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Pernod Ricard to Cut Costs as Distiller’s Top Two Brands Suffer

Published on Sep 1 2016 11:16 AM in Drinks tagged: Cognac / Pernod Ricard / Absolut / Chivas Regal

Pernod Ricard to Cut Costs as Distiller’s Top Two Brands Suffer

Pernod Ricard, the world’s second-largest distiller, plans to cut costs by €400 million after sales of its top two brands, Absolut and Chivas Regal, declined amid weakness in Asia.

The company is also reorganising its business in China to add a dedicated salesforce for premium brands and it’s trying to speed decision-making in the US through a new structure, Pernod said in the slides to a presentation Thursday. While full-year profit met analysts’ estimates, sales of its two largest brands declined 4 per cent on an organic basis.

Pernod Ricard has acquired smaller, fast-growing brands such as Monkey 47 gin as sales of its flagship Absolut vodka in the US have slowed in recent years. Chief Executive Officer Alexandre Ricard, the third-generation family member to run the company, is also seeking to sell more Martell cognac and Chivas Regal whiskies to the emerging middle class in China as demand for high-end cognac in the country wanes after a government crackdown on graft. Still, fourth-quarter revenue dropped 1 percent on an organic basis.

"Sales were weak, leaving a bit of a bitter taste to the close of the year," wrote Javier Gonzalez Lastra, an analyst at Berenberg. "It feels like there is some urgency at Pernod to improve financial performance."

Profit from recurring operations rose to €2.28 billion in the 12 months through June, the Paris-based company said Thursday in a statement. The increase was 2 percent on an organic basis. Pernod also forecast growth of 2 percent to 4 percent this year.

Pernod said it expects to achieve the cost cuts by fiscal 2020. The company plans to reinvest €100 million  of the savings on advertising and promotions.

"We clearly expect to do better in China next year," where the company is adjusting to focus on the country’s emerging middle class, Chief Financial Officer Gilles Bogaert said in an interview. Pernod has split its team in China into two parts, with one focused on high-end brands such as Martell cognac and the other on the company’s so-called premium brands such as Chivas Regal whisky.

Sales of Absolut vodka, the company’s largest brand, fell as efforts to reinvigorate the brand through new packaging and a high-end alternative, Absolut Elyx, fell short. The company is seeking better performance from the brand next year by releasing Absolut Lime in the US next year amid rising demand for Mexican-themed drinks such as tequila cocktails, Bogaert said.

Pernod aims to make the cost savings by focusing on raw materials and manufacturing costs rather than cutting jobs, Olivier Cavil, a spokesman, said by phone.

News by Bloomberg, edited by Hospitality Ireland

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