Pernod Ricard eyes top spot

Pernod Ricard has thrown down the gauntlet to Diageo.

“Our ambition is to become the global leader in wines and spirits”, chairman Patrick Ricard told the company’s annual meeting in Paris this week.

The French company has made a flying start to its new financial year. In the first quarter, the three months to the end of September, it achieved organic sales growth of 11% compared with 2010. That surpassed expectations.

In the full year to the end of next June, the company is targeting organic profits growth of 6%, roughly the same as arch-rival Diageo, although the method of measurement is not directly comparable.

Pierre Pringuet, Pernod Ricard’s chief executive, told shareholders: “The start of our financial year confirms the solidarity of our markets.”

He went on to say: “Our business has not been hit by the financial crisis. There is strong growth in emerging markets [especially Asia, Latin America and central Europe] and there is a very favourable price mix in our favour.”

Pringuet revealed that 40% of Pernod Ricard’s sales now come from emerging markets and that its sales in Asia grew by 20% in the year to June 30.

This, he said, was due to a number of factors including innovation and increased marketing spend, which means that the company’s Top 14 focus products now account for more than 70% of its sales.

Pringuet also claimed that Pernod Ricard was the only group to have a wholly-owned distribution network.

The company later clarified the claim by saying that it owned its distribution chain everywhere local law allowed it to do so.

“We have always delivered growth,” Ricard said, and he saw no reason why the company should not continue to do so.

However, the very prominent message from both Ricard and Pringuet was that this year the prime financial task remains reducing the group’s debt to earnings ratio to about four compared with 6.2 three years ago. Pernod Ricard now has debts of about €9 billion.

Ricard also boasted that the company had already achieved “investment grade” for its bonds following upgrades from both the Moody’s and Standard & Poor’s ratings agencies in the past few weeks. This allowed it to tap the American market for a further €1.5bn only last month.

The underlying strategy was revealed when one shareholder asked why Pernod Ricard’s wine portfolio did not include France (except for Champagne).

Pringuet emphasised that Pernod Ricard is “committed to wine for the long term”, because it was a growing segment of global consumption, “especially in the middle and premium sectors”.

He made a special point of saying that Jacob’s Creek is doing well in China and that Pernod Ricard is working on developing a Chinese wine, which “has very good potential.” But he stressed that the company was “chasing not volume but profitability.”

That was where the problem lay with French wines, Ricard said. He told the meeting that it was effectively impossible to source large quantities of French wines with sufficient quality and AOC recognition to move them into premium price brackets.

Nevertheless, as wine comprises only 5% of Pernod Ricard’s sales, it would always be seeking ways of bolstering the contribution. Hence, presumably, the interest in China.