Pernod Ricard goes premium
Pernod Ricard has just posted better than expected results, due in part to long-term marketing investment. Group chief marketing officer Martin Riley talks to Lucy Tesseras about the company’s dedication to premiumisation.
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“The whole spirits business is not about volume, it’s about value,” says Pernod Ricard group chief marketing officer Martin Riley. “We’re not in the business of trying to get people to drink too much. We want people to enjoy what they’re drinking by giving them the best possible experience in terms of product quality and packaging.”
Riley’s premiumisation strategy seems to be working. The drinks giant announced a 6 per cent rise in six-month profits to €1.5bn (£1.3bn), driven by a strategy of getting people to pay more for premium alcohol brands. The company is the second largest in the sector behind Diageo and credits its continued marketing investment and innovation for its success.
The marketing function of the evolving business is overseen by Riley, who joined Pernod Ricard in 1997 having previously worked at Allied Domecq and Seagram, which were later acquired by Pernod Ricard.
The notion of going premium began with the acquisition of Seagram’s Scotch whisky brands in 2001, the most notable of which was Chivas Regal.
“For a luxury whisky brand like Chivas the whole tactile nature of the bottle, the silver box, the label and the embossing are so important, but that had all been taken away,” says Riley. “We fell in love with the brand we inherited but recognised it needed to be treated with a bit more respect. We put the cost back in, which meant the price of the pack went up but we knew we had to create something that was intangible.”
Pernod Ricard gave 18-year-old whisky brand Chivas 18 the same treatment by introducing a new heavy-base bottle and blue and gold label. As a result, it went from selling a few thousand cases in Japan to more than 400,000 cases globally.
Delivering a sense of luxury is vital for the whisky brand, which has collaborated with designers Christian Lacroix and Vivienne Westwood to launch limited edition bottles. Such special editions are present across the entire portfolio.
Absolut vodka launched a series of limited edition bottles inspired by cities around the world, including London, Rio and Istanbul, as well as a special bottle for Brooklyn designed by Spike Lee. Beefeater gin unveiled a bottle to coincide with the London Olympics, and as part of its sponsorship of the Ballantine’s Golf Championship in South Korea, the Scotch whisky produces a limited edition 40 year blend to commemorate the winners, which is also available for sale at $10,000 a bottle.
“It’s part of how we continue to generate interest and build brand advocates,” says Riley, who believes short-lived discounting can damage a brand in the long-term and instead prefers to add value.
“Our business is emotional, not functional. We try to build strong emotional links with people so when they visit a store they think of our brands. Most people only buy two or three bottles of whisky a year in the off-trade, so when you get that person in front of the shelf are they really going to opt for a bottle that’s 50p cheaper if it’s going to last them three or four months?
“It’s something they are going to share with their best friends and drink in celebration. You get to them by doing something different.”
Chivas Regal sits alongside Absolut vodka at the head of Pernod Ricard’s top performing 14 brands. They are followed by seven premium spirit brands, namely Ricard, Ballantine’s, Jameson, Havana Club, Beefeater, Malibu and Kahlúa, as well as five prestige spirit and champagne brands encompassing Martell, Glenlivet, Royal Salute, G.H.Mumm and Perrier-Jouët.
Three-quarters of the group’s advertising and promotion spend is focused on these 14 brands with priority given to emerging markets.
The rest of the French group’s portfolio is made up of wine, which comprises Jacob’s Creek, Brancott Estate, Campo Viejo and Graffigna, in addition to 18 local spirits brands.
The group operates a decentralised model that has allowed it to keep a sense of entrepreneurship alive in the business despite rapid expansion.
“Decentralisation is a fundamental tenet of Pernod Ricard,” says Riley. “We’ve been able to acquire very big brands and bring them into the family easily because the model allows for easy integration.
“It’s been remarkable how different companies, brands and cultures have been absorbed into the Pernod Ricard structure and world. We encourage our people to be entrepreneurs and to be as close as possible to the market they work in, the people they serve and their business clients.” (See Group Structure, below)
Entrepreneurship has been ingrained in the business since Paul Ricard launched Ricard in 1932, and remained a common theme following the merger with Pernod in 1975. Ricard’s son Patrick took over the reins in 1978 and was chief executive and chairman until 2008 when he nominated Pierre Pringuet as chief executive so he could focus on his role as chair.
Patrick continued to have a strong presence within the business until his sudden death last August at the age of 67. Riley describes both men as “inspirational figures”. Alexandre Ricard, nephew of Patrick and grandson of Paul, takes over as chairman and CEO at the end of January 2015. At present he is deputy CEO and chief operating officer.
The group prides itself on its family roots and its attitude of conviviality, which is illustrated by its tagline ‘créateurs de convivialité’. And although its companies reach far and wide across the globe, Pernod Ricard claims it works hard to bring people together to share ideas, whether in person or via its internal networks.
The company’s diverse portfolio and decentralised structure also allows it to trial initiatives with smaller brands and filter the results and knowledge gained back through the business.
