Posted on | September 28, 2014
Written by | Kristen Wolfe Bieler
The last time this publication featured Pernod Ricard on its cover—in September 2003—the company had, in a very short time, transformed itself from a small player in the U.S. market with a few brown spirits brands, to the third largest wine and spirits company in the world through a steady stream of acquisitions and organic growth.
Eleven years later, Pernod Ricard is a different company yet again. The acquisition of mega-brands including Malibu, Kahlúa, Perrier-Jouët, Absolut, Avión and Kenwood, along with massive growth of Jameson (up over 400% to 4 million cases globally) have bumped Pernod Ricard up to the world’s second largest wine and spirits giant. With $12 billion of annual revenue and 19,000 employees, Pernod Ricard understands what it takes to achieve phenomenal growth on premium brands in spite of a global recession and ever-fiercer competition.
“Premiumization is about layering more and more authenticity in the brands,” declares Bryan Fry, President & CEO, Pernod Ricard USA. “The U.S. market is the largest, most profitable and exciting place in the world for our industry because you have the most advanced cocktail culture anywhere, and a consumer who is intensely curious. No matter what you hear about growth in Asia, this is not going to change for a very long time.”
Why The U.S. Consumer Rules
Inquisitive consumers are critical for a portfolio like Pernod Ricard’s, says Fry. Americans are hungry for innovation, brand extensions, craft production and above all, stories: “They want to know why Glenlivet is a great single malt, what the Jameson distillery is doing differently, and how Martell has been making Cognac for 300 years. The art of storytelling has come back and it has changed the way we engage consumers today; it informs our store approach and all our digital campaigns.”
Storytelling is not new for Pernod Ricard. When Paul Ricard launched his company in Marseille, France, in the 1930s, his business strategy was to engage bartenders and shopkeepers one by one. Ricard had the charisma—and the product quality—to create fast converts who would in turn sell and promote his brand, the anise-flavored Ricard liqueur, to others. “It’s almost like Facebook or social networking today,” says Marty Crane, SVP, Spirits Sales, Pernod Ricard USA. “This is how he built the company, one drink at a time.”
No brand is more evidence of this than Jameson. “The key ingredient in Jameson’s success is advocacy—consumers selling other consumers,” explains Crane, who has worked with Jameson since 2001, when the brand’s annual sales were 100,000 cases in the U.S. It is set to break 2 million here this year. “I’m not sure that many Jameson fans even realize it is Irish whiskey—it’s transcended the category,” he adds.
The Jameson phenomenon is part of a larger whisky explosion in general, a trend that Fry admits “not a lot of us saw coming.” New consumers are flocking to the bourbon, rye, Scotch and Irish whiskey categories in droves and Fry notes that, encouragingly, it is happening across every price point: “We see growth in the $20-$30 segment, and right up to the $300-plus range, which is really impressive.” To capture the whiskey trade-up, Jameson created Black Barrel, a super-premium whiskey that is aged longer and packs more flavor than the original, which was released in select markets last year, and is set to roll out nationally this fall.
Millennials in the tech industry have emerged as an interesting—and influential—consumer group, notes Fry: “They spend all day focusing on things that change every five seconds, so at the end of the day they want to experience something that has been in the barrel for 10 or 20 years.” They have formed tasting groups and have become passionate advocates for brands like Aberlour, Midleton and Redbreast. “The challenge with this consumer is never to get too pretentious with our message,” says Fry.
Avión’s Super-Premium Success Story
A young brand with Jameson-like momentum, believes Crane, is Avión. The ultra-premium tequila is only five years old, yet grew 93% last year to hit 52,000 cases. In July, Pernod Ricard upped their investment from 20% to take a majority stake in the brand. “I get the same feeling about this brand that I did about Jameson—it has the same energy and excitement,” Crane says.
Over the last few years, Pernod Ricard saw serious engagement with bartenders and consumers. “One of the greatest things about the U.S. consumer is that they like to try new things,” says Fry. “Patrón has really owned this space, but Avión is a great-tasting liquid with an unbelievably dynamic founder, Ken Austin, and we are seeing growth rates at a level we’ve never experienced before in regard to a super-premium brand.”
