Pernod whisky needs Latin America focus

Often, in press briefings, what isn’t talked about can be just as revealing as what is.

Pernod Ricard’s Capital Markets Day in Scotland this week focused strongly – and understandably – on the company’s success story with its Chivas Brothers Scotch whisky business in Asia, and in the luxury aged segments.

I say understandably, because these are both sections in which the business outperforms its bigger rival, Diageo. In ultra-premium and prestige Scotch, for instance, Chivas has a top-ranking 46% global market share, while for whiskies aged 21 years and above, it is utterly dominant with an 85%-plus slice of the market.

The success of Chivas Regal, Ballantine’s and Royal Salute has driven the company’s success in China especially, and more generally across Asia. Should India ever get around to easing its crippling excise taxes, the current soaring growth of parent company Pernod’s Indian whisky brands Royal Stag and Blenders Pride suggests that Chivas could repeat that success with Scotch on the sub-continent too.

This week, the company talked in detail about China and Russia, about luxury and about France too – where it has a leading 30% market share centred on premium whiskies and above, thanks in no small measure to the success of Ballantine’s which shifted more than 1m cases in the country last year.

But it’s a big world out there, and less was said in particular about the fast-growing Scotch markets of Latin America. The Americas in total accounts for just 19% of Chivas’ Scotch revenues – compared to 45% for Asia/rest of world and 36% combined for France and the rest of Europe.

Not that the company is exactly unsuccessful in the region – its Passport brand sold more than 1m cases in 2011 thanks largely to success in Brazil and Mexico. But Diageo’s Buchanan’s is selling phenomenally well, targeting 1m cases in Latin America alone this year and becoming the fastest-growing blended Scotch in North America, where the Hispanic population has taken the brand to their hearts.

And Diageo’s Old Parr has shaken off its associations with the stagnant Japanese blends market to find similar success in Colombia and Venezuela in particular; it too should sell 1m cases in total during 2012.

Developing markets

Such figures fuel the concerns of analysts and investors who worry that Pernod may be falling behind its rivals in the developing markets of Latin America and Africa in particular.

The company is working hard to address this, opening a series of subsidiaries in African countries this year – and Pernod CEO Pierre Pringuet was bullish this week in his assessment of the company’s ambition as the “challenger” in the regions.

Chivas Brothers is a hugely successful part of the overall Pernod Ricard business, accounting for 30% of the company’s profits and, alongside stablemates including Martell and Absolut, driving its growth in the developing markets of Asia in particular.

Several historic factors have contributed to that success story: the huge whisky stocks inherited from the Seagram business; the pioneering job done by that company in building routes to market in Asia; and Pernod’s own brand-building prowess, which has over the past decade driven enormous volume and value growth for Chivas Regal, the Glenlivet and Royal Salute.

The challenge now is for the company to repeat that success on a truly global scale, including the Diageo stronghold of the US, plus Latin America and Africa. And if this week’s briefings did much to explain how Chivas Brothers has become so successful over the past 10 years, they also raised further questions about how it will fare in the decade to come.