Ricard family back at the helm of Pernod Ricard
Normally, such results would have been a cause for a celebratory glass of Perrier-Jouët. Sadly, however, they were overshadowed by the unexpected death of company Chairman Patrick Ricard (67). As from 2015, his nephew, Alexandre Ricard, will take up the reins of power as Chairman & CEO.
In the absence of the charismatic patriarch, Thierry Billot, MD Brands, talked us through the results and how the family company plans to nurture its international brands into the future.
Strong in the PIIGS
Meanwhile, as a jump in the share price shortly before the announcement of the annual results on Thursday indicated, investors are clearly happy. Retail analysts were particularly impressed by the strong sales growth coming from emerging markets which currently make up around 40 per cent of global revenues.
The company behind such brands as Havana Club rum or Chivas Regal Scotch has also been able to resist the crisis in the peripheral countries of Europe (PIIGS) better than most.
As CEO Pierre Pringuet outlined at company headquarters in Paris, this is essentially due to the strength of Pernod Ricard's 14 premium brands and the double-digit dynamism of revenues in eastern Europe, especially Russia. Thus, the company was more than able to compensate the challenging situation all players face in Spain, Italy and Greece.
Overall, the group has been able to profit from its strength in the premium segment which has grown two or three times faster than the standard one in both emerging and mature markets. In a world where people tend to drink less but “better” consumers are clearly attracted by the quality of premium and super-premium brands with a strong status image.
Even in price-conscious Germany, the company has been able to implement its premiumisation strategy and achieve outstanding growth over the past ten years. In fact, Pernod Ricard Deutschland is still growing solidly at 3 to 4 per cent a year in its star categories.
Obviously, there is also potential in a shift in consumer preferences from local to international spirits. At below 50 per cent, the German market has one of the lowest proportions of international premium spirits.
This year's results are a fitting testimony to the entrepreneurial vision of Patrick Ricard whose family remains the largest minority shareholder (14.3 per cent) with 20 per cent of the voting rights.
Buying spree in the Noughties
The son of the founder masterminded a number of heavily-leveraged acquisitions during the Noughties which dynamised the group's portfolio and global reach.
Despite the resultant high levels of indebtedness on tense international financial markets, Ricard's commercial instinct didn't fail him. He successfully relied on the business as a big cash generator and its good track record in terms of financial management.
The current debt-to-ebitda ratio (3.8) has almost been reduced to the level preceding the acquisition of Swedish vodka giant Vin & Sprit in 2008 (3.6). The group has also returned to investment grade as from the beginning of 2012.
Uncle and nephew
Ricard's management style was uncomplicated and democratic, and he knew how to delegate. He was likable, modest, and down-to-earth without the affectation one might have expected from a billionaire assiduously courted by the French establishment.
The decentralised, non-hierarchical way he chose to organise the family company has been more than vindicated. His successful model could provide a Harvard Business Review case study on how to run a complex global spirits group.
Unlike many dynasts, Patrick Ricard has left his house in order. CEO Pierre Pringuet will be succeeded on his retirement in January 2015 by Alexandre Ricard. The 40-year-old, who has been carefully groomed in a variety of management roles at Pernod Ricard over the last ten years, will then also become Chairman.
Thanks largely to Patrick Ricard, 'Alex' Ricard will inherit a global success machine, or, as he preferred to put it to our newspaper on Thursday, "une machine formidable".
"Our brands also create
It was primarily his mindset and sense of values. He had a lot of integrity and really respected his people. On the business side, it was a combination of insights, action, and entrepreneurship. He was always looking to improve the way we do business and inculcated this attitude with his staff.
As from 2015 Alexandre Ricard will become Chairman & CEO. Seen from a European governance angle, isn’t this too large a concentration of power?
This is more a question for the Board to answer. However, I would make the point that until 2008 Patrick Ricard was both Chairman & CEO and that this combination of duties worked very well indeed.
