Saturday, October 31, 2015

Vodka Falls Out of Vogue in U.S., Posing Challenge for Pernod

I was fortunate enough to meet the president of of the Louisville Slugger some 14 years ago in Louisville. As discussions of a business transaction merged into dinner I was introduced to Mr Pickwiks 1968 vintage Bourbon. After sampling this delectable spirit I sat back and wondered why this was not a more widely known spirit. Previously, I had only experienced atrocious Jack Daniels and coke. Now I was sipping a spirit which was as sophisticated as Cognac and whiskey, however with a unique character. Aivars Lode
By Jason Chow
In the U.S., bourbon is in and vodka is out. That’s making Pernod Ricard SA, owners of the Absolut vodka label, a laggard in the world’s most important liquor market. 
For now, the shift isn’t hurting profits. Pernod, which owns a multitude of brands including Irish whiskey label Jameson and cognac marque Martell, is still expected to post sales and profit growth when it releases its results on Thursday. 
Boosted by a rebounding Europe, the stabilization of cognac sales in China and higher sales of local-distilled whiskeys in India, the company is expected to post a 7.9% increase in sales to €8.57 billion ($9.63 billion) and a 30% increase in net income to €1.32 billion, according to a FactSet poll of 29 analysts.
Revenues and income are also boosted by the low euro, which makes sales in stronger currencies count for more when converted into the company’s home currency. 
But in the U.S., Pernod’s organic sales are lagging at a time when the country represents the industry’s brightest opportunity as emerging markets start to shun high-priced drinks. 
In recent years, Pernod relied on countries like Brazil and China to increase sales as a growing middle class in rapidly developing countries indulged in imported spirits. However, the stalled economies in South America have slaked thirst for expensive liquor while an anticorruption campaign in China hit cognac sales particularly hard. 
Meanwhile, the U.S. market for spirits is booming as cocktail culture continues to grow and millennial drinkers renew their interest in American bourbon. The one casualty of this shift in tastes is the category that Pernod dominates: Vodka is out of vogue. 
Globally, the number of nine-liter cases of vodka consumed declined almost 2% between 2010 and 2014, according to the IWSR, a liquor market-tracking association. Meanwhile, whiskey consumption has risen almost 17% in the same period. 
In the all-important U.S. market, vodka volumes last year decreased 0.3% while whiskey sales grew 2.7%. American-made bourbons and Tennessee whiskey led the trend, up 7.4%, as drinkers also shunned Scotch whisky. 
Absolut, known for its splashy colorful campaigns and flavored liquors, has fast become an underachiever in a losing category: Sales volumes of the vodka label declined 3.3% in the past quarter, according to figures from the U.S. industry association NABCA. Absolut makes up about a quarter of all Pernod’s U.S. sales. 
“It’s not universal doom and gloom, but they’re in a tough situation,” said Trevor Stirling, a liquor analyst at Sanford C. Bernstein in London. “There are no quick fixes for Absolut. You have to reinvent the brand, and it’ll take three to five years.”
To be sure, Pernod has a large brand portfolio and is geographically diversified, deriving about 15% of its revenues from the U.S., 29% from Europe and another 42% from Asia and Africa. India is a particular bright spot, as its local-distilled whiskeys, led by its Royal Stag brand, are gaining market share. 
Still, if Pernod is ever going to reach its goal of overtaking U.K. giant Diageo PLC as the world’s top liquor company, it will have to find more pours in the high-value U.S. market with Absolut or via acquisition, the analysts say. 
Pernod’s rivals have already adapted to consumer trends. Diageo is building a distillery in Kentucky to expand capacity for its Bulleit brand bourbon, while Bacardi Ltd., best known for its rum brand, bought the Kentucky-based whiskey brand Angel’s Envy in March. 
“The U.S. is still growing as a market—unlike Western Europe. It has all the features of an emerging market but it’s a high-value one,” said Jeremy Cunnington, head of alcoholics drinks research at Euromonitor. “Pernod is short of brands there, particularly of American bourbons.”
Corrections & Amplifications
Absolut vodka makes up about a quarter of Pernod Ricard’s U.S. sales. A previous version of this article said the brand makes up half of U.S. sales.

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