Pernod Ricard S.A.

142 Boulevard Haussmann
75008 Paris
France
4359-28-28

Public Company
Incorporated: 1974
Employees: 10,618
Sales: FFr10.4 billion (US$1.617 billion)
Market Value: FFr8.54 billion (US$1.327 billion)
Stock Index: Paris Frankfurt

If it were not for the French tradition of gathering for a pre-dinner apéritif, Pernod Ricard might not be the largest alcoholic beverage company in Continental Europe. As it is, the customary French toast “to health” (à santé) has helped to keep Pernod Ricard in excellent condition. Indeed, the company is now also the largest soft drink beverage producer on the Continent.

Pernod Ricard was formed in 1974 through the merger of the Pernod and Ricard companies, two of France’s largest suppliers and distributors of aniseed beverages. The group, whose anise-based drinks account for 70% of the French market, also produces and distributes a variety of wine-based apéritifs, liquers, spirits, and wines, as well as fruit juices and mixers, cider, syrups, and soft drinks. Pernod Ricard also distributes Coca-Cola, and controls 75% of the French cola market.

Anise, a distinctively flavored aromatic seed, gained popularity during the 18th century as a substitute for absinthe. Absinthe, discovered some years earlier by a Swiss doctor, was mixed with wormwood and other herbs and used as a medical elixir. The drink became popular, and in 1797, an aspiring businessman named Pernod purchased the recipe. But absinthe was later determined to cause nerve damage and was banned from France, Swtizerland, and the United States. Pernod altered the recipe by substituting anise or pastis for absinthe, and thereby created two new beverages which were found to stimulate the palate.

Pernod founded a company in 1805, and though it was the first to produce anise-flavored apéritifs, it remained small. Pernod introduced a variety of brands, including Pernod, Pastis 51, Byrrh, and Cinzano, as inexpensive alternatives to wine apéritifs. After over 100 years as a modest family-run company, Pernod acquired the Suze company, a firm which made bitters from the distilled roots of the gentian plant.

The expansion of Pernod encouraged imitators to establish competing firms in the early 1930’s. Once such imitator, Paul Ricard, introduced his own aniseed aperitif in 1932. Ricard’s extensive and often innovative marketing methods maintained the popularity of anise, despite growing demand for whiskey and wine apéritifs. Ricard established foundations to sponsor art and cultural activities (an unheard of practice for French business at that time) and a world yacht race, and to build on auto race track. Additionally, Ricard donated several Mediterranean islands to the French government to promote tourism. In recognition of Ricard’s support for auto racing, an annual contest, the Circuit Paul Ricard, was named in his honor. Ricard’s publicity stunts paid off handsomely, and by the time of his retirement in 1968, his 15% stake in the company was worth $104 million.

The merger of Pernod and Ricard, termed “the equivalent of a merger between General Motors and Ford,” enabled the new company to solidify its base as a major French beverage company in order to launch an export business. Since the merger, the Pernod Ricard group has embarked on a massive reorganization and diversification campaign. Paul Ricard’s son Patrick became a major force within the company after being named general manager in 1967. Patrick was an astute businessman, was well-trained by his father, and had gained considerable experience outside the company.

In 1976 Pernod Ricard purchased Cusenier of Argentina, which makes liquers from the extracted essences of plants, fruits, and grains. Cusenier is also the Argentine distributor of Cutty Sark, Gilbey’s gin, and Ambassadeur apéritifs, in addition to champagnes, fruit juices, and syrups. At this time, Pernod Ricard purchased Campbell, a whisky distiller whose brands included White heather and Aberlour scotch, in addition to Dubonnet and Clan Campbell liqueurs.

By 1979 it was clear that Pernod Ricard had to continue to look outside of France to maintain its sales growth. Even though the group recorded a 3.2% increase (by volume) in sales of anise apéritifs, liquor sales domestically had only increased 1.3%. While other Pernod Ricard brands fared slightly better, the company recognized that its French earning growth would be limited.

