quite happy with the performance of our wines in this difficult market.”

MONTANA gave a “very clear example of destocking, said Pierre, with shipments down -25% and Nielsen volume up 8%.

PERRIER JOUET was in a “strong decline” in the US, with Nielsen declining -18% in line with the market. “The US champagne market is in serious trouble,” said Pierre. Overall it is dropping “in the region of 15%-20%...unfortunately we’ve not been able to do any better than that.”

EXPECT A DIFFICULT ECONOMY IN 2010. The company said it won’t provide guidance for fiscal 2010 until its investor meeting November 2, but Pierre cautioned it would be a difficult year.

“For 2010 we anticipate a general economic environment that will remain difficult, and an overall stagnation of the wine and spirits industry, with contrasting situation depending on countries and categories.”

Pernod’s strategy is to remain confident. “We are confident about what we want to do. We know what we want to do. We believe the environment will improve but not all that rapidly. There will of course be a lag effect. Our sales will only approve after the economy picks up. In the same way as when the crisis came there was also a lag. In other words our sales continued to perform well despite the economic statistics.”

“Regarding the environment, our hypothesis is that the environment will for a large part of this year remain difficult. We believe the market will be stable broadly speaking...continued moderate growth in off trade consumption offset by on trade figures that are not nearly as positive,” said Pierre.

PRICE INCREASES TO MATCH INFLATION. When asked if the company will take price increases in 2010, Pierre stated:

“Our policy is very clearly not to accept any compromise by comparison with inflation nor on duties...we pass on tax increases to consumers...at least equal to inflation.

“I think the price as an engine or driver will not be as powerful and incisive as it was in the past in more positive markets. However we will not be jeopardizing our prices or increasing our prices above inflation.”

THREE OLIVES VODKA LAUNCHES “WHAT’S YOUR O-FACE” ON TV

Three Olives Vodka (which is on fire in the US) is launching a new multi-million dollar TV ad campaign called “What’s Your O-Face?” The campaign is complete with ten 30-second spots and builds on the brand’s print ads. The television campaign was created by Agent16, formerly Mezzina Brown & Partners.

“The development of our new campaign was driven by research that produced two key findings: first, that consumers felt the fun had been taken out of vodka with virtually all brands scrambling for the same crowded, so-called ‘luxury’ positioning,” said Elwyn Gladstone, vp of marketing at Proximo.

“In a market where traditional brands such as Stoli and Absolut are declining, we are seeing very high, double-digit growth,” said Gino Luci, marketing manager at Proximo.

The campaign debuted August 31 on cable channels including Bravo and E!. It will also feature interactive ads on TMZ and Perez Hilton to showcase the collection of TV spots.

WSD BRIEFS:

MASS LAWMAKER CAUGHT BUYING TAX FREE ALCOHOL IN NH. Massachusetts Democratic lawmaker Michael Rodrigues, who is also a member of the state House Ways and Means Committee, was caught “stocking up” on tax-free alcohol in New Hampshire, according to local reports. The irony is that Rodrigues voted to raise state alcohol taxes by 6.25% in Mass. It’s not clear how much alcohol he bought, but it’s against the law to transport more than 20 gallons of malt beverages or three gallons of any other alcoholic beverage into the state. You can see pictures and a statement from the witness posted here.

MASS INTRODUCES BILL TO BAN PUBLIC ALCOHOL ADS. In other Massachusetts news, a group of consumers and public health advocates are supporting HB1113 to ban alcohol ads on all state property.

CHAMPAGNE PRODUCERS AGREE TO HARVEST ONLY 68%. After meeting with suppliers this week, Champagne producers agreed to pick 32% fewer grapes this year, leaving the rest to rot on the vine. As a result, 44% fewer bottles (a total of 260 million) will be produced this year in order to keep prices stabilized. This is the first time since 1955 that producers significantly cut volume, reports WSJ. This is all a result of declining sales and an oversupply of stock.

THE FRENCH NEED TO GET WITH THE TIMES - but not too much, said wine critic Michel Bettane in an interview with Reuters. They need to pay more attention to the habits of modern drinkers, he said, but shouldn’t take it to the point of making overly fruity wines. The majority of producers aside from the big names should also produce more wines that are ready to drink right away. Consumers nowadays want immediate gratification.

THE WASHINGTON POST ON JAGERMEISTER. There was an interesting article on Jagermeister in The Washington Post yesterday touching on its history in Germany (who knew it was traditionally taken as an after dinner digestive?) and relatively new entrance in the US by comparison. The author notes that “because of its viral popularity, and also because Jagermeister is most commonly consumed in shots by young people, the liqueur has a mixed reputation among the spirits cognoscenti.” Nonetheless, Jager sold more than 2.8 million cases in the US last year.

NEW SALES APPOINTMENTS AT DFV WINES. DFV Wines – owners of Gnarly Head and Bota Box – has made a few changes to its national and international sales teams effective September 1. Mike Jackson has been promoted to svp, national sales. John Tarver has been promoted to the role of national sales manager. Bill Matthes joins DFV this week from Constellation Wines as division manager, southeast. Both men will report directly to Mike Jackson. Other appointments include Patti McDermott (national off-premise accounts sales manager); Matthew Gulatto (regional off premise chain manager, southwest); Brad Staskowski (area sales manager, Florida); Elizabeth Rice (regional manager, Europe); and Mark Fogleman (regional manager, Americas).

S&P UPGRADES CONSTELLATION BRANDS. Standard & Poor’s has raised its corporate credit rating to BB from BB- with a positive outlook. In a statement, S&P analyst Jean Stout said, “The upgrade reflects Constellation Brands' good operating performance and improved credit measures, as well as our expectation that the improvement in the company's financial profile will be maintained despite current economic conditions which we believe could further slow overall demand for premium alcoholic beverages.”

COSTCO REPORTED NET SALES of $5.4 billion in August, which is flat from the same period last year. Comparable sales in the US declined -4% in the four weeks, -6% in the 16 weeks and -2% in the 52 weeks, which includes the negative impacts of gasoline and foreign exchange.

GAUGING THE INDUSTRY: WSD’S BI-ANNUAL SURVEY. We need your help! Please click here to answer 5 short questions about the state of the industry. We’ll post the results in the next few days. All respondents are anonymous.


Until tomorrow, Megan

“Walking isn't a lost art: one must, by some means, get to the garage.”
Evan Esar

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