Putting his money where the brand is

Last August, Alexandre Ricard was nominated the deputy CEO and chief operating officer of Pernod Ricard, the world’s second-largest spirits company. The announcement came after the death of his uncle Patrick Ricard, then the chairman of the group and the person who had taken the company from a local pastis maker to a liquor giant nipping at the heels of the world’s largest spirits maker, Diageo. In India, over the last decade, Pernod has built itself into the country’s most profitable liquor company. Then, last year, Diageo bought a majority stake in United Spirits (USL), the largest spirits company in India by turnover. Diageo is now pushing its own brands through USL’s distribution network, making India the newest battleground for the arch-rivals. Ricard, now in his 10th year at the company, which his family owns, has two years to take over as CEO. He talks about Pernod’s plans for India. Edited excerpts:

What does the Diageo-USL deal mean for Pernod Ricard globally?
The deal is a testimony to the strategy Pernod Ricard adopted a decade ago —‘local brands, global reach’. We would look for local brands that were deeply rooted in the DNA of a country and had the advantage of a strong network, and then invest in those brands. The Diageo-USL deal confirms that the local brands strategy is a winner. When we acquired Seagram’s in 2001, it had started investing in local brands, especially Royal Stag. There’s a decade’s difference between the two [acquisitions], but the deal reaffirms the strategy’s strength.

How does the Diageo deal affect Pernod Ricard here?
The deal will have a positive impact. Pernod’s focus is on the premium end, which will witness increased competition. I guess Pernod might take the industry to a more premium level as well. There are three pillars that Pernod stands on—premium, innovation, and geographical expansion. I view this deal as an opportunity, not a threat. The 830 people we have in Pernod Ricard India haven’t sat down thinking, ‘Oh my god, what’s going on?’ They’re enthusiastic and have come up with some ideas. I’ll give you an example. In the deluxe Indian whisky space, which represents 99% of our business, we launched Royal Stag Barrel Select at a premium to Royal Stag, and Blender’s Pride Reserve Collection at a premium to Blender’s Pride. Both have done very well.

Tell us about Pernod Ricard’s plan for India.
We’ve gained significant market share over the last decade, especially in the last few years. We have 47% in the ‘premium plus Western spirits’ segment, which includes Royal Stag, Blender’s Pride, and Imperial Blue. We have set a target to have half of the market in the next three years. In the ‘international and imported spirits’ category, we want Chivas and Absolut to be the leaders.

How will you achieve this?
In the deluxe whisky segment, we will enhance our coverage and visibility in tier II and tier III towns of Bihar, Rajasthan, and Assam, which offer growth. We will also tap emerging categories and improve our presence in vodka and wine. As far as imported spirits are concerned, our focus will be on tapping retail chains and shops at airports. We will also look at being a part of new occasions when people consume a particular type of drink.

How does Pernod Ricard categorise the Indian population and its target consumer?
There are the ‘aspirational socials’, or the ‘urbanites’, who are aged 25 to 35, and have an income that allows them to buy a Chivas. Then there are female consumers, a category for which we offer wines such as Jacob’s Creek. At a more premium level, we have the champagne brands Mumm and Perrier-Jouët. Single malts are at a low base right now and the consumer is above 35, leaning towards the connoisseur. Jameson (whisky) was launched four years ago in Bangalore to address a segment called DUDES—discerning urbane discoverers and experiencers.

Can you define Pernod Ricard’s opportunity in India?
If you look at Pernod Ricard globally, our No. 1 market is the U.S., No. 2 China, and No. 3 France. This year, for the first time, the No. 4 is India, pushing Spain to No. 5. We have a portfolio that covers a range of customers. India offers an amazing opportunity because of its middle class. Over the next five years, 150 million people will be added to the legal drinking population. By 2025, you’ll have an extra quarter of a billion people in India living in cities. All this is going to drive the development of the premium segment and the growth of global brands.

Pernod Ricard’s strategy in the deluxe Indian whisky category has been successful. But with Diageo using USL’s distribution to push its global brands, the fight has now moved to the imported spirits category. How will your company fight this?
Both Chivas and Absolut are growing in double digits, and we’re creating an aspirational image around these products. As India becomes richer, people will buy more and more of these products. Our investment tends to be higher in emerging markets than in mature markets, where we try to defend our position. But in markets such as India, we have adopted a more offensive approach. The premium spirits business is all about investing in your brand equity and creating desirability and aspirational cues.

Diageo will also be looking to invest heavily. Is a Coke-Pepsi-like war about to break out in India?
No, and I’ll tell you why. Long-term investment creates value; price wars destroy it. Coke and Pepsi went into price wars and realised it destroyed value for the entire industry. We’re not in that business. We are investing to create value in the long term. And our brands have a huge heritage. Out of 14, half are more than a century old. Each of these heritage brands has a beautiful story behind it, and a story about their great quality as well.

Growth in China has been slow of late and the India scene isn’t looking too good either. As emerging markets contribute about 40% to Pernod Ricard’s top line, what can it do to push growth in these markets? Will it consider acquisitions, or build local brands?
For the nine months ending March [the financial year ends in June], emerging markets grew at 10% compared with 17% year on year. That’s a slowdown. But then, 10% is a growth rate a lot of people would be happy with. The rest of the top line that comes from mature markets was flat for the first nine months, compared with 2% growth year on year. Our strategy is simple from a resource allocation point of view. We’re investing more in emerging markets and our top 14 brands. In the emerging markets, the aim is to look beyond market share—it is to build the brands. Pernod Ricard is the market leader in Asia.

What has Pernod Ricard learnt from its Indian experience? Has it influenced decisions or strategy at the board level?
Yes, it has. I’ll take this opportunity to pay tribute to Param Uberoi [former CEO of Pernod Ricard India]. India was the inspiration behind some of the steps we took in Africa. When we launched a year and a half ago in Africa, we were convinced that a local brand strategy would work best. We tried to cover all the price points, as we did in India with Royal Stag, Blender’s Pride, and Imperial Blue.

How has the liquor industry evolved in terms of taste?
Earlier, in some countries, there were generations devoted to dark spirits, Scotch, etc., and others who had shifted to vodka and gin. Today, we’re into brands [not categories]. People don’t say, ‘I’m into vodka’, or ‘I’m a Scotch drinker’. They say, ‘I like Absolut’. They’ll have an Absolut on a Saturday evening, and on Sunday, with a different set of people, they might go for a Chivas. Their repertoire will not be vodka, whisky, or gin; it will be Chivas, Jameson, Glenlivet, Martell, or Absolut. Of the three pillars I mentioned earlier, the third is expansion—geographical and into new consumption occasions. People are loyal to brands, but not just to one brand. They’re loyal to a repertoire.