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Rémy to press ahead with price increases
It takes courage to push ahead with price rises in the depth of a recession in which consumers are trading down and sales values are falling, but that is what Rémy Cointreau is doing.
When announcing the group’s results for the year to end of March earlier this week, Jean-Marie Laborde, the chief executive, said the Champagne and spirits group would press ahead with a programme of price increases, especially for Champagne, where it was targeting an operating profit margin “in the mid term” of about 12% compared with the 8.6% achieved in the latest financial year. It is worth noting that on the very same day, Pierre-Emmanuel Taittinger, head of the eponymous Champagne house whose wines are already discounted in the UK, said that he would not seek price rises this year because sales could fall by 20%. Other champagne groups, including Louis Roederer, have frozen their wholesale prices to the UK.
The evidence suggests M. Laborde may have to tread gradually. For instance, in the year to the end of March, Rémy Cointreau’s organic sales of Cognac fell by 13.9% to €311.9m. The price increases the group imposed in the US and Russia did not offset its Cognac volume declines in those markets, but the value of sales to the burgeoning Chinese market grew at a double-digit rate on the back of increased advertising.
The performance of the liqueurs and spirits division, which is more focused on the on-trade, was stable with unaltered sales of €53.2m but the operating margin improved by two percentage points to 27.1%, suggesting that M. Laborde’s goal is feasible.
The figures have to be viewed cautiously because during the year Rémy Cointreau was in the process of withdrawing from the Maxxium consortium, a move completed at the end of March. This resulted in some stocks being returned to the company at the same time as distributors were reducing inventory.
M Laborde, however, says this process could be almost over. With stocks low, some reordering will take place soon but that is not the same as saying that sales will be back on an upward trend. “We are still in a recession,” he said, and nobody knew when it would end. This “lack of clarity” was why the group was making no financial forecasts for its current year. Even so, with its distribution much more closely under its own control and its level of debt conservative, Rémy believes it will emerge stronger and ready to compete more effectively when better days do appear.
Finance on Friday, 12.06.09