Pernod Ricard managing director bows out on a high with positive results

06 September, 2016

Pernod Ricard has been a net beneficiary of range rationalisation at UK retailers as sales of premium brands are soaring, according to the firm’s outgoing chief executive.

Denis O’Flynn is heading back to Dublin after almost five years heading the Absolut and Jameson supplier’s UK division, and he cut an upbeat figure at his final press conference.

He said that the premium London on-trade is growing and that he spends most of his time in that area, so sales there might dwindle upon his departure.

On a more serious note, he reflected on consistent growth during his years in charge and said he remains confident of growth in the UK, although he warned that Brexit, the Chief Medical Officer guidelines, the rise of Amazon and Conviviality and the changing retail landscape could affect sales.

“This is the last one of these I will be doing,” said O’Flynn with a wistful smile. “I am delighted to be able to say that we have had a very strong performance in Pernod Ricard UK. We have outperformed the market for the fourth year in a row.”

Premium spirits – defined as those selling at 20% or more above the average bottle price – are up 9% in volume and 10% in value in the UK on- and off-trade combined (Nielsen and CGA, year to June 2016). The Pernod Ricard spirits portfolio is up 9% in volume and 16% in value.

The still wine category is down 2% in value and volume but Pernod Ricard is up 7% in volume and 6% in value.

“If I look at the core rationalisation that has occurred in the grocery sector in the last 12 months, we have been a net beneficiary,” said O’Flynn. “Brands have performed well as opposed to non-brands. It’s all about premiumisation and brands and I think we will continue to perform well there.

“In premium spirits nationally we are matching the market on volume but as always we at Pernod Ricard are trying to grow value ahead of volume and it’s a very strong performance.

“Wine has its ups and downs but our wine portfolio has had very strong results in the five years I have been here.”

On the challenges ahead, he said: “The retail landscape is changing and that hasn’t yet settled down. Where are the supermarkets going to be and where do they sit versus the discounters and versus Amazon. That may continue to evolve and change in 2017. Conviviality and them mopping up Matthew Clark and then Bibendum – how do we get our products to market. They are the two areas that may have an impact.

“On the governance side with Brexit we are seeing positive sentiment coming back into the market, but how that plays out over the next two to three years will flavour the marketplace. The Chief Medical Officer guidelines and this idea of no safe level of alcohol consumption, that’s an area we have a very serious issue with. We are all about responsible drinking and to say there is no safe level really jars with us.

“Putting the consumption patterns for both males and females at the same level physiologically, that does not work. The guidelines have been softened on moderate drinking and we welcome that, but a bald, blunt statement still remains saying there is no safe level of alcohol consumption. We don’t accept that position. We are going to have to decide how we communicate with consumers.”

O'Flynn, who has also served as chairman of the Wine & Spirit Trade Association, said labelling on bottles might change, or there might be a link to an online portal that listed the CMO guidelines but also included Pernod Ricard’s viewpoint on the matter, allowing consumers to make their own decision.

He pointed to the rise of Amazon as a particular threat to UK retailers, but said Pernod Ricard would continue to exploit whatever routes to market are available to it.

“Amazon is a very interesting one as to how quickly it develops,” said O’Flynn. “We are engaged with Amazon and have been for 18 months and we are very happy with the performance.

“The big question is how we differentiate it from the other players in the marketplace, but there is no doubt that the online offering of Amazon is going to continue to grow.

“If I were a retailer I might be more concerned as to how the route to market is changing. We will continue to use whatever routes to market are available to us. We will continue to work with Amazon and any new channels.

“I think some Amazon sales will be incremental and some will cannibalise retail sales.

The online shopper tends to be a more premium shopper and that gives us a better chance of a purchase, so from our perspective it’s very positive.”

He added: “As media spend moves towards digital we have increased the amount of digital media spend from 31% to 40% of total media spend, so we are going to be very active there going forwards.

“Continuation of NPD [new product development] within Pernod Ricard is really exciting. Things like Jacobs Creek Double Barrel, Jameson Caskmates and Kahlua Salted Caramel are exciting.

“The portfolio in Pernod Ricard and the brands have been really excellent. The decentralisation model has worked very well. We have got clarity around our strategy around shaping the nation’s drinking experiences. I also think we should focus on having a bit of fun. We can sometimes take life too seriously but we should remember we are in the leisure industry.”

Pernod Ricard’s chief financial officer Gilles Bogaert paid tribute to O’Flynn: “We would like to pay tribute to you and everything you have done in the group. The UK figures are impressive and significantly better than when you arrived. Your ability to grow market share and spark creativity and people empowerment has contributed to this achievement.”

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