During 1980 Pernod Ricard spent $48 million on a marketing campaign in England, Spain, and Germany. Much of this money was spent in sales promotion, including posters, taste tests, and product giveaways at discos (intended to introduce young adults to the taste of anise and pastis liqueurs). “It’s the third glass that makes a convert,” Patrick Ricard said at the time, “so we have to put glasses of Pernod in people’s hands.” In England, where Pernod had a small following, the campaign succeeded brilliantly and sales increased by 34%. So that it might solve a distribution problem caused by the increased demand, Pernod Ricard purchased its English distributor, the J.R. Parkington Company.

Continuing its expansion program, Pernod Ricard bought its American sales agent, Austin Nichols, a well-known wine and spirits firm, whose best-selling brand is Wild Turkey bourbon. This acquisition increased Pernod Ricard’s turnover in 1980 to about FFr280 million.

In a 1980 interview with Management Today, Patrick Ricard said, “Ours is a young export country, and for too long we were held back by an official attitude that it was unpatriotic to invest abroad, though that is now changing. That’s why we’re following a policy of buying companies in prime markets, such as Austin Nichols. It would take too long to start from scratch, building up our own distribution and sales organization.”

Another reason behind the Austin Nichols purchase was the fact that Americans simply weren’t excited about anise beverages—what Patrick himself once termed “a strange drink with a funny taste.” In addition, an overall trend toward declining alcohol consumption compelled Pernod Ricard to seek opportunities in the soft drinks business.

The company’s most important acquisition occurred in 1983, with Françhise des Produits d’Orangina, makers of Orangina soda, which contains 12% real fruit juice—more than the 10% of Slice, and the 3% in Minute Maid orange soda. Orangina was first introduced in the United States in 1984 as the “French quench,” and the “soft drink with juice you can taste.” Patrick Ricard intends to make Orangina a worldwide brand name by the year 2000. Other companies, such as PepsiCo and Canada Dry followed suit by test marketing their own brands of natural soft drinks. Pernod Ricard officials told Business Week in 1984 that the company had planned for Orangina to take a one percent market share (all orange drinks together consitute only six percent of the soda market).

Besides Orangina, Pernod Ricard also markets fruit juices (Fruidam, Banga, Pampryl, and Pam Pam) through its JAF-Pampryl subsidiary. Pernod Ricard ventured into the fruit preparation business in 1982, with the purchase of a 66% interest in SIAS-MPA, the world’s leading producer of fruit preparations for dairy products. Despite poor economic conditions during the early 1980’s, Pernod Ricard’s sales grew an average of 20% per year. Altogether, the company has spent some $250 million on its acquisition strategy in an attempt to establish its products in every French soft drink category.

In order to increase liquor sales, the company arranged an agreement in 1985 with Heublein, an American alcoholic beverage company, which would give Pernod Ricard access to Japanese and Brazilian markets, and better exposure in the United States. Through a 15% interest in Heublein’s Japanese subsidiary, Pernod Ricard sells Wild Turkey and Bisquit brandy in Japan. In Brazil, Pernod Ricard purchased a 30% interest in Heublein Industria e Commercia, Brazil’s leading spirits distributor. Pernod Ricard officials said they joined Heublein in international markets to increase the company’s foreign sales by five to ten percent, despite the fact that the market was growing smaller. Foreign liquor sales accounted for 19% of group turnover, compared to 13% when Pernod and Ricard merged in 1974.

Pernod Ricard’s export subsidiary SEGM (Société pour l’Exportation de Grandes Marques) acquired Ramazotti, an Italian apéritif producer, and established a joint venture with Deinhard of West Germany to sell Dubonnet, Pernod, Bisquit, and Ricard brands. SEGM also orchestrated the acquisition of Perisem in Swtizerland and Prac in Spain. Pernod Ricard also purchased an additional 45% interest in the Société des Vins de France (SVF), France leading table wine group, which is Pernod Ricard’s largest subsidiary in terms of sales. As recently as February 1987, however, Pernod Ricard was negotiating the purchase of yet another European group, called Cooymans, a Dutch firm founded in 1829. Cooymans operates three plants and controls half of the Dutch liquor market, and had sales of $37 million in 1986.

