Pernod Ricard: The thirst to be firstBy Ron Emler
As Alexandre Ricard prepares to take the throne at Pernod Ricard this month, returning the family name to the top job, he and his predecessor Pierre Pringuet speak to Ron Emler about the ever-growing ambitions of the company.
THIS MONTH’S board meeting of Pernod Ricard in Paris marks the “transmission” of running the company from Pierre Pringuet to Alexandre Ricard, grandson of the founder. Ricard, who becomes chairman and chief executive, says it is not a transition, “because ‘transmission’ is more dynamic. There will be no ‘stop and go’.”
Ricard has been groomed for the top job since he joined the company in 2003, although he says that his uncle, the late Patrick Ricard, made no promises, merely saying, “Let’s see how you do.”
“It started to become a tangible aspiration for me in 2011,” says Ricard, “when Pierre asked me to join his close team in Paris.” For his part, Pringuet impishly admits that Uncle Patrick took him aside when Ricard joined what is now the world’s second largest premium spirits company and told him to “look after this guy”.
The two have worked in tandem since Patrick Ricard’s untimely death in 2012, when the younger Ricard immediately became chief operating officer under Pringuet. Now that Pringuet has reached the compulsory retirement age of 65, Ricard is realising his late uncle’s dream that one day a third generation of the family would head the company.
At 43, he will be the youngest chief executive by 10 years of any company in the 40 top companies on the Paris stock market.
LEARNING FROM THE BEST
Pringuet will be a hard act to follow. He played a pivotal role in transforming Pernod Ricard from a parochial company which had 90% of its sales in France to a global giant whose home market accounts for just 9% of turnover.
He laid the foundations of the Asian distribution network, was the technocrat who ensured the smooth integration of Seagram (broken up with Diageo in 2000) and Allied Domecq (2005) and was the architect of the Absolut takeover in 2008. Pringuet also steadied the ship when it was buffeted by the global financial crisis later that year by introducing a programme of cost savings, non-core brand disposals and a rights issue.
In fact Pringuet admits that if the Absolut deal had been delayed by just three months, the financial crisis would have made raising the finance for it impossible. “We could have missed the opportunity. We were very fortunate that we completed before the crisis burst,” he says.
And without Absolut, Pernod Ricard would look very different to how it does today. Its North American profile would be much lower and without Absolut Pernod Ricard’s ability to “leverage the portfolio” (a favourite theme of Ricard) would be diminished.
Both agree that Pringuet is handing over a company that is much stronger than it was in either 2008 or even 2000, when the takeover spree really began. “Compared with June 2000 it is a complete transformation in terms of the approach of the business with a full portfolio – yes I insist on that – a full portfolio,” says Pringuet. In the past 15 years sales have quintupled but profits have increased seven-fold.
So is the handover a case of plus ca change, plus c’est la même chose? Both agree that the path of premiumisation and innovation will continue and Pringuet laughs out loud when asked if he is leaving anything unfinished. Miming handing over a pile of dossiers to Ricard he says: “There will be large future developments for Pernod Ricard which will really demonstrate that the ambition is intact.”
“Pernod Ricard is an adventure which goes beyond generations,” says Ricard. “Each generation brings its ‘brick’ to the Pernod Ricard building. A local or regional group has become a global business. We are a global group with a global footprint with all the roots for more success. We have not been shy in clarifying our long-term ambition of achieving leadership.
“We have a thirst to be first. That is the driving force. That’s the exciting part – to achieve that global leadership ambition.
“We have the largest wholly-owned distribution network of our own people selling our own brands. And we have the most comprehensive portfolio of brands. So the ingredients to get that leadership position are there.”
POWER TO THE PEOPLE
But is there a risk of concentrating too much power into Ricard’s hand as both chairman and CEO?
“No, I live by decentralisation,” he says. I fundamentally believe in decentralisation. You need to be clear about decentralisation when you are at the head of a company. The day that changes I leave. Decentralisation is absolutely part of the success of Pernod Ricard. The challenge is to make sure there is clear cohesion at the global level. That’s the power of decentralisation, empowering people locally to make quick decisions and being held responsible for them, especially when you are a big corporation of 18,000 individuals.”
Ricard is passionate about the digital revolution Pernod Ricard has undergone in the past four years.
“The digitalisation of Pernod Ricard is accelerating business both internally and externally. Internally it has completely changed our ways of working with a complete global social enterprise network. We have Pernod Ricard Chatter. It’s a global community that transcends geographical boundaries. Each of our 18,000 people has access to that network as well as being part of communities.“
Pringuet chips in: “Our people say they couldn’t live without Chatter because that’s the way to get all the information about the products, the brands, the initiatives and what is happening on the street.” Ricard echoes this point: “Chatter is a business accelerator,” he remarks. “For example, if a competitor launches a new brand in say, South Australia, we will know within a couple of hours because there will be a picture of that brand on the shelf. Likewise for best practice sharing, an initiative in Brazil can be uploaded to the community and other markets see it and could replicate it.