Avión Silver leads, followed by the Reposado and Añejo, and two innovative line extensions—Avión Espresso; and Reserva 44, a $150 extra-Anejo aged 44 months. A surprise top seller in the line-up is the 375ml size: “The smaller size has been great for recruitment—consumers don’t have to lay out $40, they can try the 375ml for $20, and it has really worked,” says Crane. With significant traction in the on-premise across the line-up, Crane sees Avión well on its way to becoming a very big brand.
Staying On Top of The Most Competitive Category
Since Pernod Ricard purchased Absolut in 2008 for $8.3 billion, the vodka segment has become increasingly “tough,” to use Crane’s word, even for one of the industry’s most iconic brands. And yet Absolut—the number one imported vodka brand and Pernod Ricard’s number one global priority—made an interesting move in recent years: It took a price increase.
“Absolut is arguably the most distributed item in the business, and it’s constantly under attack, just as all the top brands in our industry are,” explains Crane. “The price increase was unusual in the vodka category, but it is truly reflective of the brand image and the incredible amount of money we spend promoting it to the consumer.”
In addition to a step up in price designed to reinforce the brand’s premium image, the company unveiled the ultra-premium line extension, Absolut Elyx (see sidebar). “We want to take the same dynamics that are driving the whiskey category and bring them into other categories, like vodka,” says Fry.
Founder Michel Roux forged close ties between Absolut and the creative arts community in the 1980s, and the brand continues to get lots of attention for coveted limited edition releases such as the City Series, and a new Warhol bottle hitting the market now. Yet the heart of the brand remains Absolut Blue Label, the original, which represents over 75% of the franchise business. Of the 14 flavors, Citron and Mandarin are top sellers; Citron is practically a brand in itself.
Managing a mature brand of Absolut’s size is all about sales execution, which Pernod Ricard refers to as “the last three feet.” “My sales team controls pricing, promotion, distribution, shelving, back bar and menu placement,” explains Crane. “The majority of consumers have still not made their decision when they walk up to the shelf or the bar, so it is critical that we do all these things perfectly.”
Like most major spirits brands, Absolut aims to attract the sought-after Millennial consumer, yet with a sales volume of 5 million cases in the U.S., its demographic is in fact much wider. “It’s really a brand that spans from the LDA drinker until as long as you live,” Crane says.
A Growing Wine Empire
Known primarily as a spirits giant, Pernod Ricard has been steadily increasing its share in the wine and Champagne categories, with publically stated plans to keep growing. “Pernod Ricard is very bullish on the wine category in the U.S.; we are putting a real stake in the ground,” says Jeff Agdern, SVP, Wines & Champagnes. “We have aspirations to become a very major player in the wine category.”
With the Allied Domecq acquisition in 2005, Pernod Ricard morphed into somewhat of a Champagne behemoth overnight, adding G.H. Mumm and Mumm Napa, as well as the iconic Perrier-Jouët brand to its portfolio. Famous for its close ties to the visual arts community and its roots in art nouveau, Perrier-Jouët has continued to innovate under Pernod Ricard’s leadership. Most recently, the brand partnered with Brazilian artist, Vic Muniz, who created a stunning new rosé package with a hummingbird.
For Mumm, the company has formed quite a different alliance—as the official sponsor of Formula 1 racing. Also, via limited edition bottles, VAP and themed outer cartons, Mumm will be offering fans the opportunity to download a new David Guetta song this fall, and the brand will be part of his new music video. (The musician has over 52 million Facebook fans.)
While bubbly sales are concentrated around the holiday season (less so for Mumm Napa), it is not a one-time purchase for many people. “That is where the difference between on- and off-premise comes in,” Agdern explains. “Champagne buyers are drinking all year round, particularly on-premise.” There is also the still-booming nightclub occasion where accounts are opening a high volume of bottles every night. “We still have a bit of a job to get people into the mindset of regular Champagne consumption,” Agdern shares.
The Allied portfolio also brought Pernod Ricard the largest brand in New Zealand, Brancott. Today it’s at 200,000 cases in the U.S., and while Sauvignon Blanc dominates by far, Agdern is noticing an appetite for other varieties, particularly Pinot Grigio from the brand’s recently introduced sub-range, Flight Song.
Graffigna has also grown—from zero to 100,000 cases in the U.S. over the last decade, and is one of the most awarded Malbec producers from Argentina. Roughly 45% of the brand’s volume is on-premise, in by-the-glass placements, which is a testament to its quality and value. A recent tie-in promotion with Riedel glassware aims to build this business.
