Crisis Hampers Pernod’s Sales Growth, Still Manages 3% Growth YTD in US
Pernod Ricard had a solid start to its third quarter ended March 31, but the pandemic interfered and will continue to negatively impact the company’s results into Q4.
For the first nine months of fiscal 2020, Pernod reported a global organic sales decline of 2.1%, with sales down 14.5% in Q3.
In the US, sales were up 3% for the nine months, driven by Jameson, The Glenlivet, Malibu and specialty brands, according to managing director-finance, IT and operations Helene de Tissot.
On-premise began shutting down in the US in mid-March. As a result, Pernod’s growth slowed a bit during the month, and Jameson was impacted by the cancellation of St. Patrick’s Day events.
Off-premise, Pernod benefitted from some of the trends we’ve been seeing, with good performance from big brands like Jameson, Absolut and Malibu, as well as larger formats. Helene noted on this morning’s earnings call that the increased popularity of larger formats “has some negative impact in terms of margin,” but that they haven’t seen any downtrading.
The US “performed slightly better than either we or the company seemed to have expected,” writes Bernstein analyst Trevor Stirling in a note. “The hit to off-trade revenues in March was not as bad as feared…Additionally, the reported good start to Q3 is encouraging on an underlying level, although given the timing of the virus just before St. Patrick’s Day, we’d expect key growth brand Jameson to struggle for some time even if a recovery does take hold, as retailers destock heavily.”
Indeed, when asked about inventory levels in the US, Helene said “there’s likely to be some destocking at retail level especially with the timing of the lockdown around St. Patrick’s Day.” As for any restocking, she “wouldn’t assume any restocking soon.”
“We can see some more positive trends in the past few weeks both in Europe, and in the US, but we need to be very cautious because things can dramatically change from one week to the other,” she said.
A&P SPEND REEVALUATED ACROSS THE BOARD. Helene also gave a rundown of the company’s internal and external responses to COVID-19. Externally, they’re donating alcohol for hand sanitizer, medical equipment, and other charitable donations as well as maintaining long-term buying contracts with suppliers.
Internally, the company is cracking down on spending by freezing recruitment and travel expenses as well as cancelling a good deal of advertising & promotional (A&P) spend.
Providing more color on A&P spend strategy, Helene said “It’s not only looking at on-trade and eventually relocating to off-trade, it’s looking at everything… we are prioritizing what can be done relevant to the current environment,” which includes digital activations.
Pernod also reaffirmed fiscal 2020 guidance handed down last month, expecting an organic decline in total profit from recurring operations of about -20% due to the impact of COVID-19 [see WSD 03-24-2020].
TRADE GROUPS URGE LAWMAKERS TO PROVIDE FURTHER ECONOMIC RELIEF FOR BEV ALC INDUSTRY
Yesterday, spirits trade groups sent a letter to Senate and House leadership urging for additional economic relief for US distillers. The letter was signed by presidents of the Distilled Spirits Council, American Craft Spirits Association, the New York State Distillers Guild and the Kentucky Distillers’ Association.
“We urge Congress to act swiftly to enact further measures that provide liquidity and certainty to distillers who have seen sudden and steep declines in sales with the closure of stores in certain areas and travel-related outlets, restaurants, bars and tasting rooms,” per the letter. “As a result, many distilleries have been forced to furlough or lay off employees. Absent additional relief, some distilleries soon may be faced with the tough decision to permanently close their doors.
The groups are hoping to add four key components to any new economic relief package, including:
- Federal excise tax relief, including suspending FET on domestic and imported spirits products, waive interest on late payments and enact the Craft Beverage Modernization and Tax Reform Act.
- Suspension of tariffs on spirits
- Create an industry stabilization fund
- Continue robustly funding no- and low-interest loan assistance
The groups were also part of the bev alc industry wide “Day of Action” yesterday, which generated more than 13,000 communications to Congress as of late afternoon yesterday, according to DISCUS.
COVID-19 IMPACT ON WINERY TRADE GROUPS
We’ve previously reported on the impact of the COVID-19 pandemic on the US wine industry [see WSD 04-17-2020, WSD 03-27-2020]. A recent survey conducted by WineAmerica looked at the impact on winery trade associations.
The survey involved 30 members of WineAmerica’s State and Regional Associations Advisory Council — 26 of which are private sector organizations and four are public — representing 19 states.
One-third of respondents said their association may not survive the crisis. Other highlights from the survey:
- Only four associations have had to lay off any employees, and those that have say they expect to hire them back.
- Five respondents have applied for federal grants.
- About half expect to lose members, from as little as 5% to as much as 50%, with the average at about 19%.
- Revenue losses varied widely, with the most common range between 11%-20%.
The “major impact so far has been the need to reduce or eliminate certain functions,” according to WineAmerica, such as marketing, education and events, as well as research and lobbying.
On the brighter side, the respondents said they don’t know of any wineries in their state or region that have closed for good. But, if shutdowns last through July, the average association projected that 10 wineries could fail in their area, with the maximum at 100.
“Winery trade associations are a vital part of the American wine industry, and perhaps nothing has shown this more dramatically than their crucial role as information clearinghouses during the coronavirus crisis,” says WineAmerica president Jim Trezise. “No associations were originally created for crisis management, but many have eagerly and effectively stepped up to that key role in these challenging times. Obviously, their organizational and financial health is vital to the wine industry’s future.”
BUFFALO TRACE DISTILLERY RELEASES EXPERIMENTAL WHEAT BOURBON. Buffalo Trace Distillery has released an experimental wheat recipe bourbon aged for four years, cut with water then re-barreled and left to age for another eight years. This Experimental Collection is packaged in 375ml bottles and is available at a suggested retail price of $47.
PRAIRIE ORGANIC SPIRITS DEBUTS SPARKLING CRAFT COCKTAILS. Prairie Organic Spirits has debuted their first canned product, Prairie Organic Sparkling Craft Cocktails. The cocktails are made with Prairie Organic Vodka and Gin and clock in at 5% abv. They are available in three flavors, Grapefruit, Cucumber Lemonade, and Minnesota Bootleg. The cocktails retail for approximately $13 per four-pack.
HOTALING & CO. ADDS FOUR MEMBERS TO SALES & MARKETING TEAM. Hotaling & Co. announced four new hires in its sales and marketing teams. Elizabeth Staino joins as director of product development; Julie Agrella takes on the newly created role of regional chain manager, west coast; Paige Shelton was named regional sales manager, New York, New Jersey and Connecticut; and Olya Batsula will take on the role of brand development manager, Georgia and South Carolina.
EVAN WILLIAMS BOURBON INTRODUCES HEROES FOUNDATION FUND. Heaven Hill Brands’ Evan Williams Bourbon has introduced the American-Made Heroes Foundation Fund. This fund will help to fund independent, non profit organizations that support veterans and their families. Due to the impact of COVID-19, the American-Made Heroes Fund will focus its inaugural efforts with the COVID-19 Veteran Relief Grant, which awards donations to nonprofit organizations that serve the veteran communities negatively impacted by the coronavirus, per a release. In addition, Heaven Hills Brands has started producing hand sanitizer, donating a portion of what they make to veteran centers across the state of Kentucky.
“Either I will find a way, or I will make one.” – Philip Sidney
——- Sell Day Calendar ———
Today’s Sell Day: 17
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YTD sell days Over/Under: +1