While global brewers are busy taking steps towards diversification, major spirits companies are divesting.
Pernod Ricard today (July 17) reached an agreement to sell its strategic international wine brands to Accolade Wines, owner of Australian Wine Holdco Limited (AWL). This is the latest in a series of brand divestments by spirits companies seeking to renew focus on the most profitable parts of their businesses.
Digio, Pernod’s biggest spirits rival, has sold Archers and Bacon, several African beer assets and a slew of major Indian spirits brands in recent years. It was also ahead of the Paris-headquartered group in shifting away from wine when it sold its major stakes in the category to Treasury Wine Estates in 2015.
Last year, Pernod sold its iconic whisky brand Clan Campbell, and Suntory Global Spirits found a buyer for its Courvoisier brand in Campari, allowing it to focus on American whiskies, Japanese spirits and tequila.
Analysts at Jefferies describe the move as “clearing the tail.” They point out that wine accounts for just 4% of Pernod Ricard’s sales, and that divesting these assets “will enable the company to direct resources to its portfolio of premium global spirits and champagne brands.”
Not surprising
Notable brands in the proposed sale include Jacob's Creek, Campo Viejo and Brancott Estate. Champagne brands Mumm and Perrier-Jouët – which fall outside the fine wine category – will be retained, as will brands in France, the United States, Argentina and China.
Pernod has been flirting with the idea of selling its wine business for some time. In September, it was “continuously exploring options” after reports emerged that it was seeking a buyer for its Australian and New Zealand wine operations. In 2010, the owner of the Absolut brand insisted it was “very happy” with its wine range, after falling revenues prompted suggestions it could be sold.
Jefferies analysts estimate that the value of Pernod’s wine business has fallen by 6.5% over the past decade. In the group’s third-quarter results in April, sales in its “strategic wine” division fell by 9%, “driven primarily by declines in the US and UK”.
In contrast, its International Strategic Brands unit, which includes iconic brands such as Jameson, Absolute and Beefeater, as well as Mumm and Perrier-Jouët, grew 1% against a tough global backdrop for spirits.
Therefore, getting rid of it should not come as a surprise.
The award has gained more volume in the UK.
Adding Pernod’s portfolio to Hardee’s, Jamshed, Echo Falls and Mad House – all of which were named in The Grocer magazine’s Top 100 Alcohol Brands this year – will give Accolade further growth, both globally and in the UK. The combined portfolio puts the Australian giant in a strong position to challenge Treasure as the dominant UK wine company.
The acquisition would be the first under the Bain & Co alliance, which took control of the group earlier this year. AWL spokesman and Bain partner Joshua Hartz said the combination of Accolade Wines with Pernod’s wine assets would “create a more certain and financially sustainable future for the business.”
“With AWL’s support, the combined company will be better able to adapt to changing consumer tastes and address the structural challenges facing the global wine industry,” he added.
Despite its global struggles, Accolade seems to be a natural home for Pernod’s wine assets, and it should benefit from the synergies of a global wine-focused business.
Decrease in UK presence
Exiting wine would improve Pernod’s margins – Jefferies analysts estimate a 60bps increase – but would also likely reduce the group’s presence in the UK. Wine makes up up to a third of its revenues in the market, with Campo Viejo, Brancott Estate and Jacobs Creek generating combined off-trade sales of more than £160m (NIQ 52 as at 24 April 2024).
This remains a difficult category, but recent reports from NPDTapabrava and Greasy Fingers suggest that Pernod is at least somewhat interested in finding a solution. With the group no longer focused on wine, it is inevitable that the group will devote less time and resources to the UK in the future.
Pernod has historically used wine to cover structural costs in the UK, with most of its profits coming from its higher-margin premium spirits portfolio, Jefferies analysts say.
If we take the wine industry away, we suddenly find that investing in the market does not look good on the balance sheet.
