“People generally drink less, but they also drink better.” A few days ago, Alexandre Ricard, chairman and CEO of Polaroid, spoke at the group’s capital market day. Thanks to the above trends, the liquor giant with high-end brands such as Martell, Chivas and Royal Salute still broke the performance record and is seeking more diversified growth. For example, in China, Pernod Ricard plans to develop whisky into another pillar besides Martell cognac. The first whisky distillery in China has been opened in Sichuan.
In addition, Li Jiaqi and other senior executives also talked about the current situation and planning of the company’s business in China, liquor consumption trends and other topics. Let’s have a look.
In the post epidemic era, China is one of the markets with the strongest growth. According to the on-the-spot introduction of Philippe guettat, chairman and chief executive of Polaroid Asia, in the first nine months of fiscal year 2022 (Note: the nine months from July 1, 2021), the company’s net sales in China increased by 36% compared with the same period of fiscal year 2019 before the outbreak. According to IWSR data, the market share of Pernod Ricard in China is 45% (Note: the statistical range is cognac, vodka, whisky excluding Japanese and American products). “When introducing the China Vision of Pernod Ricard four years ago, we hoped to double the share of international liquor products in China (sales of high-end liquor) from 1% to 2% by fiscal 2025.” He said that although the growth base is very small, it still needs to make “great efforts” to achieve this goal, and paulolica is also very confident to achieve the goal.
Qi Dehui disclosed that the above share had reached 1.6% by fy2021. The penetration rate of all sub categories has increased, including cognac, whisky, vodka, etc. “First of all, this is a very important element (promoting the growth of Chinese foreign wine). Second, we focus on attracting consumers in high-end and above positioning markets. At present, 90% of the growth (in the industry) comes from high-end and above. This is another factor to ensure the development of Chinese business.” Qi Dehui said. According to the division of IWSR, the price bands of different spirits are: Standard 10-23 dollars, high-end 23-30 dollars, super high-end 30-45 dollars, and super high-end more than 45 dollars. So, what is behind the growth of foreign wine?
Qi Dehui mentioned that in Asia, the driving forces include the increase of the middle class, the personalized needs of generation Z aged 18 to 24, consumers’ pursuit of high-end products, women’s groups creating new opportunities for categories and scenes, and technology enabling consumer interaction.
For example, as far as the middle class is concerned, paulolica cited statista data to indicate that the number of middle classes in Asia will increase by 1.5 billion between 2020 and 2030. The company estimates that China’s rich and middle-class population will increase by 7million and 20million respectively each year. In addition, according to the data of Jing daily, in the past five years, female buyers accounted for 55% of Sotheby’s wine and spirits auctions in mainland China and Hong Kong. “We have locked in these trends in Asia and are using them to achieve growth, and even to push growth (level) to a new level in the future.” Qi Dehui said.
As for China’s growth, the world’s second largest spirits and wine group has also anchored different hands. Qi Dehui said that one of the growth strategies of baolelika China is to promote the high-end of Martell and continue to release the pricing potential. “I have (received) a lot of questions about Martell’s price. We have been repeatedly taking pricing measures. Except for the year when the epidemic occurs, our prices will have a median or even higher range (increase) every year. At the same time, we will optimize the promotion efforts to provide and release the pricing power.”.
According to IWSR’s share in 2021, Martell’s share in the ultra-high end market is 47%
Hermance de la Bastide, vice president of corporate affairs and sustainable development and responsibility in Asia, added that pricing is part of Martell’s brand building. “We are ahead of other competitors (of similar products) in pricing.”. So why does Martell have such “confidence”? Bastide pointed out that, first of all, Martell has made a lot of investment in brand assets, including media exposure. Secondly, Martell has carried out many activities in instant drinking channels (such as bars) and at night to attract new consumers in the existing market. In addition, Martell is also exploring traditional consumption scenarios that were not cognac.
Equally important is inventory management. “What we need to ensure is that we should manage (channel) inventory very closely, because when the inventory is too high, a price war will really begin. Secondly, we should fully control the price in each independent channel, especially e-commerce. In this way, we will not completely lose the pull and support from key customers and partners.” Bastide said.
In addition to Martell cognac, the “leading product”, Pernod Ricard China also wants to describe another growth curve: whisky. “One of our core strategies in China is to expand the luxury products in whisky and build the product portfolio of malt and luxury whisky into the second growth pillar.” Qi Dehui said.
After reviewing the meeting materials, the snack generation noticed that the growth of relevant products of Polaroid has far “outperformed the market” in the past three years. According to the IWSR data, based on the sales volume from 2019 to 2021, the compound annual growth rates of the company’s ultra high-end Scotch Whisky brands “royal salute” and single malt whisky were 19% and 81% respectively, and the corresponding average market growth rates were 8% and 43% respectively.
In order to “drink” more whisky market, polerica invested and built its first Chinese whisky distillery in Emeishan, Sichuan Province in 2019. It plans to invest 1billion yuan in this distillery called diechuan within ten years. Last August, the plant was officially put into operation. “This project is developed against the background of strong growth in the value of (China) single malt whisky.” Bastide said at the meeting that from 2017 to 2021, the average annual growth rate of this category in the world was 10%, while the growth rate of the Chinese market in the same period was as high as 44%.
After delivering high scores for the post epidemic era, pololica now hopes that the quality of growth can be “improved”. “The first time I participated in the capital market day was in june2015, when I was just appointed as the chairman and CEO of the group. In the face of the fact that the group did not grow.” At the meeting, Li Jiaqi, the grandson of the founder of Polaroid, recalled. He said that in the process of recovering from zero growth to median single digit growth step by step, “the first thing we cling to is growth, the second is growth, and the third is growth. Every meeting (Theme) is what you want to do to grow, and whether this investment can make us grow”.
As introduced by xiaoshidai, in 2018, Pernod Ricardo launched a three-year “transformation driven acceleration” strategy and achieved a series of results, including China’s sales hitting a new high in fiscal 2021, exceeding 1billion euros (about 7.672 billion yuan) for the first time. “Now that we have growth, let’s focus on the profitability and quality of this growth.” Li Jiaqi said at the meeting that quality growth must be diversified, that is, different markets, categories and brands achieve extensive growth. On the day of the event, pololica also released its medium-term performance goals, including the high range of annual revenue growth of 4% ~ 7%.
In order to achieve the desired growth, Li Jiaqi believes that pololica needs to do four key jobs well. The first is to allocate resources flexibly. “The reality is that the world will develop unevenly. Therefore, we need to understand what we want to become and what has been proved recently. We need to adopt a very flexible approach in allocating and constantly reallocating resources.” Li Jiaqi said.
The second is to invest in brands. He said that about 16% of the sales of baoleli was used to invest in the brand “to build strong brand assets, obtain higher pricing, and make consumers willing to pay higher prices for our brand”.
The third is to focus on high-end. Li Jiaqi pointed out that spirits are speeding up the high-end development, which is the market targeted by Pernod Ricard. According to its quoted IWSR data, compared with 2015, the overall liquor sales in 2021 declined, but the sales of products at or above the standard price increased significantly (Note: the data statistics do not include Baijiu, Korean soju and Japanese soju). Li Jiaqi also said that in terms of value, spirits has become the largest category of alcoholic beverages, with the share increasing from 35% in 2015 to 40% in 2021. “This is a very resilient category. Compared with before and now, the market value of spirits has increased by about 11%, while it was estimated in advance that it was 4% ~ 5%.”.
The fourth is to have a highly engaged and talented team. “This is also our focus. If we have a good strategy, the real important thing is to have the right team to achieve it.” Li Jiaqi said.