Company officials expect a strong increase in earnings during the late 1980’s, primarily from its expanding line of non-alcoholic drinks, which in 1986 represented 36% of group activities. Foreign sales of soft drinks accounted for 25% of the company’s sales. In France, the group recently introduced Pacific, the first non-alcoholic aniseed drink; it was an immediate success. Pernod Light, another new low-alcohol beverage, is presently being prepared for exportation. Brut de Pomme (an apple soft drink) is the company’s newest low-calorie soda. In addition, Orangina is being marketed in Southeast Asia and Malaysia, but company executives regard China as its most promising market.

For the moment, however, Pernod Ricard has focused its future development on the domestic production of the fennel and licorice plants necessary for the production of anise-based drinks. Previously, these plants were imported from China and Vietnam, but high import costs have forced the company to seek other alternatives. Pernod Ricard scientists are also experimenting with the cultivation of aromatic plants for more unique ciders and wines.

Although the company derives 32% of its sales from anise-based drinks, Pernod Ricard is clearly dedicated to the diversification of its product line and of its market. The company expects to match, and even surpass, its recent successes. The time when Pernod was a modest family operation, content to rest on its laurels, is over.

Principal Subsidiaries

Ricard; Pernod; Société pour l’Exportation des Grandes Marques; JAF-Pampryl; Société Parisienne de Boissons Gazeuses (99.77%); Besserat de Bellefon (98.04%); Sopagly; Santa Lina; SIAS-MPA; Société des Vins de France; Société Raison (66.1%); Compagnie Française des Produits d’Orangina; SIFA; GJFF; EVC (98.88%); Fruidam. The company also lists subsidiaries in Argentina, the United Kingdom, and the United States.

Pernod Ricard S.A.

142, Boulevard Haussmann
75379 Paris Cedex 08
France
01 40 76 77 78
Fax: 01 42 25 95 66
Web Site: http://www.pernod-ricard.fr

Public Company
Incorporated: 1974
Employees: 11,614
Sales: FFr 16.81 billion (1996)
Stock Exchanges: Paris Frankfurt
SICs: 2085 Distilled & Blended Liquors; 2086 Bottled & Canned Soft Drinks; 2084 Wines, Brandy & Brandy Spirits

If it were not for the French tradition of gathering for a pre-dinner apéritif, Pernod Ricard S.A. might not be the largest alcoholic beverage company in Continental Europe. As it is, the customary French toast “to health” (à santé) has helped to keep Pernod Ricard in excellent condition. The company is the world’s largest producer and distributor of aniseed-flavored alcohol beverages—popularly known as “pastis” in France and that country’s single largest selling variety of spirits—under the venerable Pernod, Ricard, Pastis 51, and other brand names. The company also produces, markets and/or distributes other types of anise-flavored spirits, including Italy’s Sambucco and Greece’s Mini Ouzo, acquired in 1997 and that country’s second largest selling brand. Despite the company’s—and France’s—penchant for pastis, however, Pernod Ricard has built up a strong portfolio of subsidiary brand names spanning virtually every spirits category. Among the company’s products are Jameson, Bushmills, and other Irish whiskeys; Clan Campbell and Aberlour Scotch whiskeys, rum, cognac, vodka, and gin; bitters, including the top-selling Suze brand; a range of wine-based and sweet wine aperitifs; wine, including Australia’s Jacob’s Creek brand; as well as a variety of light-alcohol beverages.

The steady decline of alcohol consumption, both in France and worldwide, has not caught Pernod Ricard off-guard. Indeed, the company is now also among the largest soft drink beverage producers in Europe. The company’s flagship brand in this category is its Orangina brand, a lightly carbonated beverage featuring a high fruit (orange) content. In January 1997, the company also acquired, from Perrier Vittel, the Ricqules brand of mint-flavored soft drinks. Under the fruit juice category, in which Pernod Ricard is the French market leader, the company’s brands include Pampryl, Pam Pam, and the pastis-in-spired Pacific. Pernod Ricard’s non-alcoholic line also includes the famed U.S. chocolate drink Yoo Hoo. Rounding out the company’s activities is its fruit processing and flavors segment, an activity in which Pernod Ricard has established a worldwide leadership position.

