Pernod Ricard said today that it would be open to discussions with Jose Cuervo tequila now that Cuervo's distribution agreement with Diageo is set to expire at the end of June. "Jose Cuervo is a company we know very well. We are open to all forms of discussions," Pierre Pringuet, Pernod's ceo, told Dow Jones.
He did not say if the company was already in talks with the Beckmann family, but he did go on to say that Pernod is still focusing on debt-reduction plans right now. Any acquisitions over the next two or three year are likely to be more "tactical," but after that the group may be open to a more "strategic" deal.
PIERRE PRINGUET: "THE CONCLUSION IS CONFIDENCE"
Speaking of Pernod Ricard, the company delivered steady and consistent growth for its first half ending December 31. The US market, a "key growth engine," had 9% organic growth with "dynamic" consumption of Pernod brands. The Top 14 brands grew 7% driven by Jameson, Glenlivet, Absolut and Malibu. "Our market share, overall, in the US, just to mention, is fairly stable. But amongst the large players, we've been a very good performer," said Alexandre Ricard, managing director of Pernod's distribution network, who is next in line to be ceo.
Alexandre noted that Nielsen is tracking Pernod volumes up 1%, but 4% in value, and NABCA shows the company volumes up 2% with 6% value growth. He added this was "clearly driven" by the Top 14 brands with a mix impact of 3%. However, outside of the Top 14 Avion "is doing extremely well," and Seagram's Gin is up 3%.
Jameson is still speeding along, up 24% for the half. Absolut net sales increased 1%. Beefeater was up 16%. On top of price increases, Glenlivet was up 21%. You may recall that Pernod is currently testing out a price increase on Absolut in six US states. "Depending on the results, we'll see if we can take further increases. So far it's too early to tell," said Alexandre.
Malibu is up 10% "thanks to the innovation strategy behind [the brand]" he said. To read an interview on one of the brand's newest innovations, Malibu Red, see yesterday issue.
Perrier-Jouet (17%) had a strong price and mix impact, while Belle Epoque had a "very good performance."
ON-PREMISE: "The on-trade in the US is still growing, let's be clear about that," he said. "It's skewed toward the more premium end of the brands and that's why you see that our brand performance in the US, especially our premium whiskies, are faring pretty well actually."
ACQUISITIONS: When questioned on the company's acquisition strategy, Pernod ceo Pierre Pringuet said they can easily perform bolt-on acquisitions anytime. For strategic acquisitions he said: "Maybe give us two to three years, obviously." He added that "Pernod Ricard shall participate in the future consolidation of the industry."
"If I were to summarize, the conclusion is confidence. Confidence in the strength of a portfolio, confidence in our worldwide exposure, thanks to a very wide distribution network, which means we're in the position to capture every single positive growth that exists in this market in the world. Which mean that medium term, yes, we're very confident and we'll continue with our growth, " said Pierre.
READERS SPEAK ON MAKER'S MARK DILUTION MOVE
We've gotten a lot of feedback from the announcement that Beam has decided to reduce the alcohol content in Maker's Mark from 45% abv to 42%. Readers seem to be pretty split on the company's motivations, but here are a few comments that represent the majority of the feedback:
Many readers think money might be the motivation, while pointing out that there's really no shame in that. A reader even suggested it works well as a marketing tool.
One distributor said he doesn't think consumers won't care about the proof in the future because the brand has such a loyal following. He claims: "No issue from customers that have discussed it with us."
Meanwhile, other readers claim the move will put the brand (and company) in a better position for acquisition. "This dire need to 'lower the alcohol' is an easy sell to the public. Maker's Mark (let's call it what it is, Beam) claims this preposterous tale that 'supply cannot keep up with demand.' I find this claim dubious but if factual, then why not discontinue a size such as 375ml? Or better yet, why not use production from recent innovation, Maker's 46? Truth is, the lower alcohol content is about taxes and positioning Beam for a sale." He added that this is a win/win scenario. "Beam generates more profits on their balance sheet and appears more attractive for a potential suitor such as Diageo."
WSD reached out to industry consultant and former master distiller of Maker's Mark Dave Pickerell. Dave says: "While I wish we had made more product the last few years I was at Maker's Mark, no one could foresee the continued rapid growth in Maker's Mark sales ...especially in the face of the last 5 years of economics."
Dave said he was "sad this decision had to be made," but believes it was probably the lesser of all evils. Here's why: If they de-age the brand "there is only so far you can go without permanently damaging the brand equality, and it is not very far down." So that's not a good option. They could kill the export market sales, but that's not really practical, Dave says. They could try rolling outages like a power company, but "logistically very, very difficult to achieve without damaging the brand." Then there's the option of raising the price. "Time and again, Maker's has demonstrated unusual price elasticity. As such, it takes an unusually high price increase just to slow down growth. Since this is an actual shortage, they would have to REALLY hammer prices to cut demand significantly ... and this would almost certainly damage the brand permanently." So, Dave concludes that this really was there only option, and it's "tough but understandable."
He went on to say that most consumers who aren't drinking it on the rocks are "unlikely to notice the difference," but those aficionados drinking it neat might. "My guess is that, just like Jack Daniel's, the furor will blow over, Maker's will lose a few of its most staunch and die hard supporters, and will continue to grow."
Until tomorrow, Emily
"In most betting shops you will see three windows marked "Bet Here," but only one window with the legend "Pay Out."
- Jeffrey Bernard
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