The clamour of traffic from the nearby Champs Élysées is shut out by the doors closing quietly behind visitors entering the elegant, white-stucco headquarters of Pernod Ricard in Paris.
Inside, the atmosphere is entirely different. Screen shots from Havana, Absolut and Jameson advertisements flash across the walls of the foyer which is recreated in the deep-blue hues of an upmarket Manhattan bar.
As with most of the world’s most powerful drinks companies, this stylish ménage of old and new is the cornerstone of the Pernod Ricard success story.
Founded in 1975 through the merger of rival drinks companies Pernod and Ricard, Pernod Ricard has grown to become the world’s second largest drinks group after Diageo. Turnover for its 2011/12 financial year reached €8.2 billion, with the company posting a net profit of €1.1 billion.
Its most recent results showed a strong rise in sales and profits in the six months to December 31st, with net sales up 5 per cent to just under €5 billion, and operating profit up 6 per cent compared to the same period in 2011 at €1.5 billion.
Phenomenal success
Key to this performance has been Jameson whiskey. Along with its flagship cognac brand, Martell, the phenomenal success of the Irish Distillers brand acquired by Pernod Ricard in 1986, has been one of the primary drivers of the company’s growth.
“Transformative” is how Pierre Pringuet describes the acquisition, as we sip coffee in his sunlit third floor office, overlooking a quiet Parisian square.
“It was really the first transforming acquisition of Pernod Ricard. Before that, it was mainly focused on French brands such as Pernod,” he says.
“Yes, we acquired Wild Turkey bourbon some years before, but that was solely focused on the US. Jameson was the first opportunity to acquire a brand with a significant international presence.”
The acquisition paid off. Having decided to close existing distilleries in Cork and Dublin and focus production on Midleton, Pernod Ricard invested heavily in the brand, focusing on exports, and spearheading a rejuvenation of the Irish whiskey category globally.
It now sells more than four million nine-litre cases annually, and Jameson delivered double-digit growth for the company in more than 50 markets last year.
All production takes place in Ireland – by law, Irish whiskey must be produced in the country – and last year the company announced a €100 million investment in its Midleton plant with the aim of doubling capacity.
The most recent results show that in the first six months of its financial year, sales grew by 13 per cent, with the company aiming to sell five million cases by 2014.
But Pringuet is quick to point out that the much-feted figure for cases sold is only part of the story.
Strong inroads
“The volume is not the full story,” he says. “The value story is even more important because, at that time of acquisition, Jameson was still being sold at a discount to the big whiskey brands, particularly Scotch whisky. Today it’s sold at a premium of 20 per cent or more in some markets like the US.”
While the US continues to be the main market, Jameson is also making strong inroads in other markets, where the drink’s premium price strategy is replicated. Eastern Europe and Russia are some of the regions name-checked by Pringuet.
He has just returned from Africa, where Pernod Ricard last year opened a number of affiliate companies. The region is already a major focus for Diageo.
“Africa is a whiskey market basically and Jameson is something that is very attractive to them,” he says.
Similarly, he sees further potential in Asia, a market Pernod Ricard first penetrated almost 20 years ago.
“With the emergence of more and more westernised bars in Asia, Jameson is suddenly very well positioned,” he says.
“It is also true from a price point. It’s less expensive than our 12-year-old special reserve, but it is suited to the night bar environment.”
Overall, Pringuet believes there is potential for further margin growth for Jameson. Though the aim is to sell 10 million cases of the whiskey in the “long term” – a target that appears to be supported by its hefty investment in Midleton – he stresses that, ultimately the company is targeting “steady growth”.
“We don’t want to grow to the extent that it affects the value or price strategy. An easy way to generate volume is to make discounts, and lower the price, but you ruin the brand equity,” he says.
“The higher the price, the higher the margin, for sure , but also the higher you can spend behind the brand, and that’s what will fuel future growth.”
Branding and innovation are what Jameson does best. Apart from its slick advertising, the company has introduced everything from special edition bottles to film partnerships involving Kevin Spacey, all wrapped up in the traditional Irish whiskey bottle.
Some see the marketing feat as a cynical way of glamorising alcohol. Pringuet, unsurprisingly, is well-versed in defending the company’s ethical credentials, noting that it uses only actors and models who are aged 25 and over, and look so.
Similarly he believes taxing alcohol is the wrong way to tackle the underlying problem of alcohol abuse.
“If really the intention is to tackle the abuse of alcohol, which we absolutely support, the right way is by educating people. You have to do that at an early age.
“One of the KPIs [key performance indicators] in this regard, for example, is postponing the age at which one first has a drink and also at which one starts consuming alcohol regularly. That is the right way to tackle the abuse.”
Pernod Ricard may have very successfully rejuvenated the Jameson brand – and other stablemates such as Absolut and Jacob’s Creek have excelled – other drinks in the portfolio have performed less well.