Pernod Ricard has skillfully effected its transformation from a France-focused, pastis-based concern to a global leader in beverage distribution. While France accounted for more than 86 percent of the company’s sales in 1975, by the mid-1990s Pernod Ricard’s home country represented only 38 percent of the company’s total sales. More remarkable is the company’s shift toward non-alcoholic beverages, a market which the company has developed from less than one percent of sales in 1975 to provide half of the company’s sales in 1996.

Merging Two Pastis Dynasties

Pernod Ricard was formed in 1974 through the merger of the Pernod and Ricard companies, two of France’s largest suppliers and distributors of aniseed beverages. Anise, a distinctively flavored aromatic seed, gained popularity during the 18th century as a substitute for absinthe. Absinthe, discovered some years earlier by a Swiss doctor, was mixed with wormwood and other herbs and used as a medical elixir. The drink became popular, and in 1797, an aspiring businessman named Pernod purchased the recipe. But absinthe was later determined to cause nerve damage and was banned from France, Switzerland, and the United States. Pernod altered the recipe by substituting anise or pastis for absinthe, and thereby created two new beverages which were found to stimulate the palate.

Pernod founded a company in 1805, and though it was the first to produce anise-flavored aperitifs, it remained small. Pernod introduced a variety of brands, including Pernod, Pastis 51, Byrrh, and Cinzano, as inexpensive alternatives to wine aperitifs. After over 100 years as a modest family-run company, Pernod acquired the Suze company, a firm which made bitters from the distilled roots of the gentian plant.

The expansion of Pernod encouraged imitators to establish competing firms in the early 1930s. Once such imitator, Paul Ricard, introduced his own aniseed aperitif in 1932. Ricard’s extensive and often innovative marketing methods maintained the popularity of anise, despite growing demand for whiskey and wine aperitifs. Ricard established foundations to sponsor art and cultural activities (an unheard of practice for French business at that time) and a world yacht race, and to build an auto race track. Additionally, Ricard donated several Mediterranean islands to the French government to promote tourism. In recognition of Ricard’s support for auto racing, an annual contest, the Circuit Paul Ricard, was named in his honor. Ricard’s publicity stunts paid off handsomely, and by the time of his retirement in 1968, his 15 percent stake in the company was worth $104 million.

The merger of Pernod and Ricard, termed “the equivalent of a merger between General Motors and Ford,” enabled the new company to solidify its base as a major French beverage company in order to launch an export business. Since the merger, the Pernod Ricard group has embarked on a massive reorganization and diversification campaign. Paul Ricard’s son Patrick became a major force within the company after being named general manager in 1967. Patrick was an astute businessman, was well-trained by his father, and had gained considerable experience outside the company.

In 1976 Pernod Ricard purchased Cusenier of Argentina, which makes liqueurs from the extracted essences of plants, fruits, and grains. Cusenier is also the Argentine distributor of Cutty Sark, Gilbey’s gin, and Ambassadeur aperitifs, in addition to champagnes, fruit juices, and syrups. At this time, Pernod Ricard purchased Campbell, a whisky distiller whose brands included White Heather and Aberlour scotch, in addition to Dubonnet and Clan Campbell liqueurs.

By 1979 it was clear that Pernod Ricard had to continue to look outside of France to maintain its sales growth. Even though the group recorded a 3.2 percent increase (by volume) in sales of anise aperitifs, liquor sales domestically had only increased 1.3 percent. While other Pernod Ricard brands fared slightly better, the company recognized that its French earning growth would be limited.

Expanding the Portfolio in the 1980s

During 1980 Pernod Ricard spent $48 million on a marketing campaign in England, Spain, and Germany. Much of this money was spent in sales promotion, including posters, taste tests, and product giveaways at discos (intended to introduce young adults to the taste of anise and pastis liqueurs). “It’s the third glass that makes a convert,” Patrick Ricard said at the time, “so we have to put glasses of Pernod in people’s hands.” In England, where Pernod had a small following, the campaign succeeded brilliantly and sales increased by 34 percent. So that it might solve a distribution problem caused by the increased demand, Pernod Ricard purchased its English distributor, the J.R. Parkington Company.

Continuing its expansion program, Pernod Ricard bought its American sales agent, Austin Nichols, a well-known wine and spirits firm, whose bestselling brand is Wild Turkey bourbon. This acquisition increased Pernod Ricard’s turnover in 1980 to about FFr280 million.

