Pernod steps up wine focus as sales slide

Pernod Ricard has returned to the acquisition trail after signing a deal to buy the assets of Kenwood Vineyards in Sonoma, California.

The agreement with current owners F.Korbel & Bros was described as a reflection of Pernod Ricard’s “confidence in the development of its wine portfolio and its ambitions in the United States”. The group has further reinforced this US strategy by announcing new deals with two of the country’s largest distributors, Southern Wines & Spirits of America and the Republic National Distributing Company.

The announcements came as Pernod Ricard reported a -7% decline in sales for the first nine months of its 2013/14 financial year, a result caused primarily by the ongoing slowdown in China.

While this performance led to a -3% dip for the group’s total Asian sales, in the Americas it enjoyed sales growth of 4%, driven in particular by Brazil and the US. Meanwhile in Europe, Pernod Ricard saw 2% growth, underpinned by a “stable” situation in Western Europe and 9% growth in Eastern Europe.

Despite acknowledging the “challenging” business environment, Pernod Ricard CEO Pierre Pringuet stood by the earnings growth forecast of 1-3%, which the company was forced to downgrade earlier this year.

Setting this latest deal within the context of the company’s wider performance, Pringuet commented: “I am pleased with the acquisition of Kenwood and with the strengthening of our partnerships with our two largest US distributors, which reinforce the group’s portfolio and execution capability in the US.”

He explained that the purchase of Kenwood, which is expected to complete before 30 June 2014, “will support the company’s ambition in wine and fits ideally within Pernod Ricard’s multi-origin wine portfolio strategy. In addition,” he continued, “this transaction illustrates Pernod Ricard’s ability to seize tactical growth opportunities that can benefit our entire portfolio in key markets such as the United States.”

Established in 1970, Kenwood Vineyards features a recently modernised winery and 23 acres of vineyard, although the company also sources grapes from a number of other growers, many of which share its emphasis on sustainable viticulture.

The producer’s current wine portfolio includes its Artist Series Cabernet Sauvignon; the Jack London Series of Merlot, Zinfandel, Syrah and Cabernet Sauvignon; the Reserve Series, which features various varieties from distinct appellations within Sonoma; the brand’s original Sonoma Series; its Yalupa Series, targeted at restaurants; and the Vintage Series “for everyday enjoyment”.

In a further move to strengthen its position in the US, Pernod announced that from 1 July 2014 it will “expand” its relationship with the country’s largest distributor, Southern Wines & Spirits of America to cover 33 states. This will see SWS become the exclusive spirits broker for Pernod Ricard in all 17 Control State markets, as well as representing Pernod Ricard USA for wine and spirits distribution in 16 states.

Highlighting Pernod’s “strong relationship and a proven track record of success with Southern,” Bryan Fry, president and CEO of Pernod Ricard USA, explained: “Our renewed partnership with Southern Wine & Spirits significantly enhances our powerful route to consumers and immediately gives us a competitive advantage by further strengthening our joint execution of brand-building programs.”

Meanwhile the Republic National Distributing Company will become the group’s exclusive distributor in eight states following “an extensive review process”.

Commenting on the deal, Fry remarked: “RNDC has a strong track record of success with Pernod Ricard in its appointed markets, and we look forward to further leveraging their excellent planning and execution capabilities.”