Everyone is playing the premiumisation game

In a flurry of results last week, CEO’s stressed how they were pushing consumers globally up the price ladder to more attractive products with  better margins.

Nobody, it must be said, mentioned consumer resistance to increased prices and all promised more of the same in order to protect profitability as the year progresses.

Top of the class came Pernod Ricard with figures that chairman and CEO Alexandre Ricard said were “very strong”. In fact, they surpassed all expectations and set a very high benchmark for later on this year. The shares jumped by 5% as investors celebrated Pernod Ricard closing to within a whisker of the psychologically important €200 level.

In the six months to the end of December 2022, organic sales rose by 12% with broad based and diversified growth across all regions and categories.

The group’s volumes grew by 3% but by pushing through price rises and upping premiumisation at the same time as pressing down further on costs it further boosted shareholders returns to an average of 11% a year over the past  five years. Pernod Ricard also announced a further share buyback of €750 million this year.

Notably, organic sales grew by 5% in North America, where Jameson’s Malibu, Kahlua And Beefeater brands achieved “solid growth”.

Ricard said that the company was gaining market share in most regions around the world.

In the half year, although affected by lockdowns, China saw organic sales increase by 4%, while the Indian market achieved a 17% increase. They now rank as second and third biggest markets for Pernod Ricard.

With Global Travel Retail now returned to 80% of its pre-Covid levels, and further price rises slated for later this year, Ricard said he had “reinforced confidence” about delivering a strong performance to the end of June despite demand during the Chinese New Year celebrations last month being “soft”.

Further premiumisation is continuing to boost Pernod Ricard with super premium brands now accounting for 42% of sales and premium lines 37%.

During the past six months, Scotch sales showed 23% organic growth and Irish whiskey 13%. The notable growth in India was reflected in the 17% increase in demand  for local whiskies from the old Seagram’s portfolio.

Beam Suntory was also pleased with the fruits of its premium pricing strategy. In 2022 premium-plus spirits provided more than 50% of its full bottle sales for the first time. The result was that net sales in the 12 months rose by 10.5% and  are now 25% above the pre-pandemic level.

Sales for Beam Suntory in North America were 8% up on 2021; in Asia they rose by 13%.

In Bourbon, Jim Beam grew at a single-digit rate but Makers Mark achieved 11%. RTD lines put on 16%.

President and CEO Albert Baladi said that Beam Suntory’s performance “reflects our strategy to premiumize our spirits portfolio, build RTD leadership and focus on value over volume.”

Parent company Suntory Beverages’ shares rose marginally on the news but remain almost 30% below pre-Covid levels.

Mexican distiller Becle, whose main line is the Jose Cuervo tequila stable, posted fourth quarter net profits of $71.2 million, 11.8% lower than in 2021.It put this down to higher interest costs.

Net sales, however, increased by 5.1% on the back of improved price mix and sales of premium Tequilas.  The share price hardly moved from the 45pesos at which it has stood for the past six months as investors believe that costs will come under greater control as the year progresses, and consequently profitability will improve.

Treasury Wine Estates’ CEO Tim Ford could be forgiven a rueful smile when his shares fell after unveiling a 72% jump in net profits in the past six months. That was less than analysts had predicted because net sales were only 1.4% ahead.

After sliding by about 5% on the news, TWE’s stock regained about half of the fall to stand at AU$13.75 by the end of the week as investors gave the numbers more measured consideration.

Ford says he is on target to meet his five year targets by the end of 2025 following a complete rethink of the business after China imposed punitive tariffs on Australian wines  in 2020.

He has reshaped the American business, selling off commodity lines and concentrating on premiumisation. He has also made strong progress in deepening the penetration of Penfolds in South East Asia.

Despite planning a visit to China next month, Ford is keen to temper hopes of a rapid resurgence in shipments as relations between Canberra and Beijing ease.

He says there are “plans and strategies in place” if restrictions were removed quickly but it would still take “several years” for Treasury to fully rebuild its trade in China.

Previously it had shipped some 600,000 cases per year to the Peoples’ Republic and it is now supplying much smaller quantities from the US, France and China itself.

But Ford says, “For our higher-end luxury wines it would take three years because we have to go and source more grapes. …If you make it this year and don’t sell it for another three it would certainly take us time to increase the makes of those wines because we have done such a good job of relocating what was going to China a couple of years ago.”

So whenever Australian shipments to China do resume, the Chinese will be expected to pay more for them.