Jacob’s Creek, part of Pernod Ricard since 1989, has held its ground—no small achievement in the struggling Australian category. “Jacob’s Creek has weathered the storm better than most is because it is a real, credentialed wine brand, unlike many of the fabricated critter brands that have come and gone,” explains Agdern. Pernod Ricard plans to reassert its premium-ness via a package makeover for the entire line. “Australia is one of the great wine producing regions in the world and it’s our responsibility to revitalize this category, and not just for our brand,” he adds.
The biggest recent news is Pernod Ricard’s acquisition of the iconic Sonoma brand, Kenwood, in May. There is tremendous opportunity, Agdern believes, for a brand that while holding steady at an impressive half million case annual volume, had “become a little sleepy.” A packaging overhaul is in the works, but in the short term, Agdern plans to simply reacquaint consumers with the legendary brand, founded in 1970. “Kenwood is not in great distribution throughout the country—40% of its sales are in California,” he notes. “Right now we are working to get the wines on display, and get people tasting a brand they may have overlooked in favor of sexier labels.” In some cases, pricing might increase: “We want to make sure we position Kenwood as the premium Sonoma wine it is.”
In addition to acquiring, Pernod Ricard has also been innovating, most notably with Deadbolt. In year one it went from 18,000 to 60,000 cases, becoming the best-selling new red blend by value over the last 12 months (ending in July). The brand targets a Millennial male audience, and Agdern’s team will release a limited edition by tattoo artist David Hale this month.
Millennials seem eager to experiment with lesser-known varieties, Agdern observes. This is good news for Campo Viejo, which has quietly emerged as the number one Spanish brand by value in the food and drug sector. “We believe Tempranillo could be the next grape that gains widespread recognition; it’s similar to Malbec in taste profile, just not as well known,” says Agdern.
Suppliers once viewed the U.S. market state by state. Today, it’s all about demographics when it comes to understanding consumer behavior, and the growing Hispanic population affords huge growth opportunity, for companies who get it right. “The Hispanic market is really exciting,” says Fry. “Look at the blended Scotch category across the country—it’s not doing much. But if you carve out the Hispanic market, it’s very healthy.” Pernod Ricard has long activated within the Hispanic market for Chivas, which just had its best year ever (interestingly, while Chivas skews off-premise in the general market, it is an on-premise brand within the Hispanic demographic).
Last year Martell unveiled Caractére, an extension designed for the Hispanic market. “We know that Cognac is seen as very premium with Hispanic consumers and Martell has a lot of brand recognition in countries where many U.S. Hispanics have emigrated from, yet they hadn’t previously engaged with the brand,” says Fry. Caractére features a more accessible price point, and a taste profile that works well for sipping solo yet is also highly mixable with soda or juice.
Bright Spots On The Economic Horizon
Softness in the on-premise sector has been a particular challenge for Pernod Ricard USA. “Brands—particularly premium ones—are built in the on-premise; it’s the best place to succeed with new innovation,” says Crane. “Particularly when looking at products like high-end single malt Scotch over $100; without trial on-premise, it is very hard to recruit consumers.”
While the fine dining segment, particularly in large cities, recovered nicely, and counter service establishments have seen huge growth, the casual dining segment—Olive Garden, TGIF, Outback Steakhouse—still struggle. “We have partnered with many establishments to find ways to increase drinks per check and better use their menus to drive sales,” says Fry. One very successful promotion—an Avión Watermelon Margarita at Outback Steakhouse—sold 50,000 drinks in less than two months.
Both executives are optimistic signs of recovery. Indeed, recent data from the U.S. Census Bureau shows eating and drinking place sales totaled $47.3 billion in July, the strongest monthly volume on record, making for a 6.2% increase over a 12 month period, thanks to steady job growth and improved consumer confidence.
Leveraging The Middle Tier
As the market continues to rebound, Pernod Ricard is in a stronger position than ever to reach consumers. The company recently solidified its distributor partnerships, signing agreements with Southern Wine & Spirits, RNDC, Martignetti and Major Brands; as of this fall, Pernod Ricard’s portfolio will have dedicated sales people and in some cases entire divisions, focusing exclusively selling its brands. “Our distributors are in the brand-building business as much as we are,” says Fry. “We have 250,000 customers in the U.S. and to touch all of them we need that middle tier. If we sit around with our wholesalers and battle over a $1 margin, we won’t get anywhere. We need to be highly connected and intertwine our interests. After all, no one makes money in this industry until the consumer picks up a bottle and takes a drink.”
