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A courageous Cointreau increases prices
It’s a brave company that deliberately puts up its prices in present market conditions, but that is exactly what Rémy Cointreau is doing. Dominique Hériard Dubreuil, the chairman and a senior member of the controlling family, said this week: “Even if there is a serious downturn, the group will take the opportunity to reinforce its brands.”
Jean-Marie Laborde, Rémy’s chief executive, added: “We have no intention of giving up price increases even if we have to suffer in terms of sales or profits.” Remy has made a bold decision, but will many others follow? As demand weakens, it is tempting to accept lower profitability to maintain sales, but in the long run, the consumer’s perception of price is a crucial factor in brand image.Â
Like most of its rivals in the international spirits business, Rémy Cointreau has a long-term policy of premiumisation – encouraging the customer to move up market to higher quality products providing better profit margins – but that is not the same as straight price rises for the same product. Nevertheless Rémy Cointreau feels confident it can push through higher prices in the second half of its financial year to March 2009, if only to take account of inflation and currency fluctuations. M. Laborde said the company’s “dream” was to see its brands at the premium end of the market.
In the six months to September 30 Rémy Cointreau increased its net profits by 27% to €48.3m compared with the same period in 2007. Operating profit, however, fell by 4.7% and sales value dropped 2.5% to €365m, largely as a result of this year’s price increases. Cognac sales rose by 3.5%, most due to demand for Rémy Martin.
Most of the net profit gain related to the group’s exit from the Maxxium consortium, but in the full year that strategy will peg operating profits to about last year’s level of €160m. At the end of March, Rémy will start a new financial year with direct control over 80% of its sales through its own global team. That is crucial to the premiumisation strategy, especially in growing Far Eastern markets such as China, where Rémy is already growing strongly, as it is in Russia. Â
Although M Laborde said the group had “yet to feel a tangible slowdown”, he said the next two months were critical. Cash-strapped retailers were delaying orders to the last minute and the prime US market was “in very strong retreat.”
Finance on Friday, 28.11.08