March 15: If you think there is not much profitability in the wine business in India, you might be right and would be glad to know that the proprietor of Jacobs Creek, the biggest brand being imported in India, Pernod Ricard seems to be pondering whether to sell off the wine division that also owns the Rioja winery Campo Viejo that introduced its basic label over a year ago in India. Subhash Arora feels that the existing importers might be pleased with the decision
Company, Pernod Ricard has apparently denied to comment on the negotiations going on for the $500 million division whose wines rule the Indian imported market, being on the top in the Top Ten List for 2018, with 105,000 cases estimated to have been sold last year (2017-2018).
As a matter of policy the company does not comment on rumours or speculations; it does not even release the sales figures in India and we have to base our results on in depth analyses. Hence it has refused to be drawn into the rumoured news that comes from someone in the know of what is happening but does not like to disclose himself, according to the Report. However, the company with a market value of €41.4 billion does say by email, “The group is under no external pressure and has already mentioned several times that it intends to continue the dynamic management of its portfolio,” .
The Paris-based company’s wine operation is less profitable than its leading spirits brands, like Chivas Regal and Absolut vodka that are reportedly used as a leverage to sell wine in India. Pernod acquired vineyards like Kenwood in Sonoma, California and Helan Mountain in Ningxia region in China in the recent past but the CEO, Alexandre Ricard favours expansion in the craft liquor. The company had recently purchased brands such as Monkey 47 gin and Del Maguey mezcal which is made from agave, used also for making tequila and has been getting increasingly popular.
In January this year, Pernod Ricard sold off the Argentine wine label Graffigna to Chile’s VSPT; the deal is expected to be completed within this year. Pernod Ricard Argentina had then said it had decided to focus its attention and resources on the production of both still and sparkling wines at its Salta and Mendoza based wineries, as well as spirits at its distillery in Buenos Aires.
The company has also divested other products it doesn’t consider central to its strategy, such as the Domecq line of brandies and Paddy Irish Whiskey, reports dB
The wine industry is more fragmented than the beer and spirits sectors, where players have driven consolidation over the past several decades to gain advantages in distribution and supply costs. In 2016, Diageo sold its wine business to Treasury Wine Estates Ltd., the Australian producer of Penfolds (imported by Brindco), for $600 million. Closer to home, it sold off Four Seasons Winery to Ravi Viswanathan’s PE group recently. Earlier Diageo had also dabbled in its own wine label Nilaya that had failed miserably in the market, indicating that wine and spirits have a different system of branding and marketing.
Alexandre Ricard is on record saying that he would continue to dispose of brands that no longer fit within its portfolio. Just like the leading producer Sula and the currently second largest importer Brindco in India have repeatedly said in the recent past, Pernod is committed to growing value sales over volume sales. “Our wine volume sales are down by 8% due to our value focused strategy, which we’re not afraid of pursuing,” he said, according to dB. Even the wine giant Constellation Group had recently sold around 40% of its wine brands to concentrate on higher priced power brands (selling for over $11 a bottle) with the glaring exception of Woodbridge by Robert Mondavi.
Incidentally, Jacobs Creek brand from Barossa Valley was recently named as the third most powerful wine brand in the Global Wine Brand Power Index compiled by Wine Intelligence, following the Australian Yellow Tail and Casillero del Diablo of Chile. Other brands in the portfolio include Rioja label Campo Viejo and New Zealand’s Brancott Estate sold in India with limited success.
Pernod Ricard selling of the Wine Division would be received as good news for the existing wine importers in India as they find it extremely difficult to compete against the spirit giant because of its formidable distribution system pan- India, aggressive pricing and leverage from the spirits business.
Subhash Arora
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