Price Increases Boost Pernod’s H1 Results

Pernod Ricard reported 4% sales growth in the US for the first half of its fiscal year, which is in line with overall market growth, thanks in part to price increases on key brands.

US BRAND PERFORMANCE. Jameson, the Glenlivet and Malibu are the “current growth engines” for the company in the US, said chief Alex Ricard on this morning’s earnings call.

Jameson continued its strong growth in H1, up double digits, even with price increases taken across the range.

Absolut is still in decline. But the flavors are in growth thanks to the launch of Grapefruit. In the second half of the year, the company plans to launch a new campaign called “Planet Earth’s Favorite Vodka” as well as a new innovation called Absolut Juice.

Malibu continues to outperform the rum category, and Pernod notes that the Pineapple and more recent Lime innovations are performing strongly.

Pernod also took price on The Glenlivet range. Both The Glenlivet and Founder’s Reserve brands are doing well.

Altos and Avion tequilas continued strong momentum, with “select” price increases.

Martell is outperforming the Cognac category, with Blue Swift building on that success and rolling out nationwide. “The performance is accelerating,” said Alex.

NEW PORTFOLIO STRATEGY. Pernod announced a portfolio reorganization with the creation of the Specialty Brands division. “This is clearly related from a consumer lens and as recognition of a clear incremental and complementary opportunity linked to demand for small scale ‘craft brands’ that we identify as Specialty,” he explained.

The division will include brands like Monkey 47, Smooth Ambler, Altos, Avion, Del Maguey and single malts like Aberlour and Lillet.
Pernod managing director-finance, IT and operations Helene de Tissot noted that M&A has been a “great contributor” to the growth of the new division, but that those types of brands are not the company’s only M&A target.

“We are looking at premium brands, with a high growth profile, strong brand quality and credential of course, and to capture growth opportunities…we are looking at that from a moment of consumption point of view, and not only by categories,” she said.

ON ROUTE TO MARKET. You may recall, the company recently announced a long term distribution agreement with Southern Glazer’s Wine & Spirits, effective July 1, 2019 through June 2024, as well as renewing its distribution agreement with Republic National Distributing Co. in eight states, also effective through June 2024.

This morning, Alex provided a bit more color on their route-to-market changes. “In the US, we are currently discussing with our wholesalers about the optimization of the finished good inventory” and “the intention is as well to contribute to the operational excellence efficiency of our wholesalers,” he said. “What is obviously very important as well is that we’re going to have a positive counterpart at all levels in term of the wholesalers’ investment behind our brands and activation.”

“Obviously execution is going to be key and not to disrupt the business,” but there may be a bit of a delay on shipments in the second half.

ON HEDGE FUND INFLUENCE. You may recall, at the end of 2017 New York-based hedge fund Elliott Management upped its stake in Pernod to 2.5% (worth about $1.1 billion), making it the company’s fifth largest shareholder. They’ve made it clear they believe Pernod needs to make a few changes to improve performance [see WSD 12-12-2018].

“We clearly support ongoing dialogues with – by the way, not just Elliot but all our shareholders,” said Alex, adding “As far as details go, they are confidential but we have a relationship and ongoing dialogue with Elliott of course and with our other shareholders.”

LOOKING AHEAD. Pernod has upgraded its guidance for the year, expecting global organic growth to be between 6% and 8%. Though growth in H2 will “moderate” thanks to sustainable growth management of Martell, wholesaler inventory optimization in the US and commercial disputes in France and Germany.

WHAT BLACK BUTTON PLANS TO DO WITH CONSTELLATION INVESTMENT

Earlier this week, Constellation Brands announced a minority investment in New York-based Black Button Distilling through its investment arm, Constellation Ventures [see WSD 02-05-2019]. We got Black Button founder Jason Barrett on the horn to discuss what they plan to do with the investment.

Essentially, the plan is to expand in capacity and distribution. Currently, Black Button is most well known in New York, New Jersey, Maryland and DC. “We’re just starting to have those planning sessions with Constellation and with our team internally and starting to gather some of the data and determine which markets are best for us first, and what might be a little further down the road,” Jason tells WSD.

To get into more states, they need more product. Jason says once they signed the deal, purchase orders were placed for a new mash tun and additional fermenters. Currently, production capacity is at 20,000 cases and in their current space they can expand to up to 50,000-60,0000 cases.

Turns out Constellation and Black Button were a natural fit, because the two companies have known each other since Black Button was established in 2012. In fact, the two have even helped each other out in the past, according to Jason. Constellation allowed Black Button to use their in-house capabilities to do certain lab tests and Black Button worked on smaller projects for Constellation.

“We had definitely reached a point where we were going to be looking for an equity investment and obviously they made sense to be some of the first people we started talking to.”

When asked how involved Constellation will be, he said “they’re there to support us, help gather data, help be a sounding board. They’re going to be like a good friend and confidant but we’re the ones still driving the bus.”

Moreover, Jason says that the investment also opens up the opportunity to work with others in the Constellation Ventures family, which currently includes Copper & Kings, The Real McCoy, Catoctin Creek Distillery, Nelson’s Greenbrier, High West and Bardstown Bourbon Co.

WSD BRIEFS:

BREAKTHRU BEVERAGE EXPANDS PARTNERSHIP WITH SAZERAC. Breakthru Beverage Group has expanded its partnership with Sazerac in DE, IL, MD, MN, NV and DC. This agreement comes after Breakthru’s announcement in Pennsylvania where it has grown its relationship with Sazerac to represent its direct distribution portfolio, per a release.

WENTE VINEYARDS DEBUTS NIKI’S PINOT NOIR ROSE. Wente Vineyards announced the inaugural release of the 2018 Niki’s Pinot Noir Rose, made by fifth generation winegrower Niki Wente and coo and winemaker Karle Wente. It is available for approximately $30 a 750 ml.

WE REGRET TO REPORT that pioneering winemaker Mary Ann Graf died last week at the age of 76 after a three year battle with pancreatic cancer, per the SF Chronicle. She is best known as the winemaker for Simi Winery in Healdsburg, CA. She also ran Vinquiry, a lab that provided testing services to wineries. Mary Ann was considered the first woman winemaker in California as well as the first woman board member of the American Society for Enology and Viticulture. She is survived by her brothers, Don and James Graf, and their families.

Until tomorrow,
Sarah

“Expect problems and eat them for breakfast.” – Alfred A. Montapert

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