In a 1980 interview with Management Today, Patrick Ricard said, “Ours is a young export country, and for too long we were held back by an official attitude that it was unpatriotic to invest abroad, though that is now changing. That’s why we’re following a policy of buying companies in prime markets, such as Austin Nichols. It would take too long to start from scratch, building up our own distribution and sales organization.”

Another reason behind the Austin Nichols purchase was the fact that Americans simply were not excited about anise beverages—what Patrick himself once termed “a strange drink with a funny taste.” While the popularity of anise-flavored drinks remained largely limited to France and to the Mediterranean region, Pernod Ricard’s launch into England met with a fair amount of success. Nonetheless, an overall trend toward declining alcohol consumption compelled Pernod Ricard to seek opportunities in the soft drinks business.

The company’s most important acquisition occurred in 1983, with Franfaise des Produits d’Orangina, makers of Orangina soda, which contained 12 percent real fruit juice—more than the 10 percent of Slice, and the 3 percent in Minute Maid orange soda. Orangina was first introduced in the United States in 1984 as the “French quench” and the “soft drink with juice you can taste.” Patrick Ricard intended to make Orangina a worldwide brand name by the year 2000. Pernod Ricard officials told Business Week in 1984 that the company had planned for Orangina to take a one percent market share (all orange drinks together constituted only six percent of the soda market). Other companies, such as PepsiCo and Canada Dry followed suit by test marketing their own brands of natural soft drinks.

Besides Orangina, Pernod Ricard also began marketing fruit juices (Fruidam, Banga, Pampryl, and Pam Pam) through its JAF-Pampryl subsidiary. Pernod Ricard ventured into the fruit preparation business in 1982, with the purchase of a 66 percent interest in SIAS-MPA, the world’s leading producer of fruit preparations for dairy products. Despite poor economic conditions during the early 1980s, Pernod Ricard’s sales grew an average of 20 percent per year. Altogether, the company would spend some $250 million on its acquisition strategy in an attempt to establish its products in every French soft drink category.

In order to increase liquor sales, the company arranged an agreement in 1985 with Heublein, an American alcoholic beverage company, which would give Pernod Ricard access to Japanese and Brazilian markets, and better exposure in the United States. Through a 15 percent interest in Heublein’s Japanese subsidiary, Pernod Ricard sells Wild Turkey and Bisquit brandy in Japan. In Brazil, Pernod Ricard purchased a 30 percent interest in Heublein Industria e Commercia, Brazil’s leading spirits distributor. Pernod Ricard officials said they joined Heublein in international markets to increase the company’s foreign sales by five to 10 percent, despite the fact that the market was growing smaller. Foreign liquor sales accounted for 19 percent of group turnover, compared to 13 percent when Pernod and Ricard merged in 1974.

Pernod Ricard’s export subsidiary SEGM (Société pour 1’Exportation de Grandes Marques) acquired Ramazotti, an Italian apéritif producer, and established a joint venture with Dein-hard of West Germany to sell Dubonnet, Pernod, Bisquit, and Ricard brands. SEGM also orchestrated the acquisition of Perisem in Switzerland and Prac in Spain. And Pernod Ricard purchased an additional 45 percent interest in the Société des Vins de France (SVF), France’s leading table wine group, which is Pernod Ricard’s largest subsidiary in terms of sales. In February 1987, Pernod Ricard began negotiating the purchase of yet another European group, called Cooymans, a Dutch firm founded in 1829, with three plants and control of half of the Dutch liquor market, which posted sales of $37 million in 1986.

Company officials expected a strong increase in earnings during the late 1980s, primarily from its expanding line of nonalcoholic drinks, which in 1986 represented 36 percent of group activities. Foreign sales of soft drinks accounted for 25 percent of the company’s sales. In France, the group introduced Pacific, the first non-alcoholic aniseed drink; it was an immediate success. In the late 1980s, the company also added Brut de Pomme a low-calorie apple-based soft drink. Further strengthening the company’s non-alcoholic beverage arm was its acquisition of Yoo Hoo Industries and that company’s perennially popular chocolate drink in 1988. But in 1989, the success of Orangina came to haunt the company: in that year, Pernod Ricard lost its France Coca-Cola concession—as that company geared up its Minute Maid division—resulting in a cut in the company’s total revenues of some 20 percent. This would be only one of the difficulties the company faced as it moved into the new decade.

