Pernod Confident On Asia, Jacob's Creek Selling Well In China
Drinks group Pernod Ricard, which is being targeted by activist investor Elliot, sounded confident this week over its growth prospects in Asia, including for wines such as its Jacob's Creek brand.
Pernod, the world's second-largest spirits group after Diageo, said it was "uniquely positioned" to quench a thirst for premium drinks, from a fast-growing, affluent middle class in Asia.
The French company said growth would continue to be fuelled by strong demand for its Martell cognac and Chivas whisky in China, and for its Seagram's whiskies in India.
It was also banking on a reorganisation of its business in Korea and a diversification of its brands, sales channels and markets to drive its future growth.
Digital acceleration and the launch of Seagram's whiskies in Vietnam, the Philippines and Myanmar would also help it win over clients from the sector tagged as new 'Middle Income and Affluent Consumers' (MAC), it said.
Pernod is under pressure from US hedge fund Elliott to improve profit margins and corporate governance.
In February, Pernod vowed to lift its margins and shareholder returns under a three-year strategic plan that Elliott described as a first, small step.
Jacob's Creek Wine Strong In China
China is the group's largest market after the United States, accounting for around 10% of total group sales, and the company said that it still aimed to double the size of the imported spirits market in China to 2% by 2025.
Its goal in the country was to "educate and recruit new customers" through its luxury, prestige, premium and wine sales channels, Asia CEO Philippe Guettat told a call.
Australian brand Jacob's Creek was leading the group's wine portfolio in China, with double-digit sales growth, "which would suggest that Jacob's Creek remains strategic to China," Jefferies analysts noted.
There has been recurring speculation that Pernod Ricard was considering the sale of its wine division, which includes Jacob's Creek and Spain's Campo Viejo and makes roughly 5% of group sales.
Asked if the group could buy a brand of the Chinese liquor baiju, Guettat said, "Clearly it's a category we are observing and looking at but there is no action, not even intention announced by Pernod Ricard at this stage"
Guettat also said he "would not expect any impact" on Pernod Ricard's business in China from a government's controversial "social credit system" to nudge Chinese citizens to adopt good behaviour, including motivating them to pay debts and fines, as the system did not relate to alcohol consumption.
Pernod's Asia businesses saw organic sales growth of 15% in the first nine-months of its fiscal year 2019, outpacing group sales growth of 6.3% and driven by a 21% jump in China and a 19% increase in India.