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Chivas Brothers’ warehouse facilities in Mulben on Speyside contain millions of litres of Scotch whisky |
INTERNATIONAL. Pernod Ricard has made significant improvements to its Scotch whisky infrastructure in a bid to ensure it is able to satisfy growing demand among consumers in emerging markets, such as the BRIC countries. At the supplier’s annual Press & Capital Market Day this week, attended by analysts and journalists from around the world and held at The Glenlivet distillery in Speyside, Pernod Ricard’s senior management explained how subsidiary Chivas Brothers aims to ensure it is positioned for durable growth worldwide.
Pernod Ricard is to invest £40 million annually over coming years to increase malt whisky distillation capacity and improve bottling facilities. It will open a new bottling plant in Paisley this summer, and the distilleries of Glenallachie, Glentauchers, Tormore and Longmorn will be expanded. Glen Keith distillery, meanwhile, will be reopened in April 2013, providing a +25% increase in capacity. The company is also introducing new heat recovery technology to make its stills more efficient.
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Chivas Regal 25yo is helping Pernod Ricard capitalise on strong demand for ultra-premium Scotch in emerging markets |
Addressing the media at The Glenlivet distillery, Pernod Ricard CEO Pierre Pringuet explained that its Scotch whisky business, managed by Chivas Brothers, was the company’s most profitable category and biggest cash generator, and would continue to be a driver of growth. “Scotch is not a category of the past – it appeals to young adults all over the world and is a very aspirational category,” he argued. “We strongly believe that having Chivas Brothers totally dedicated to Scotch is a competitive advantage.”
Chivas Brothers Chairman and CEO Christian Porta explained that super- and ultra-premium items now accounted for well over half the company’s total sales by value, and argued that the company’s dominance in the aged Scotch market – its market share in Scotch that is 21yo and above is 85% – made it well positioned for growth.
“Even in mature markets, premiumisation is happening and that’s a very good trend for us,” he said. “It’s underpinned by strong economic and consumer trends; we’re seeing many consumers trade up from local spirits to premium imported spirits, while growing urbanisation means we can reach a much wider audience.”
Chivas Brothers has recorded volume growth of +57.3% among its leading Scotch brands in emerging markets since 2006, and Porta argued that there is much potential for further growth. “There has been a surge in the number of high-income households in the BRIC countries in particular, but volumes in many markets remain quite low, which means there is a lot of potential to grow,” he said. “In Russia, for example, imported liquor represents only 2% of the total spirits market, although within that Scotch accounts for 42% of volumes. The price gap between local and imported spirits is narrowing, which is good news for us, and we are able to use the breadth of our portfolio to appeal to different wealth brackets.”
Porta confirmed that duty free and travel retail would continue to play an important role for Pernod Ricard in the years ahead. “It’s a very important channel from a sales and volume perspective and as a showcase for our brands, and that will continue to be the case. We’ve worked hard to improve the look and feel of our brands in duty free and developed a number of activations and products, often either exclusive to duty free or launched in that market first.
“Of course, there are issues we need to discuss with our clients – we have to achieve profitability in duty free. But we see the market as important both in terms of sales and image.”
Chivas Brothers is continuing to develop its “˜Age Matters’ campaign, designed to enhance the appeal of aged Scotch and educate consumers about the importance of the ageing process. “Our research showed that consumers were not sure about what the age statement means with regard to Scotch whisky, yet we also know the age of the product is the third most important factor in choosing a whisky [behind the brand name and the taste profile],” said Porta. “The Age Matters campaign reinforces the idea that the product is not that expensive when its age is taken into account.”
Summarising the company’s Scotch whisky strategy in geographical terms, Porta said Chivas Brothers would seek “to maintain and premiumise” its position in Western Europe; “to continue to grow strongly in Asia, Eastern Europe and the Middle East”; and “fast track development in the Americas”, where the company’s market share is weaker compared to other regions. “We’re making substantial investment in Scotland to ensure we have the inventory to achieve our aims,” he said. “We want to beat category value growth, and achieve high single- to double-digit value growth. Given that growth is in the ultra-premium and prestige sectors, we believe we are well positioned to succeed.”
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Pernod Ricard’s investment in bottling facilities and heat recovery technology is designed to cater to anticipated growth | |
