April 28, 2006

Spirited talk with Rémy Cointreau CEO Laborde

Jean-Marie Laborde, CEO Rémy Cointreau (photo: Bert Bostelmann)
Jean-Marie Laborde: "The Chinese love cognac" (photo: Bert Bostelmann)
Just one glance at the business card of Jean-Marie Laborde betrays where his main interest lies: the front is in English and the reverse in Chinese. In fact, the eyes of the urbane and cosmopolitan CEO of Rémy Cointreau S.A. light up at the mere mention of the Middle Kingdom.

Small wonder when business in the People's Republic of China is powering the global growth of this highly-profitable spirits & champagne group (2008/09 revenues: €714m).

Warming to his subject with evident relish, Laborde (59) gives an enthusiastic tour d'horizon of the potential he sees in South-East Asia and reveals how the French family company intends to harness it.

"China will be the number one economy" 

Monsieur Laborde, why does this Frenchman have such a love affair with China?

I'm convinced that China will be the number one or two world economy within less than 30 years. Doubtless, there will be some bumps along the way but, believe me, nothing is going to stop them. If we look at Shenzhen, Hong Kong, Guangzhou, Shanghai, it is the factory of the world.

That's all very well, but aren't the Chinese also proverbial savers?
In a country with no social security and no pension schemes, they are forced to save. These people are very clever and really gifted in business. They are also heavy spenders because they like to show that they are very successful.

In fact, they are obsessed with buying high-end luxury western brands. For instance, China is one of the biggest countries in the world for Louis XIII Grande Champagne which is sold at $3,000 a bottle.

They are also tremendous gamblers. Today, Macao is becoming the Las Vegas of the South East of Asia. When the Chinese have made a lot of money, some of them like to play for everything because they are confident in the future and believe they will make money again.

If they love western status symbols, then that’s surely good for you?
They love cognac because it has a high image, but whisky is also coming. At the same time the Chinese love all international brands.

How can you keep them brand loyal?
They must perceive you as a top brand incorporating a western way of life. Unlike in the West, you can still use above-the-line advertising effectively. The Chinese are as sensitive to TV ads and posters.

How do you view the increasing concentration in the global spirits industry?
Over the last few years there has been a tectonic shift in our industry. The sale of Seagram and Allied Domecq meant the disappearance of the no. 2 and the no. 3 in the industry to the benefit of Diageo and Pernod Ricard. So, today, we have two huge worldwide players with a product range covering more or less all product categories including wines.

However, if you add together the top ten players, including ourselves, they account for less than 30 per cent of the world’s wine and spirits industry. So we are far from the high concentration levels seen in other fmcg sectors such as cosmetics or detergents.

How probable is it that Rémy Cointreau could be purchased?
As a public company it’s theoretically possible. However, a majority stake is held by the Hériard Dubreuil family, who I believe, are not prepared to sell, mainly because our group has still a solid potential for growth. The general public has around 20-25 per cent.

But are you large enough to survive long-term as a global player?
Definitely, provided we remain focussed on our key brands at the top end of the market. Despite industry concentration none of the new groups have created a new brand. So we still compete against the same brands as ten years ago.

My competitor is not Pernod Ricard, Diageo or Moët Hennessy as such, but rather Martell, Hennessy, Moët & Chandon, Taittinger or Grand Marnier.

Why did you decide to divest Bols?
Bols is sold for less than $10 a bottle, and we sell at over $20 a bottle. So the difference was too big and the type of people to market these two categories are different.

We don’t want to be everywhere on a global basis. For instance, we have no intention of getting into Scotch whisky and having to fight against Diageo, Pernod Ricard or Edrington.  However, we do want to be the best in our niche products.

How do you see champagne within your overall portfolio?
Although the profitability of our champagne is still insufficient, we no longer intend to sell the whole division and will focus on our top two brands Piper Heidsieck and Charles Heidsieck. I prefer to downsize a little, but to sell at a much better quality.

I ran the champagne Moët & Chandon companies for seven years and am therefore very familiar with the segment. After making a careful analysis I strongly believe that I can develop our champagne division. Also, I believe that champagne is a very complimentary business to spirits, particularly cognac — both products have the same type of consumer and high pricing.

Where do you see the future focus of your company?
On world-wide premium brands in cognac, champagne and cointreau as well as some niche brands such as Metaxa and some very nice rums from Barbados.

Why focus on premium brands on an increasingly price-conscious consumer market?
The premium end is growing faster than the average annual growth in the world-wide spirits industry.

As retailers cut prices on a mass consumer market and hard discounters boom, don’t you think the times are against your premium brands?
I am absolutely convinced that the premium niche will not only survive, but will also grow. However, if you sell through discounters, you are going to have to fight on price. In addition, they usually don’t sell international brands.

We are not big enough to be in every part of the market and must choose where we want to be. By sticking to our premium-sector niche, we may not get the volume, but we will enjoy good margins and a very solid ROCE.

You are listed at most hypermarket operators. But are you happy to have your brands sold off-trade along with hundreds of other wines and spirits?
As long as the hypermarket operator merchandises in a competent way, yes. At the end of  the day, it is not in the retailer’s own interest to present products with dust on them or place a bottle sold for €60 neck-to-neck with one for €4.99. International hypermarket chains are usually very qualitative and good for our brands.

But the average German hypermarket multiple doesn’t offer the same type of ambience as, say, Auchan in your country.
We don’t have a choice. We make our statement by being absent from the hard discounters. Five years ago small liquor stores in Germany represented 16 to 17 per cent of the market, today they are down to around 10 per cent and continue to decline. So who is left?

Hypermarkets are still the best mass consumer sales channel in terms of image. Of course, we should prefer our products to be sold in a more pleasant store ambience, but no supplier has the money to develop his own chain of stores in order to sell his product. We therefore work with the retailer to ensure that the merchandising is professional.

However, for me the most important thing is not to work on the quality of the shelf, because at the end of the day there is little we or even big industry players can do about it, but on the consumers who buy our brands, which is why we constantly upgrade our marketing and merchandising.

Where do you see the growth areas in the spirits trade?
As Europe declines, the US will continue to grow by 3 to 5 per cent per year due to its positive demographics and increasing affluence. It remains the largest and most profitable market in the world, and we are fortunate in being able to achieve half our earnings there.

But doesn’t this make you vulnerable to the low dollar rate?
There is nothing I can do about it. The fact remains that we produce in Europe and sell in both the USA and south-east Asia, which is broadly dollar-linked. However, do not forget that we enjoy very solid profitability in the US.

Where else do you do you see growth in the world?
Definitely south-east Asia. By this I mean not only China but also Korea, Taiwan, Singapore, Vietnam, Malaysia, the Philippines and Indonesia. India also has vast potential, but the government must shed its protectionist mind-frame and reduce local excise duties.


Lebensmittel Zeitung with its online sisters (photo: LZ)
Lebensmittel Zeitung with its online sisters
Read in German: 'Kognak für China' by international editor Mike Dawson on page 41 of Lebensmittel Zeitung, no. 17, 28.04.2006

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