Olmeca Tequila, for example, launched social music app NightTag last July, which allowed users to share photos, music and location information via Facebook.
“Olmeca is not our biggest brand,” says Riley, “it’s not a strategic brand in the same way we define our top 14, but because it’s slightly under the radar we can try things like this and then bring it into the mainstream by sharing the process through our internal social network. Our entrepreneurial system allows brands like Olmeca to be leading edge, to test things, learn from it, refine it, come back and share it. We’ll now take what we have learned from this and see if it is relevant for a brand like Absolut, Jameson, Kahlúa or Malibu.”
Pernod Ricard also runs an annual, week-long convention on the Ricard family island Les Embiez just off the coast near Marseilles and Toulon, which allows people to share ideas on a much grander scale. In April, the island will be home to around 1,000 Pernod Ricard employees from all its businesses around the world.
The week comprises key presentations and strategic direction from top management, as well as a marketing meeting with around 300 marketers from across the company, where the broad direction of some of the key initiatives are outlined. Alongside this, the island is transformed into a series of bars set up by the brand companies, representing what each stands for.
“It’s an exhausting week but you go away having met almost 1,000 people from the organisation; you’ve spoken to them and you may have had a drink with them,” says Riley. “It’s such a powerful endorsement of the Pernod Ricard values and way of doing business. People are at the heart of it. It’s where conviviality comes to life.”
CV: Martin Riley
2009 to date - Chief marketing officer at Pernod Ricard
2002 - International marketing director of Chivas Brothers
1997 - International sales and marketing director of Irish Distillers Limited (Pernod Ricard Group)
1990 - Marketing vice-president of Allied Domecq
1984 - Marketing manager at Beefeater
1980 - Seagram (London and Benelux)
1977 - Sandeman (port and sherry producer) marketing team
Pernod Ricard Results
Pernod Ricard posted a 6 per cent rise in profit to €1.5bn (£1.3bn) for the first half of the 2012/2013 financial year. Sales were driven by its biggest brands, the ‘Top 14’, which accounted for 63 per cent of overall sales, as the business ramped up advertising for these brands in the run-up to Christmas. Strategic marketing of these core labels will remain central to its global growth ambitions.
Martell did particularly well during the first half year, achieving 23 per cent growth globally, while Jameson grew by 13 per cent. Sales of white spirits were also strong: Absolut recovered in the US and continues to do well in emerging markets; Havana Club performed particularly well in Germany; and Beefeater experienced good growth, especially in the US, Spain and Russia.
Overall, growth remains strong in emerging markets, with a total increase of 14 per cent. China (18 per cent) and India (17 per cent) did particularly well, leading to an overall rise of 13 per cent for Asia.
Success in mature markets varied, however. Sales declined by 28 per cent in France, largely due to technical and temporary effects, the group says, and southern Europe, particularly Spain, remains “challenging”. Conversely, growth in the US is returning after a solid 9 per cent sales boost during the period.
CMO Martin Riley says: “In the US people traded down in spirits but then after a certain time traded back up. It’s as though they were saying, to hell with it, you’ve got to have some pleasures in life.”
Despite a less buoyant environment than last year, the group forecasts close to 6 per cent growth for the full 2012/13 financial year.
Pernod Ricard group structure
The group is led by the Pernod Ricard Holding in Paris, where chief marketing officer Martin Riley is based and the main strategic objectives are set. Within these parameters, it is then down to the individual brand and market companies to use their “educated intuition and specific brand and market knowledge” to put plans into action.
Within the Pernod Ricard family there are six brand companies: The Absolut Company; Chivas Brothers; Martell Mumm Perrier-Jouët; Irish Distillers; Premium Wine Brands; and a joint venture called Havana Club International. Alongside these are 75 market companies based across four regions - Europe, America, Asia and France.
Each brand company is located in its home country and is in charge of developing the overall strategy for the brand, while market companies are tasked with developing the group’s international brands in their region, as well as managing local and regional brands and implementing the group’s strategy and key policies in their location.
“The brand companies create all the programmes and positioning, everything to do with the brand, as they are the brand experts,” says Riley. “They interface with our market experts, which are structured in the same way and also function as standalone companies. This requires a lot of transparency between the brand companies and the market companies. It takes a lot of honesty, frequent contact and very clear communication.”
The concept of decentralisation goes right back to Paul Ricard, who established the Ricard business in 1932. Ricard lived by a two-pronged philosophy, which lives on in the business today: ‘make a friend a day’ and ‘never stint on your dreams’.
“He would tell his sales team to go round to bars and make a friend everyday. Talk to people, find out about them, buy them a Ricard and treat them as human beings. That way you’ll have them for life, they’ll talk to their friends and we’ll build a great brand,” says Riley.
“It’s exactly what we’re still doing today. Face-to-face marketing, building relationships with barmen, understanding from consumers directly what they want - we don’t just rely on market research, we send our teams into bars all around the world to get face-to-face reactions from real people in real bars.”