The Ricard family is clearly reassuming power at Pernod Ricard. To date, it has been a guarantor of continuity and independence. However, one only needs to recall the Bettencourts at L’Oréal to remember how family-owned companies can become dysfunctional to the detriment of a business…
I've been working for this company for 30 years, and I've never experienced one instance where the family, which has always had an operative role, was not fully behind the strategic direction of Pernod Ricard. I also regard the family as a guarantee of continuity and independence for the future.
Largely thanks to his uncle, Alexandre Ricard will be taking the driving seat of a success machine in 2015. What will be his biggest challenge?
I would prefer to answer this question, not in his name, but for Pernod Ricard as a group. The biggest challenge must surely be how we can speed up the conquest of new sources of business.
At least from my perspective, these include emerging countries, middle class consumers, and female consumers. Also, how are we going to manage the more difficult mature markets in southern Europe?
Female consumers? Aren’t spirits meant to be a macho affair?
Firstly, don’t forget that we are a wine & spirits group, and that our wines are perfect for women. Men, thank God, are no longer just going out with the boys for a drink; they are increasingly taking women along with them. Women are looking for lighter products, so vodka, for instance, has a greater balance between male and female consumers.
Also, brands such as Malibuor Lillet most certainly create feminine interest, and many of our brands can be diluted deliciously with fruit-juice cocktails etc.
But wasn’t it John Wayne rather than Susan Hayward who ordered whiskey at the bar?
It depends on what country you are in. Also, Jameson is a good example of a whiskey which is very acceptable to women because it is so smooth.
Pernod Ricard’s net indebtedness has decreased in relation to ebitda to around the level preceding your acquisition of Vin&Sprit in 2008. Could that mean another major acquisition?
Obviously, we are now in a much better position to make an acquisition should an opportunity arise. However, there will be no transforming acquisition in the short term. We would be able to make some tactical acquisitions, but, on the other hand, international financial markets have become tougher. That is why we reiterate firmly our objective to stay investment grade.
If you had unlimited cash, what would you buy to compliment your portfolio. Perhaps a bourbon brand in the US?
It is true that we do not have a bourbon, and obviously we are always looking to fill any gaps in our portfolio and to embrace new business opportunities. Obviously, a further criterion would be the creation of value and scale on the road to market. However, at the end of the day it comes down to what is available and what can be done.
Your impressive results for 2011/12 show double-digit revenues growth in emerging markets, but only around 2 per cent growth in Europe. Time to move to the southern hemisphere?
Nonsense, you only need to look, for instance, at Germany. Although it doesn’t have the same level of dynamic growth as, say, China, brands such as Havana Club, Absolut, Malibuor Ramazzotti are doing very well there.
Currently, 40 per cent of your global revenues are achieved in emerging markets. When will the 50 per cent mark be broached?
We don't have a specific goal as regards timing. However, if we continue to grow our relative share of emerging markets business at the current rate of around 3 per cent per annum, we shall certainly make 50:50 medium-term.
Even in the recession, your brand premiumisation strategy has succeeded on both mature and emerging markets. How do you nurture this stance?
One of the reasons we have come through the recession so well has been the strength of our 14 top premium brands. We have always been careful to give consumers substance, for instance by properly ageing our whiskies, rather than just “bling-bling” for the price they pay.
Also, the more you charge in price, the more you have to communicate. This applies even to the 12m high-net-worth individuals around the globe who own more than €1bn in liquid assets each.
Would you agree that there is a general trend from on-trade to off trade?
Yes, as regards traditional on-premise business, but no, as regards more trendy bars & restaurants. Clearly, homes are now furnished more hospitably than in the past. Therefore, people are less shy about inviting friends and acquaintances back home for a drink.
Also, the recession means that more and more people are socialising at home. This is an opportunity for us because hosts like to buy premium brands in order to show their status and as a sign of respect towards their guests.
But aren’t you worried about your margins when hosts buy your brands from retailers?
It’s a fact of life that retailers are more price-oriented because they regard price as their main point of differentiation. Also, their higher level of concentration means that they have more buying power. We protect ourselves by concentrating on consumer power. When we have succeeded in winning this, retailers need our brands on their shelves.