Taking on the Giants in the 1990s

While Pernod Ricard’s sales, spurred by its emphasis on international growth, had nearly doubled from 1985’s FFr 8.5 billion to 1992’s FFr 14.5 billion, the company’s growth would slow significantly in the 1990s. The company, it seemed, had run into a wall. At home in France, where Pernod Ricard had previously enjoyed some 70 percent of the French pastis market, the company was suddenly confronted by the introduction of less-expensive private label brands from the country’s hypermarket chains and other distribution groups. Pernod Ricard’s share of the pastis market would soon drop to less than 55 percent of the total market. Equally troubling, however, was the dwindling popularity of the French favorite among consumers—especially among younger consumers—who were turning toward whiskeys and “long drinks” based on vodka, gin, and other white alcohol varieties. Yet Pernod Ricard’s portfolio lacked a strong white alcohol complement. In 1993, the company added the distribution of Havana Club cuban rums, and in 1994 the company acquired Russia’s Altaï brand of vodka.

Yet none of its white alcohol labels could hope to top the popularity of such brands as Smirnoff and Gibson. Pernod Ricard, although established as one of the top beverage distributors in the world, remained nonetheless small in comparison to the industry lead of alcohol giants Grand Metropolitan and Seagram and soft drink giants Coca Cola and Pepsi. The company needed to acquire a strong brand name—but these had become much too expensive. And, as the company moved to expand the relatively expensive (because of its high real fruit content) Orangina brand into new markets, particularly Asia, Pernod Ricard found itself going head-to-head with the massive marketing power of Coca Cola and Pepsi. In Vietnam, for example, the company arrived first; however, Coca Cola arrived soon after, and, with a massive promotional campaign, including the giving away of millions of free soft drinks, quickly captured 99 percent of that market. Even in Europe, Orangina found itself losing market share to the larger companies’ new arrivals.

Meanwhile, Pernod Ricard faced an increase in the tax on alcoholic beverages in 1993. Sales of aniseed drinks plunged 8.5 percent in a single year. By the end of the year, Pernod Ricard saw its sales slip for the first time in a decade. By 1994, the company was forced to close down some of its French operations, including its Marseilles plant, the first home of Ricard.

Despite these difficulties, Pernod Ricard remained a major player in the beverage world. Its non-alcoholic beverage sales had grown strongly, equaling the contribution of alcoholic beverages for the first time in 1995. Unable to compete on the grand scale with the industry’s true giants, Pernod Ricard turned instead to expanding its portfolio of “niche” alcohols, embarking on a series of acquisitions that included Somagnum of Portugal in 1995, Venezuela’s El Muco Bebidas in 1996, and the 1997 acquisitions of Riqulés, from the Perrier Vittel division of Nestle; Greece’s EPOM, the number two producer of ouzo in that country with its Mini brand; and Spain’s Larios, with the leading gin brand in that country.

Pernod Ricard remained consistently profitable, posting nearly FFr 1.2 billion in net income in 1996, after a light drop in net income the previous year. But the wall to the company’s future growth remained in place: in order to compete against the industry’s heavyweights, the company needed to generate a heavy capital investment to finance any future large-scale expansion. Yet the company, under Patrick Ricard, steadfastly refused to turn to the market for that capital—and with good reason: any further dilution of the company’s shares (approximately 60 percent of the company was already owned by the public) would introduce the family-controlled company to the risk of a hostile takeover. With the heritage of France’s favorite aperitif at stake, Pernod Ricard remained committed to the slow-but-steady approach to growth.

Principal Subsidiaries

Ricard; Pernod; Société pour 1’Exportation des Grandes Marques; JAF-Pampryl; Société Parisienne de Boissons Gazeuses (99.77%); Besserat de Bellefon (98.04%); Sopagly; Santa Lina; SIASMPA; Société des Vins de France; Société Raison (66.1%); Compagnie Fran£aise des Produits d’Orangina; SIFA; GJFF; EVC (98.88%); Fruidam; Austin Nichols; Campbell Distillers; Irish Distillers; Cusenier; World Brands Duty Free Ltd.

