Global liquor giants Diageo and Pernod Ricard have both announced the sale of some of their brands.
Giants in action
Recently, Diageo announced the sale of the Venezuelan rum brand Pampero to Italy's Gruppo Montenegro at an unknown price.
According to the official website of Diageo, Pampero is the best-selling rum in Italy with an 85 year history and significant influence in the European market.
John Kennedy, President of Diageo Europe, stated in a public statement that this move will allow the company to focus more on its "core areas of strength" in its investment portfolio, accelerating its transformation into a leading global consumer goods company. The transaction is expected to be completed within the next two months.
Coincidentally, Pernod Ricard announced the signing of an agreement with Australian Wine Holdco LTD (AWL) to sell a range of its international wine brands to AWL. The transaction involves a portfolio of international wine brands owned and produced by Pernod Ricard, including Jacobs Creek, Orlando, and St Hugo in Australia, Stoneleigh, Brancott Estate, and Church Road in New Zealand, as well as Campo Viejo, Ysios, Tarsus, and Azpilicueta in Spain. These brands have an annual production of over ten million boxes (9 liters) and rely on seven wineries to achieve full management from vineyards to bottling.
Pernod Ricard stated that the transaction still requires regulatory approval and is expected to be completed in the second half of 2025.
The coincidental actions of two wine industry giants have attracted common attention in the industry.
Yin Kai, founder of Chaoyinhui (Shanghai) Brand Management Co., Ltd., told Blue Whale News reporters that in the current economic environment, liquor giants are also facing performance pressure. In this situation, it is understandable to choose to streamline brands, focus resources on important brands, and sell products with poor synergy. These two giants have also made multiple acquisitions in recent years, so their brands may have been acquired together during packaging and not their target brands, or the acquisition judgment was not very accurate at the time and did not operate in the later stage, so they were sold. The above measures also reflect the strategic vision of the two companies to flexibly respond and optimize resource allocation in complex market environments
It is worth noting that Diageo sold its wine business earlier than Pernod Ricard. Around 2015, Diageo sold its wine business multiple times. Former Taiwan General Manager of Diageo, Liu Rizhong, revealed the truth in one sentence, stating that the profit margins of wine and spirits are quite different. Wine accounts for only 2%, while spirits account for approximately 8%. Listed companies face performance pressure, and in the face of this small market share and thin profit sector, it is meaningless. It is better to sell.
Opportunities and Challenges in the Chinese Market
According to Diageo's semi annual report, the company's profit performance for the first half of the 2024 fiscal year (July 1 December 31, 2023) was lower than expected due to a significant decline in demand for expensive spirits in the American market. Global organic sales decreased by 5.2% year-on-year; Net sales amounted to 10.962 billion US dollars, with an organic year-on-year decline of 0.6%; The operating profit was 3.317 billion US dollars, with an organic year-on-year decline of 5.4%.
In May of this year, Diageo replaced its Chief Financial Officer from Lavanya Chandrashekar to Nik Jhangiani, which some foreign media referred to as a "transfer after poor performance".
Pernod Ricard is also facing the same situation. According to public data, Pernod Ricard's global sales in the first half of the 2024 fiscal year were 6.59 billion euros, an organic decline of 3% year-on-year, and its recurring operating profit was an organic decline of 3% year-on-year.
However, in the context of global market pressure, the Chinese market has brought completely different opportunities and challenges to these two major liquor giants.
At the beginning of the year, the Ministry of Commerce announced an anti-dumping investigation into imported brandy originating from the European Union, which is profoundly affecting the market landscape. Given that the preliminary verdict of the case is expected to be announced before the end of August, both inside and outside the industry are closely monitoring its progress.
It is worth noting that while the sales of European brandy have significantly declined in other global markets, the Chinese market has risen against the trend and become an important pillar supporting its sales. According to customs data, in the first three quarters of 2023, the year-on-year growth of brandy exports from the European Union to China exceeded 20%, highlighting the strong demand in the Chinese market.
For Pernod Ricard, the brandy business is one of its core business segments, and China is its key market. Taking its high-end brand Martell as an example, China is not only its largest market globally, but also contributes more than half of the brand's business growth.
Yin Kai stated that if China ultimately implements anti-dumping measures on EU brandy, Pernod Ricard's sales and market share in the Chinese market may be directly impacted, facing the risk of a decline in sales. In contrast, Diageo, which focuses on whiskey as its main product, may seize new market opportunities in this change. Due to the anti-dumping investigation mainly targeting brandy, Diageo's product line is relatively less affected and may take this opportunity to expand its market share in China and enjoy the dividends brought by market adjustments. This differential market response further highlights the complexity and diversity of global liquor giants' strategic adjustments and business layouts in the Chinese market.