“The app for innovation is the same. It is a clear game changer. And every single brand has a platform, a social network community around the brand. So the brand company uploads the strategic guidelines, the tools, and any market in the world can upload details of how they activate them and any kind of initiatives they have around the brand. We are even creating positions of community managers. The world is changing and we are leveraging tools that did not exist four years ago. They are really accelerating the way that we do business. And externally as well. This is where we build with digital marketing.
“When we first launched our digital revolution, people asked, ‘What does it do to sell bottles?’ Well these people know today that their respective domains and markets sell the bottles. I think we have 100% buy-in. It’s a given and we are leveraging this platform. The pattern is shifting and it is something that we are doing successfully.”
THE AFRICAN FRONTIER
Given the seemingly opposing themes of continuity and constant change in the quest for global leadership of the spirits industry, where on the horizon does Ricard see the next opportunities?
“It was Pierre who said that in 10 to 15 years Africa will be where Asia is today,” he replies with enthusiasm. “In the late ‘80s and the ‘90s he was seeding what is our huge Asian success and that is what we are replicating now on the model of our people selling our brands in Africa.”
To date Pernod Ricard has offices or subsidiaries in South Africa, Morocco, Ghana, Nigeria, Angola, Namibia and Kenya. By 2017 it will have added the Democratic Republic of Congo, Zambia, Ethiopia, Tanzania and Mozambique.
“We are investing ahead of our growth in Africa,” says Ricard. “Africa today is till a small part of our business but growing in double digits – I reckon about 20% – and we expect Africa as a region to become a key growth engine.”
Brown spirits, especially Scotch and Cognac, will drive that growth, he believes. “We see middle class Africans moving from local value spirits into international Western style categories, starting with Scotch. It’s the same pattern as in Asia.”
Pringuet adds: “In Africa our range starts slightly lower than in Asia. For instance, we sell Passport but in China we are selling Chivas. But it is the same sort of dynamic… Interestingly, there is a clear dynamic for Jameson. It started in South Africa and I am pretty sure it will develop in Kenya, Nigeria and Angola.
“Each country is different. This one of the reasons for our decentralised business model. The most difficult decision when we have opened in a new country is to select the right person to be the CEO.”
GOING FOR GOLD
So while further geographic expansion is seen as inevitable, what about adding to the portfolio?
“I’ll tell you what excites me about where the company is today,” says Ricard. “Compared to the early 2000s it is a global company, it has so much strength from a portfolio point of view. That means that if we are swift enough to allocate and reallocate resources across geographies and across brands then we can capture more than our fair share, which means that we can credibly aim at that leadership position.
“The [financial] firepower we have today, despite the fact that we are still deleveraging – the sheer size of the company – means that we can expand. Last year we made two acquisitions, Avion [super-premium Tequila] and Kenwood Estates, [each for a reported $100m (£66m)] and they don’t seem like huge transformations, per se.
“But Kenwood was just six months ago. The wine team in the US lacked an America-based wine [which is 75% of the market] and that has completely changed the market for us. They now have strong ambitions for their business because of that. Likewise Avion could be the next [strategic brand] but there are a lot of contenders. But what about our global icons? Which will be next? We have Absolut and Chivas which should grow in any emerging market. The firepower we have in global brands is a huge competitive leverage.”
Both Ricard and Pringuet are hugely enthusiastic about the prospects for Elyx, the super-premium single estate vodka launched by Absolut.
“At the end of the day, we never disclose specifics, but what we do say is that Kenwood was strategically necessary for the US wine team that today fulfils one of the key missing elements we have. There are many more opportunities on the spirits side and for the US wine team we are no longer in a ‘must have’ position. But we never close off opportunities.
“What we have to do is make sure that if and when any opportunity comes up, we are in the position of being able to pursue it or not.“ The implication of all of this is that Ricard is ready.
That certainly applies to Cuban rum following the thawing of relations with America. While the trade embargo can only be lifted by Congress, Pringuet believes it is only a matter of time. “It is the last piece of the Cold War”, he says.
“We sell 5m cases of Cuban rum outside the US and the US is 40% of the total rum market [and Pernod Ricard is No.3 globally]. So when the US market opens we can sell another 3m cases!” Whether it will be labelled Havana Club or Havanista will be settled in the US courts.
REST AND RECUPERATION
The close working relationship between Ricard and Pringuet, his mentor, will continue long after the “transmission” officially takes place.
“I will be a non-executive (I stress non- executive) member of the board and at the disposal of Alex,” says Pringuet, “but I don’t want to be involved in the day-to- day business.
“I am already a director of several companies. I am becoming chairman of Agro Paris Tech [the French school of agronomics] which is relocating to the south-west of Paris, and I am contemplating joining a fund to finance companies.” He is also chairman of the Sully Committee, which promotes the French food processing industry, and chairman of the French Association of Private Enterprises. “I am chairman of the Scotch Whisky Association, the first non- English speaker to hold the role,” he chuckles. “I think that I will be busier than I expected.”
Will he miss anything at Pernod Ricard? “In the short term, nothing, but longer term the daily relationship with the different teams worldwide.”
But for now he is off to south-east Asia for a holiday. “And in March or April – it could be both – I will be skiing in Les Arcs. But I will be keeping an eye on the share price,” he says.