Gearing Up For Holiday Reward
There is no point in denying it, says Fry, “the OND [October November December] period is absolutely critical, particularly for our business which is skewed premium to super-premium.” The good news for portfolios like Pernod Ricard’s is that the research shows that the consumer trades up in a significant way during the holiday period. “First there is celebrating, where we see a lot of trade up, then there is gifting,” Fry says. “Even the standard consumer will purchase luxury brands, and that is the opportunity we want to take full advantage of.”
The execution of value-added packaging (VAP) is inherently complex, says Crane, and the best strategy is to keep it simple and not overcomplicate the offering: “We want to seize the opportunity for gift-giving and want to tie every VAP back to the brand identity.”
About 40% of Pernod Ricard’s Champagne sales happen in November and December, primarily at retail. “Champagne has become even more of a spontaneous purchase, which is why in-store VAP is so crucial,” Agdern notes. Look for a limited-edition VAP for Brut and Grand Rose called Enchanted Nature, designed by Warren Du Preez and Nick Thornton Jones.
It’s not surprising to learn that brands that perform best during the holidays are those that are heavily promoted all year long. “The true value for a brand is what you do outside of the holiday window, and we are spending at some of the highest levels in the industry,” says Crane.
Social Responsibility 2.0
Longtime champions of responsible drinking, Pernod Ricard USA is a core member of the Foundation for Advancing Alcohol Responsibility (FAAR), formerly The Century Council has been targeting their responsibility blitz at the retail tier. “The education at that level can always improve, so we offer simple tools like hand-outs, flyers, stickers and staff education,” says Fry. Recently, the company partnered with Alcohoot, creator of breathalyzers that plug into smartphones which enable users to measure their BAC by downloading a single app (they are as accurate as police devices). The app also offers an Activity Tracker so users can learn about their behavior and how their bodies process alcohol. “Everyone has to take responsibility for their own actions, but we want to do our best to provide helpful tools and educate.”
The Magic of Elyx
When Jonas Tahlin, CEO of Absolut Elyx—now based in the U.S.—gives his tasting note, “hints of fruit, macadamia nuts and a hint of vanilla,” he’s not describing a Single Malt Scotch, but rather the ultra-premium addition to the Absolut family. “That is the most important thing about the way Absolut Elyx tastes—that it actually has character,” he explains. “And also unlike most vodkas, you can roll it around in your mouth like you would a Scotch.”
The reason for this is the way Elyx is produced. While Absolut sources wheat from southern Sweden, the wheat for Elyx is hand-harvested from a single farm, the Rabelof estate. Its pristine water (like Absolut’s) is thousands of years old from a proprietary deep well. Distilled in a 1921 copper still, with the addition of “sacrificial copper” to achieve the ultimate purity and texture, Absolut Elyx weighs in at 42.3% abv. “The higher alcohol content gives it a superior mouthfeel,” says Tahlin. “One might think that higher strength would be less smooth, but in this case it creates a silkier texture.” Packaged in a “work of art”-styled bottle which helps to tell the story of its unique production process, Elyx is the jewel of the Absolut portfolio.
“Strategically, Absolut Elyx—at twice the price of Absolut—is consistent with Pernod Ricard’s philosophy of premiumization,” notes Tahlin, who (with a “special task force” of eight dedicated people) has been charged with growing Elyx in the U.S. market—a global top priority for the brand. “We are trying to add profit to the value chain for distributors and retailers. We believe Elyx could be incredibly successful in the U.S. in the not-so-distant future.”
For the last year, Absolut Elyx has been available in limited quantities to roughly 1,000 mostly on-premise accounts in nine cities. Interestingly, consumers have no problem understanding that a truly hand-crafted, small-batch, super-premium vodka could come from a huge supplier like Absolut. “Once we explain how it is made, which is also communicated through the package, the consumer appreciates how different this is,” says Tahlin. “A decade ago, there were stereotypical images of luxury—caviar, yachts—but today people aren’t wearing brands as badges. They want something authentic that someone has truly worked hard on to make fantastically good.”