Extensive portfolio
Sales of Ricard, the 80-year-old anise-based aperitif, for example, have been sluggish. A move to update the bottle last year failed to lift sales, while demand for brands such as Mumm champagne are declining.
Just as Pernod Ricard modernised the ailing Irish whiskey category, is a similar exercise needed?
Pringuet is reluctant to be drawn on a discussion of the merits of a new long-term strategy for the brand.
“Ricard is very much a French brand, I would say a French icon. It is suffering from a duty hike a year ago which resulted in a price increase of almost €2 per bottle. All classes of people drink the aperitif – the sales are very price sensitive.”
Pringuet stresses that each product needs to be viewed as part of the overall portfolio. “We really manage the portfolio as a whole. No other company has as wide a portfolio as we do, across a number of ranges – champagne, cognac, whiskey.”
Building up such an extensive portfolio has involved an aggressive acquisition strategy, as the company increased its geographic footprint, introducing established brands to new markets, and complementing this with a healthy portfolio of local brands sold domestically.
According to Pringuet, aside from the Irish Distillers deal, three acquisitions in particular have transformed the business – the acquisition of Seagram in 2001; the 2005 purchase of British-based competitor Allied Domecq, which included Malibu and Beefeater; and the acquisition of Absolut’s parent company in 2008.
“As a result of this €20 billion of investment, sales jumped from €1.8 billion to €8.2 billion, while Ebit rose from €300 million to €2.2 billion,” he says. “It represented a major transformation of the business.”
It also stacked up a significant amount of debt. A number of divestments, rights issues alongside strong cash flow have reduced that debt to just above €9 billion, a position Pringuet is happy with.
“We are rated as investment grade company, and intend to keep that grade.”
Mandatory retirement
As for acquisitions, Pringuet says the company is in the market for bolt-on deals. It will be another two to three years before Pernod Ricard makes another “transforming” acquisition in the range of billions of euro, he says.
It is also open to acquisitions in Ireland, though competition law precludes it from making acquisitions in the whiskey category, despite some corporate activity in this field in recent years.
As for Pringuet himself, the chief executive is embarking on his final stretch with the company. The unexpected death of chairman Patrick Ricard last August prompted the company to announce succession plans.
Ricard’s nephew, Alexandre Ricard, the company’s chief operating officer who headed up Irish Distillers during its expansion, will take over as chairman and chief executive in 2015.
Patrick’s sister Danièle Ricard, who had been on the board since 1969, will be chairwoman in the meantime.
Pringuet will step down in early 2015 having reached the company’s mandatory retirement age of 65. The first non-family member to head up the company, he is a former civil servant in the French department of agriculture.
He joined the company in 1987 – “the same year as Irish Distillers; it was a good year”, he smiles. Patrick Ricard’s death was “an emotional shock within the company”.
“He had been chief executive from 1979 until 2008, but had retired from the operational role of the company since becoming chairman. He was a hugely emblematic figure.”
Pringuet is positive about his experience working for a company with a strong dynastic heritage – though listed on the Paris stock exchange, the Ricard family owns 14 per cent of the business. He believes the family identity has had a unique impact on the culture of the company.
“I would say the main effect is that it is informal in terms of management. It relies very much on its people.
“There are three things I tell younger people when they join the company. Firstly, don’t look for a manual of standards or instructions, be prepared to move anywhere in the world, and thirdly, don’t impose but convince.”
This emphasis on collaboration and influence is a central ethos of the company, he says. “It’s not just about a nice way of doing things; it’s also effective. It makes the company extremely entrepreneurial, extremely reactive to anything that might happen.
Euro zone crisis
“We have what you would call a highly decentralised organisation. Of course, there are principles, such as respect the brand, respect the people but, for the rest, people are very much in charge of developing ideas, initiatives.”
He cites examples of where innovations are developed locally and then adopted by the company as best practice, such as a recent campaign for Chivas Regal whiskey in Brazil, whereby consumers can upload pictures and music onto a dedicated platform.
As he talks in his relaxed, French manner – a world away from the more familiar Anglo-American corporate speak that dominates contemporary business – it’s not difficult to imagine how this inclusive, corporate ethos might indeed prevail with Pringuet at the top.
He is also something of a Europhile. The political response to the euro zone crisis, and the possible way forward for Europe, were some of the themes of his address yesterday to the Ibec CEO conference in Dublin. The economic situation in Europe is, after all, still a heavy drag on the business.
Nonetheless, while in Ireland, he is making sure to visit Midleton. It won’t be for the tourist experience, however.
“I need to see where all this money is being spent,” he smiles.
CV Pierre Pringuet
Name:Pierre Pringuet
Position:Vice-chairman and chief executive of Irish Distillers' parent company, Pernod Ricard
Lives:Paris
Age:63
Family:Married with two children
Something that won't surprise you:As the head of a French drinks company steeped in heritage, the cravat-wearing Pringuet is an avid opera fan
Something that might surprise you:Prior to joining Pernod Ricard, he worked for the agriculture department of the French civil service
