Chairman & Chief Executive Officer, Pernod Ricard SA
Pernod Ricard Would Pass on Cost of Tariffs to Consumers, CEO Says
Aug.30 -- Alexandre Ricard, chairman and chief executive officer at Pernod Ricard, discusses how he's protecting his business in ...
About Alexandre Ricard
In February 2020, Alexandre Ricard stated that Pernod Ricard assumed a gradual recovery in China would begin in March, with a return to a "somewhat normal situation" by June, excluding Hubei province. He noted that China is the company's second-largest market and that the main beverage lines affected were Martell cognac and Chivas scotch whiskey. Ricard emphasized that the assumptions were not market predictions but were provided for transparency. He also said the company was following local health and safety guidelines and remained focused on delivering its three-year strategic plan, "Transform and Accelerate," which he described as delivering on expectations with diversified growth across regions and brands. Ricard indicated that Pernod Ricard would continue to pursue bolt-on acquisitions and partnerships, as it had done with brands like Malfi gin and Jefferson's bourbon, while also disposing of assets that no longer fit its strategy.
Transcript (16 segments)
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Interviewer0:00
Let's start with traders. That's what is sort of top of our agenda today. Is it the toughest trade environment that you've ever seen, and how are you protecting your business?
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Alexandre Ricard0:10
Well, it's sort of safe for a company like ourselves that operates directly in 86 different markets around the world. There's a bit of a new world order where uncertainty and volatility have become a little bit the new norm, and the key point there is to be extremely agile in terms of resource allocations, in terms of price management, and so on. And that's what the world in which we operate.
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Interviewer0:36
A very warm welcome to you. I wonder, good to see this morning. And look, China is incredibly important to you. Your sales were up 17 percent there. If Anna and I were to say to you, what is the biggest concern in the boardroom? Is it trade disputes? Is it that that could unseat the demand cycle for you?
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Alexandre Ricard0:57
Well, we are a based business, origins based business. Scotch whiskey is made in Scotland, and Irish whiskey Jameson is made in Ireland, and so on and so forth, and cognac is from France, and bourbon from the US. So it's fair to say that for us, free trade is something which is of utmost importance. We like to bring to our consumers around the world a palette of drinks that come from various origins. Now, if we start seeing trade tariffs pop up, well, we'll have to impact our pricing towards our consumers. So you'd pass on the cost essentially. If there's a tariff, what we'd have to, of course...
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Interviewer1:39
Leaving the trade story there for one moment. So, and talking about more what Manus was mentioning there around China, and we've seen this strength then in your numbers in China. Lots of people trying to work out just how sustainable that is. As Manus was suggesting, we've seen boom and bust in China before, haven't we? Because of the boom and then the crackdown on gift-giving. Are we gonna see something like that again?
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Alexandre Ricard1:58
Always this time different? Well, during the bust times, we were extremely clear with regards to the underlying fundamentals in China. There's the emerging middle class, there's no doubt it's growing. We basically currently are targeting close to 300 million consumers in China, and by 2027 we'll be targeting double that number, 600 million consumers every year. You have an additional six million households that earn more than four thousand dollars a month. So the consumer dynamics are there in China. You can have some volatility. Our long-term vision for China is anywhere between high single digit growth and low double-digit growth, but that doesn't mean there will be volatility. So there'll be ups and downs, but the dynamics are there.
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Interviewer2:54
One of the things that the market is fixated on in terms of the numbers is your promotional spend, Alexandre, versus profitability. Can you give us an update in terms of will it be an expansion in promos, or are you gonna cap it? What is your thinking for 2019 in terms of promo expand?
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Alexandre Ricard3:12
Well, we have invested over the last fiscal year at a faster rate than our net sales, and despite that we have delivered margin improvement bottom line. And these investments are for the long-term growth of our business, and principally driven by markets such as China because of the dynamics I just explained, or markets like India where their legal drinking age population increases every year on average by 20 million people. So this requires investment, and that's for the long-term growth prospects of Pernod Ricard. That being said, we have improved our margin. We'll be investing much in another area.
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Interviewer3:57
That some of your competitors are Constellation Brands moving into marijuana and trying to make money in that area. We talked about this in the past. The drinks industry seems to be getting on with this maybe quicker than the tobacco industry. Is this a fad, Alexandre? Is there something you are seriously considering? Do you have plans around it?
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Alexandre Ricard4:15
Well, these are precisely the questions we're asking ourselves. We are monitoring the situation quite closely. We're making the analysis. It's still too early to say. Especially, here's a question: is the legalization of cannabis going to have an impact on premium spirit consumption? And so far, there's no evidence to show that.
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Interviewer4:42
One of the other things that we want to know about is you've been a bit, a little bit quieter than normal in terms of doing deals this year. Are you building up a bit of firepower? Are we gonna see you be more active in 2019?
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Alexandre Ricard4:52
We have a clear roadmap when it comes down to M&A, which is in active management of our portfolio, acquiring, you know, targeted strategic products we believe have a good fit with our portfolio, while at the same time disposing of brands we don't believe are fit for our organization and strategy. Then it all depends on the opportunities and on the right price, if I may say so. So we may have some dynamic years in terms of M&A activity and some less dynamic years, just because, you know, price expectations may not be exactly what we want them to be.
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Interviewer5:35
I must ask you about Brexit, Alexandre. Your Scotch presence means that that is something that's clearly in your mind. What do you want to see from governments on either sides of the channel?
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Alexandre Ricard5:48
Well, at some point we'd like to see visibility to be able to adapt ourselves. When do you need to see that by? The sooner would be the better. But we, I was mentioning earlier, we're in the origins based business, and as you mentioned, Scotch is produced in Scotland, and our Beefeater gin here in London, and our Plymouth gin in Plymouth, and we export to the whole world, including to the European Union. And as soon as we know what is going to happen, we'll adapt ourselves. But as an international business, obviously we're for free trade.
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Interviewer6:25
Let's just square off on that, Alexandre. We understand your free trade. You're a big investor in the United Kingdom. Can I ask you, Barnier recently yesterday said look, he's prepared to offer Britain an unprecedented partnership. As a French businessman, are you lobbying the French government to come up with an unprecedented partnership? Are you being vocal at a governmental level on Brexit?
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Alexandre Ricard6:49
Well, you know, politics are politics, and in political negotiations there are many complexities and twists. But whether it's our British friends here in the industry or the European Union players and the French players, we're all saying we're up for free trade, and that's as far as we can go.