Pernod CEO: Rebuilding brands takes time, money and creativity
Alexandre Ricard tells The Spirits Business that business agility, humility, innovation, and securing top talent will enable Pernod Ricard – the world’s second-largest alcoholic drinks producer – to retain its long-standing competitive edge.
*This feature was first published in the June 2017 edition of The Spirits Business
Building number 12 along the leafy Place des États-Unis in Paris is a somewhat unassuming spot for the global headquarters of the world’s second-largest alcoholic drinks group. As I walk through its historic façade and into the modern foyer, I am unconvinced that this is really the home of Pernod Ricard, maker of such brand giants as Absolut, Ballantine’s and Havana Club. But approaching the front desk I see a handful of these familiar bottles lined up neatly in a row, and am reassured.
This natural blending of products into a setting is indicative of an important shift at Pernod Ricard, embodied by its corporate signature: créateurs de convivialité. In recent years, the French firm has substituted more traditional product-centered business strategies for a consumer-centric model focusing on moments of consumption – or moments of ‘convivialité’. The “call to action” – as Alexandre Ricard, CEO of Pernod Ricard, puts it – reverberates throughout the entire structure of the group and aims to place one of its brands “at the heart of every moment of sharing and celebration around the world”.
Within Pernod Ricard’s HQ, the CEO himself sits somewhat inconspicuously at a desk in a bright and stylish open office, facing his busy team. No barriers, closed doors or obvious rank of superiority – the room could quite conceivably belong to a bright-eyed startup. We move to a nearby meeting room, where Ricard tells me that his first priority when he became CEO in 2015 was to implement the ‘convivialité’ vision.
“If you want to be consumer-centric, which is obviously at the heart of our business model, consumers don’t think by industry segments,” he states. “They are not industrial, they don’t think ‘Tequila’, ‘whisky’, ‘gin’, ‘vodka’, ‘Cognac’. They think brands – not brand – a number of brands depending on who they are with, where they are, and at what time.”
Pernod Ricard has recently rolled out a new structure based around ‘moments of consumption’, which Ricard says is a “global vision, activated locally”. He calls it a big shift for Pernod and also the entire spirits industry, which is more widely adopting similar occasion focused strategies.
“It allows you to have a much more clinical approach from a strategic point of view, from an allocation of resources point of view, and from a route to market point of view as well,” he claims. “It allows you to activate the right portfolio of brands at the right time in the right accounts. That’s a pretty massive shift. Organisationally, our marketing teams are no longer ‘white spirits’ or ‘brown spirits’ – no, ‘moment of consumption’.”
Indeed, Ricard has implemented extensive and successful change over the past two years, but he admits that his position at the company – the foundations of which were established by his grandfather, Paul Ricard, in 1932 – was far from certain. After undertaking a number of internships at the group, a young Ricard sent his CV and cover letter to his uncle, the late Patrick Ricard. His uncle, who spearheaded the global expansion of Pernod Ricard, sent the enquiry to the then head of HR, who set up an interview.
“It didn’t really go well,” Ricard confesses, “and it didn’t last long because very quickly I realised I was wasting both the HR director’s time and my time. I had a quick realisation during the first 10 minutes of that interview that it was probably not the right thing for me to join Pernod Ricard at the time, despite my love of the industry and the company.”
And so Ricard embarked on a career of consulting and banking, but always with one eye on his family business. Eight years after his first interview at Pernod, Patrick Ricard asked his nephew if he was serious about joining the business, and suggested he reapply. Following a much more positive meeting, Ricard joined Pernod Ricard’s audit and business development department in 2003. He subsequently worked across Irish Distillers, Asia travel retail, and distribution. In 2012, it was confirmed that Ricard would succeed Pierre Pringuet as chairman and CEO.
Was Ricard being primed for the top position throughout his time at Pernod Ricard? “I was just following the career path in line with what high potential employees of Pernod Ricard usually go through,” he answers, modestly. “It was not necessarily the plan.”
Change has certainly been the order of the day since Ricard’s appointment was announced. In 2014, Pernod Ricard embarked on a global operational efficiency programme called Project Allegro in a bid to save €150 million (US$167m) over three years. The group grabbed headlines when it admitted that 900 jobs – or 5% of its global workforce – would be cut under the project. According to Ricard, Project Allegro followed a business diagnostic of Pernod Ricard that begged the question: “Is our global organisation fit today for the long-term?”
“Over the years we experienced significant growth, both organically and through acquisitions, and absorbed part of the Seagram’s business, the Allied Domecq business, The Absolut Company, and so on,” he explains. “And along with all this humongous growth in acquisitions came in probably a few complexities, layers and some bureaucracy; and that’s fine. It happens especially when you are focused on growth.” ￼￼Nevertheless, Pernod Ricard’s executive committee decided to strip layers from the business to enable “faster decision-making” and “really go back to [its] roots of entrepreneurship,” Ricard adds.
The final financial impact of Allegro was registered early last year, but in August 2016, Pernod Ricard announced a plan to extract €200m (US$258m) in profit and loss savings and a further €200m in cash savings. The funds will be gathered through changes to media buying, procurement, stock forecasting and by discontinuing a number of underperforming SKUs. A significant portion will be reinvested into the business.
