Ricard: Chinese market a matter of interpretation

Alexandre Ricard, the CEO of wine and spirits giant Pernod Ricard, has told the drinks business that competitors’ dazzling sales figures in China may not be an entirely accurate reflection of the market.

Pernod Ricard CEO Alexandre Ricard

After three years of turmoil following Beijing’s imposed austerity drive and a clampdown on the giving of gifts between civil servants, demand for luxury spirits in China may be stabilising. It all depends on interpretation.

Both LVMH and Remy Cointreau have issued figures since Christmas to suggest that the market is moving upward. Yet Alexandre Ricard, the chairman and CEO of Pernod Ricard, says he expects the Chinese market for spirits to shrink by between 5% and 10% during the group’s full year to the end of June.

Overall sales to China, Pernod Ricard’s second largest market after the US, fell by 2% in the six months to the end of December.

Yet, LVMH reported that 2015 had seen a “good performance of wines and spirits in all regions with a progressive normalisation of the situation in China”. The second half of the year “was marked by a rebound in revenue [for Moet Hennessy] during a year characterised by continued destocking by distributors”.

In the nine months to the end of December, Remy Cointreau enjoyed a “clear improvement in Greater China depletions, with volumes up and values flat”. Hong Kong and Macau remained “soft”. Its sales to China rebounded by 10.5% in the final three months of the period compared to 2014.

Why the very different points of view?

M. Ricard has two answers.

“I want to clarify why there are different perspectives within the industry about China,” he said in London this week. “There are two reasons why there are very different points of view.

“First from a comparable basis point of view, we were the first to destock the market two years ago. We were the first to recognise after Chinese New Year a couple of years ago that the sell out numbers were soft. The competition destocked after some delay so they are actually recycling numbers from last year based on shipments [not depletions]. So their comparables last year were more favourable than ours. That’s a technical factor.”

“The second point,” he said, “is that the two competitors who have given their view on China are skewed towards the Cognac sector – they don’t have a significant stake in whisky. It’s a marginal part of their portfolio.They are close to non-existent [in that category] in China specifically.

“We have a much larger portfolio and it is fair to say that Cognac is definitely more resilient [than scotch in China]. In scotch the super premium segment is soft but we are by far the leader in the premium sector with Ballantines Finest, and that’s the sector which is growing.

“Cognac is clearly a much more established segment, much stronger with a stronger foothold. Martell is extremely strong and within the Martell range we have a stunning brand – Noblige- which year on year on year in spite of all the short-term challenges has kept on growing.

“Cognac is much more resilient and it is our job to build much more resilience into the scotch market. We are doing it now at the lower end of our portfolio.”

M. Ricard implied that Cognac really is a much longer established market in China, more deeply entrenched in the Chinese spirits market and more broadly based both geographically and demographically.

Martell is Pernod Ricard’s leading Cognac brand (Photo: Martell)

Also by inference, the much narrower and shallower market for Scotch has been more affected than Cognac by the downturn, and as market leader Pernod Ricard has paid a short-term price.

But that does not deter M. Ricard. “Our first six months of this financial year are perfectly in line with the trends we have observed over the last full fiscal year; there is no real change one way or the other. We will have a more clear view based on the Chinese New Year figures [staff only went back to the office yesterday he said later]. That will take a couple of weeks to get the sellout figures and thus clear visibility.

“From a shipment point of view depending on the sellout and underlying consumption, this will say if we over shipped or if we under shipped and whether we need to destock or restock the market. Our first six months’ figures showing shipments to China at minus 2% are not significant. The real reality will be post Chinese New Year. The objective is to finish this fiscal year at the end of June with normalised stock levels.”

Overall, M. Ricard is confident about the medium-term prospects in China.

“The fundamentals are clearly there. We see the emergence of our premium portfolio brands. We see shifts that are occurring from the global business point of view for China. We see China changing from an export led economy to one with more internal demand. Retail sales, not just spirits, but retail overall, grew by 20% over calendar 2015 versus 12% in calendar 2014. We are perfectly in line with our expectations. From an underlying trend perspective there are no surprises,” he said.

Figures from other sectors suggest that Chinese New Year sales were bouyant. Spending on food and retail rose by 11% over the holiday period compared with 2015 and cinema box office takings soared by 80% in the first three days compared with the whole break last year.

And to back his chairman’s medium-term confidence about scotch in China, Laurent Lacassagne, the head of Chivas Bros, said: “Chivas has created the scotch whisky market in China. For the past 10 years we have been almost the only brand that has been incubated – really dominant. The market is expanding. Ballantines Finest is developing in the premium segment and attracting new consumers. Also in the malt segment, Glenlivet is also doing very well – it is a key innovation priority for China.”