—updated by M. L. Cohen

Pernod Ricard S.A.

12, place des Etats-Unis
75783 Paris cedex 16
France
Telephone: ( + 33) 01 41 00 41 00
Fax: ( + 33) 01 41 00 40 85
Web site: http://www.pernod-ricard.com

Public Company
Incorporated: 1974
Employees: 12,130
Sales: EUR 3.57 billion ($4.87 billion) (2004)
Stock Exchanges: Euronext Paris New York
Ticker Symbol: 120693
NAIC: 312130 Wineries; 312140 Distilleries; 422820 Wine and Distilled Alcoholic Beverage Wholesalers

Pernod Ricard S.A. is a top global producer of wine and spirits. At the time of the company's 30th anniversary in 2004, Pernod Ricard had become the world's third-largest producer of wines and spirits. Eighty percent of revenues come from outside France. In its first three decades, Pernod Ricard skillfully effected its transformation from a France-focused, pastis-based concern to a global leader.

If it were not for the French tradition of gathering for a pre-dinner aperitif, Pernod Ricard might not be the largest alcoholic beverage company in Continental Europe. As it is, the customary French toast "to health" (à santé ) has helped to keep Pernod Ricard in excellent condition. The company is the world's largest producer and distributor of anise-flavored alcohol beverages, popularly known as "pastis" in France and that country's single largest selling variety of spirits under the venerable Pernod, Ricard, Pastis 51, and other brand names. The company also produces, markets, and/or distributes other types of anise-flavored spirits, including Italy's Sambucco and Greece's Mini Ouzo, acquired in 1997.

In addition to the company's, and France's, penchant for pastis, Pernod Ricard has built up a strong portfolio of subsidiary brand names spanning virtually every spirits category. Among the company's products are Jameson, Bushmills, and other Irish whiskeys; Clan Campbell and Aberlour Scotch whiskeys, rum, cognac, vodka, and gin; bitters, including the top-selling Suze brand; a range of wine-based and sweet wine aperitifs; wine, including Australia's Jacob's Creek brand; and a variety of light-alcohol beverages. After building up its portfolio with local brands, in 2001 Pernod Ricard acquired a number of international market leaders from Vivendi Universal.

Merging Two Pastis Dynasties

Pernod Ricard was formed in 1974 through the merger of the Pernod and Ricard companies, two of France's largest suppliers and distributors of aniseed beverages. Anise, a distinctively flavored aromatic seed, gained popularity during the 18th century as a substitute for absinthe. Absinthe, discovered some years earlier by a Swiss doctor, was mixed with wormwood and other herbs and used as a medical elixir. The drink became popular, and in 1797 an aspiring businessman named Pernod purchased the recipe. However, absinthe was later determined to cause nerve damage and was banned from France, Switzerland, and the United States. Pernod altered the recipe by substituting anise or pastis for absinthe, and thereby created two new beverages which were found to stimulate the palate.

Pernod founded a company in 1805, and though it was the first to produce anise-flavored aperitifs, it remained small. Nevertheless, the company produced introduced a variety of brands, including Pernod, Pastis 51, Byrrh, and Cinzano, as inexpensive alternatives to wine aperitifs. After over 100 years as a modest family-run company, Pernod acquired the Suze company, a firm which made bitters from the distilled roots of the gentian plant.

The expansion of Pernod encouraged imitators to establish competing firms in the early 1930s. Once such imitator, Paul Ricard, introduced his own aniseed aperitif in 1932. Ricard's extensive and often innovative marketing methods maintained the popularity of anise, despite growing demand for whiskey and wine aperitifs. Ricard established foundations to sponsor art and cultural activities (an unheard of practice for French business at that time), a world yacht race, and to build an auto race track. Additionally, Ricard donated several Mediterranean islands to the French government to promote tourism. In recognition of Ricard's support for auto racing, an annual contest, the Circuit Paul Ricard, was named in his honor. Ricard's publicity stunts paid off handsomely, and by the time of his retirement in 1968 his 15 percent stake in the company was worth $104 million.