Innovation will also continue to be central to Pernod’s growth strategy, according to Ricard, and will stem from in-house developments and acquisitions – particularly bolt-on purchases. Referencing Pernod’s acquisition of a majority stake in German gin brand Monkey 47 at the start of 2016, Ricard says: “Our organisation lends itself extremely well to this type of partnership. We have always had this matrix organisation, where brand companies have full responsibility for supply, quality, and strategic positioning. Then you have our distribution network.”
In January 2017, Pernod re-entered the American whiskey market with the acquisition of West Virginia-based ‘craft’ distillery Smooth Ambler. The group also confirmed plans to move into mezcal last September, but no further update has since been provided. “We look at, to be fair, basically everything,” Ricard stresses. “Mezcal is obviously on the list, in as much as everything else. There are many other attractive categories, and, by the way, just because we have one Bourbon brand, it doesn’t mean that we are not going to look at other brands.”
Ricard adds that Pernod will continue to manage its portfolio “from a dynamic point of view” through bolt-on purchases that have a “US bias”. Further divestments could also be on the cards following the recent sales of Paddy Irish Whiskey to Sazerac and the Domecq range of brandies and wines to Bodega Las Copas. As other international drinks groups with a skew towards spirits move out of the wine industry completely, might Pernod Ricard follow suit?
He answers: “First of all, we are the fourth-largest wine producer in the world, while at the same time, wine is just under 5% of our business. This says that the wine industry is extremely fragmented. But we have a great wine business and we have a specificity that many players don’t – we are a multi-origin global wine company.”
Indeed, Pernod’s diverse wine business is reflective of its dominant and multifaceted spirits unit. According to Ricard, a US-centred white spirit brand was the last “must have” acquisition for Pernod, and was satisfied when the group bought The Absolut Company in 2008. Now, Ricard says his firm has a “more balanced” portfolio of white and brown spirits.
“Our last big ‘must have’ acquisition was Absolut because at the time we were still lacking a little bit of scale in the US, and there’s no doubt that the Absolut acquisition gave us the necessary scale in the largest spirits market in the world to then to develop brands like Jameson,” he claims. “So now we have the scale everywhere we want to have the scale.”
However, despite its status as a key brand for Pernod in the US, this is the very market in which Absolut is now struggling. In 2015, Pernod took a €404 million impairment charge on Absolut, at the same time announcing a plan to stabilise the brand in the US in the medium term by focusing on super-premium product extension Elyx. Ricard says Absolut’s difficulties remain confined to the US, and emphasises that the brand is performing well in rest of the world markets.
“It’s fair to say that we probably missed recruiting one generation [in the US], and once you’ve done that, the reality is it takes three things to turn a brand around: time, money and creativity,” Ricard admits. As such, Absolut’s packaging has been revamped, flavours in its range have been culled, and its innovation strategy has been reworked. Released in January this year, Absolut Lime was the brand’s first flavour extension in three years, and Ricard says the product has been a great success.
Pernod’s US footprint is set to grow significantly should the trade embargo between the US and Cuba be lifted, allowing the group to launch its Havana Club rum in the market. Despite an ongoing court battle with Bacardi over the Bermuda-based company’s own Havana Club label, Pernod legally owns the trademark in the US and is “prepared to be the first to sell Cuban rum” in the market.
A significant increase in tourism to Cuba has already had an “extremely positive impact on Havana Club’s sales in airports”, says Ricard. “People have made Havana Club the third-largest rum brand in the world without even having access to the number-one rum market – the US, which represents 40% of the total rum market.”
Donald Trump and Congress’s decision over the embargo is one political issue that could have a significant impact on Pernod Ricard’s business; another is Brexit, which, according to Ricard, is already yielding positive financial results. “The paradox is that the depreciation of the British pound has actually been a positive for Pernod Ricard globally because, purely from a business point of view, we are a net exporter from the UK.”
Look across the continent to Asia and a different paradox comes into view: as Pernod Ricard’s Martell Cognac brand recovers in China following a government clampdown on luxury gifting, its Scotch business continues to decline. Ricard says that its single malt portfolio, led by The Glenlivet, is growing in China, but its super premium blended stable, led by Chivas Regal, remains contracted.
“Our specific issue is Chivas in China,” he states. “When it came to the difficult times we literally focused our investment behind Cognac.” Ricard adds that since China’s austerity measures took effect, Pernod has diversified away from its singular ‘prestige’ route to market and created a separate sales force to focus on developing its premium labels, such as Absolut, Ballantine’s and Jacob’s Creek.
For the world’s number-two spirits company with a footprint spread across emerging and established markets, business will never be plain sailing. On future challenges, Ricard is philosophical: “You cannot predict everything – that’s what’s exciting. You need to be both humble and on the lookout all the time, as well as extremely flexible and agile. If there had to be one focus, just one, I would say it’s not strategy. The one single focus, if I had to pick one, is people. If you have the right people, you’re going to win. It’s as simple as that.”
This was a message instilled in Ricard long ago by his uncle. As we leave the meeting room, I notice a portrait of Patrick Ricard hanging on the wall – a nod to the spirit of entrepreneurship that has helped make Pernod the company it is today. However, with the young and confident Alexandre Ricard in the driving seat, the group’s vision is clearly fixed on the future.