Pernod Sees "Early Signs of Improvement"

FILED OCTOBER 1, 2009

Dear Client:

In the three months to September 30, Pernod Ricard’s overall organic net sales declined -4% in line with the company’s expectation, beating Diageo (-6%) and LVMH (-11%). Pernod said Q1 was “satisfactory” compared to a record Q1 in 2008. They also see “early signs of improvement...in certain markets,” including duty free and depletions in the US.

And that brings us to the Americas. Organic net sales declined -2% in the Americas, while US depletions were up for the first time since summer 2008. US shipments were down compared to Q1 2008 due to “timing of distributors' orders for Christmas and New Year” and “the Absolut technical effect” said Pernod. The company is in the process of launching “a number” of marketing initiatives to support their brands in the US during a time when other companies are cutting back.

When it comes to the company’s global performance, champagne sales decreased -13% which isn’t surprising since other champagne companies have reported similar dips. The 15 strategic brands recorded a -5% organic decline in value, along with a -9% drop in volume. Note that Pernod is scheduled to release its fiscal 2010 guidance on November 2.

ABSOLUT SEES TOUGH COMPS. Pernod’s newest brand, Absolut, globally declined -7% in dollar sales and -10% in volume due to tough comparisons. Shipments were down -10% from Q1 2008 “on an artificially high comparison basis following the strong sales recorded by Maxxium and Future Brands” before Pernod took over on Oct 1, 2008.

Depletions declined -4% in the US over the quarter, with Nielsen volume (derived from off-premise scan data) improved to -1.6% over the 3 months and +1.2% over the last 4 weeks. This shows signs of “improved” consumer trends in the US, said the company.

JAMESON STILL ON FIRE. On a global basis, the brands that posted the most growth in value were Martell (+13%), Havana Club (+6%), Jameson (+2%) and Ricard (+2%). Depletions of Jameson grew 29% in the US, while Nielsen scan data showed volume gains of 22%.

THE GLENLIVET saw a decline in shipments in the US but sustained growth in depletions, up 11%.

CHIVAS REGAL, meanwhile, declined -7% due to issues in Japan, duty free and Russia, but was “resilient” in the US, “held up well” in West Europe and grew in South America.

BEEFEATER volumes declined -10% in the US due to a “time lag between depletions and shipments,” said Pernod.

MALIBU is currently running a new digital marketing platform in the US, where depletions grew 16% and experienced a “strong recovery.” That recovery is not yet reflected in shipments although they are stable.

KAHLUA shipments declined -15% in the US and Nielsen volumes were down -14% “in a market that remains difficult.”

JACOB’S CREEK fell -7% on a global scale at the result of a value strategy in Q1 2008 and controlled production costs, which Pernod said they haven’t repeated. Jacob’s Creek experienced growth in the US and Australia.

MONTANA shipments were “strong” in the US, while Nielsen volumes grew 7%.

CHAMPAGNE. Mumm (-18%) and Perrier-Jouet (-38%) were adversely affected by the tough champagne market. Mumm saw “marked decreases in the US and the UK,” while Nielsen volumes of Perrier-Jouet dropped -27% in the US.

NEW STUDY ENCOURAGES AUSTRALIAN WINERIES TO SHIFT FOCUS ON EMERGING MARKETS

Recall yesterday when Foster’s Group execs partly blamed the strengthening Aussie dollar for difficult competition in export markets, particularly against the weakened US dollar. A new report from wine industry economist and Principal of AMWC Research & Advisory, Adam Morris, says this phenomenon could last for some time and is encouraging Australian wineries to focus on emerging markets.

“A global economic recovery means Australian wineries should get used to the currently high level of the Australian dollar against the greenback. There are numerous signs suggesting an Australian dollar at or above parity might persist for some time,” he said.

He remarks that imports are already facing difficulties in the US and the UK due to exchange rates and “the ability to pass on price increases to wholesalers, retailers and consumers is very limited.”

As a result, he is encouraging the Australian industry to continue pushing into the Asian wine market. “China, Japan, South Korea and India are our 4 largest trading partners; the US is now ranked 5th,” he said.

Earlier this month we spoke with James Gosper, the director of Wine Australia North America, who outlined some strategies the Australian wine industry is taking to improve sales and image in the US. Stay tuned for our interview...

WSD BRIEFS:

WIRTZ BEVERAGE WISCONSIN has promoted Mark Cirillo the newly created position of director of sales for the state of Wisconsin. Cirillo, 53, will report directly to Wirtz Beverage Wisconsin president Dick Deutsch. Most recently, he led the on premise spirits division for Wirtz Beverage Wisconsin.

PETER MICHAEL WINERY, based in Sonoma, has purchased the Showket Oakville Vineyard. Details were not disclosed.


Until tomorrow, Megan

“What we play is life.”
Louis Armstrong

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