While global breweries are busy making moves to diversify, spirits powerhouses are enjoying a divestiture.
Pernod Ricard has today (17 July) reached an agreement to sell its international strategic wine brands to Accolade Wines' owner, Australia Wine Holdco Limited (AWL). It's the latest in a series of divestments by spirits companies seeking renewed focus on the more profitable parts of their businesses.
Diageo – Pernod's biggest rival in spirits – has sold Archers, Bacon, several African beer assets and a host of major Indian spirits brands in recent years. It was also ahead of the Paris-headquartered group in transitioning out of wine when it sold its major stakes in the category to Treasure Wine Estates in 2015.
Last year, Pernod offloaded its flagship whiskey brand Clan Campbell, and Suntory Global Spirits found a buyer for Campari's Courvoisier, enabling it to focus on American whisky, Japanese spirits and tequila.
Analysts at Jefferies describe this trend as “decluttering.” They point out that wine makes up just 4% of Pernod Ricard Group's sales, and that disposing of these assets “will enable the company to direct resources into its portfolio of premium global spirits and champagne brands.”
Not a surprise
Notable brands in the proposed sale are Jacob's Creek, Campo Viejo and Brancott Estate. The Mumm and Perrier-Jouët champagne brands – which exist outside fine wines – are retained, as are brands in France, the United States, Argentina and China.
Pernod had been flirting with offloading wine for some time. In September, it was “continuously exploring options” after reports emerged that it was seeking a buyer for its wine operations in Australia and New Zealand. In 2010, the owner of the Absolut brand insisted it was “very happy” with its wine portfolio, after falling revenues sparked suggestions of a sale.
Jefferies analysts estimate that the value of Pernod's wine business has declined by 6.5% over the past decade. In the group's third-quarter results in April, sales in its Strategic Wines division fell by 9%, “driven mainly by declines in the US and UK”.
By contrast, the Strategic International Brands unit, which includes household brands such as Jameson, Absolut and Beefeater, as well as Mumm and Perrier-Jouët, achieved growth of 1% under challenging global sentiment conditions.
Therefore, the elimination should not come as a surprise.
The award is gaining greater scope in the UK
Adding Pernod's portfolio to Hardys, Jam Shed, Echo Falls and Mud House – all of which were named in The Grocer's top 100 alcohol brands this year – will give Accolade greater scale, both globally and in the UK. The combined portfolio puts the Australian giant in a strong position to challenge the Treasury as the dominant UK wine player.
The acquisition will be the first under the Bain & Co consortium that took control of the group earlier this year. Combining Accolade Wines with Pernod's wine assets would “create a more certain and financially sustainable future for the company,” said Joshua Hartz, an AWL spokesman and Bain partner.
“With the support of AWL, the combined business will be better able to adapt to changing consumer tastes and address the structural challenges facing the global wine industry,” he added.
The Accolade – for all its global baggage – feels like a natural home for Pernod's wine origins. Here they should take advantage of the synergies that exist in a global wine-focused business.
Reduced British presence
Discontinuing wine will improve margins at Pernod – Jefferies analysts estimate a 60 basis point increase – but is also likely to reduce the group's presence in the UK. Wine accounts for up to a third of its revenue on the market, and Campo Viejo, Brancott Estate and Jacob's Creek offer combined off-trade sales of more than £160m (NIQ 52 we 24 April 2024).
This category remains a challenge, but recently both NPDTapabrava and Greasy Fingers indicated that Pernod was at least somewhat invested in finding a solution. With the focus on wine no longer present, it is inevitable that the group will devote less time and resources to moving forward in the UK.
Pernod has historically used wine to cover structural costs in the UK, Jefferies analysts say. Profits come, for the most part, from its high-margin spirits portfolio.
Take the wine business away and suddenly investing in the market doesn't look good on the balance sheet.