The merger of Pernod and Ricard, termed "the equivalent of a merger between General Motors and Ford," enabled the new company to solidify its base as a major French beverage company in order to launch an export business. Since the merger, the Pernod Ricard group has embarked on a massive reorganization and diversification campaign. Paul Ricard's son Patrick became a major force within the company after being named general manager in 1967. Patrick was an astute businessman, was well-trained by his father, and had gained considerable experience outside the company.

In 1976, Pernod Ricard purchased Cusenier of Argentina, which made liqueurs from the extracted essences of plants, fruits, and grains. Cusenier was also the Argentine distributor of Cutty Sark, Gilbey's gin, and Ambassadeur aperitifs, in addition to champagnes, fruit juices, and syrups. At this time, Pernod Ricard purchased Campbell, a whisky distiller whose brands included White Heather and Aberlour scotch and Dubonnet and Clan Campbell liqueurs.

By 1979, it was clear that Pernod Ricard had to continue to look outside of France to maintain its sales growth. Even though the group recorded a 3.2 percent increase (by volume) in sales of anise aperitifs, liquor sales domestically had only increased 1.3 percent. While other Pernod Ricard brands fared slightly better, the company recognized that its French earning growth would be limited.

Expanding the Company Portfolio in the 1980s

During 1980, Pernod Ricard spent $48 million on a marketing campaign in England, Spain, and Germany. Much of this money was spent in sales promotion, including posters, taste tests, and product giveaways at discos (intended to introduce young adults to the taste of anise and pastis liqueurs). "It's the third glass that makes a convert," Patrick Ricard said at the time, "so we have to put glasses of Pernod in people's hands." In England, where Pernod had a small following, the campaign succeeded brilliantly and sales increased by 34 percent. So that it might solve a distribution problem caused by the increased demand, Pernod Ricard purchased its English distributor, the J.R. Parkington Company.

Continuing its expansion program, Pernod Ricard bought its American sales agent, Austin Nichols, a well-known wine and spirits firm whose best-selling brand was Wild Turkey bourbon. This acquisition increased Pernod Ricard's revenue in 1980 to about FRF 280 million.

In a 1980 interview with Management Today, Patrick Ricard said, "Ours is a young export country, and for too long we were held back by an official attitude that it was unpatriotic to invest abroad, though that is now changing. That's why we're following a policy of buying companies in prime markets, such as Austin Nichols. It would take too long to start from scratch, building up our own distribution and sales organization."

Another reason behind the Austin Nichols purchase was the fact that Americans simply were not excited about anise beverages, which Patrick Picard himself once termed "a strange drink with a funny taste." While the popularity of anise-flavored drinks remained largely limited to France and the Mediterranean region, Pernod Ricard's launch into England met with a fair amount of success. Nonetheless, an overall trend of declining alcohol consumption compelled Pernod Ricard to seek opportunities in the soft drinks business.

The company's most important acquisition occurred in 1983, with Française des Produits d'Orangina, makers of Orangina soda, which contained 12 percent real fruit juice, which was more than the 10 percent in Slice and the 3 percent in Minute Maid orange soda. Orangina was first introduced in the United States in 1984 as the "French quench" and the "soft drink with juice you can taste." Patrick Ricard intended to make Orangina a worldwide brand name by the year 2000. Pernod Ricard officials told Business Week in 1984 that the company had planned for Orangina to take a 1 percent market share (all orange drinks together constituted only 6 percent of the soda market). Other companies, such as PepsiCo and Canada Dry, followed suit by test marketing their own brands of natural soft drinks.

Besides Orangina, Pernod Ricard also began marketing fruit juices (Fruidam, Banga, Pampryl, and Pam Pam) through its JAF-Pampryl subsidiary. Pernod Ricard ventured into the fruit preparation business in 1982 with the purchase of a 66 percent interest in SIAS-MPA, the world's leading producer of fruit preparations for dairy products. Despite poor economic conditions during the early 1980s, Pernod Ricard's sales grew an average of 20 percent per year. Altogether, the company would spend some $250 million on its acquisition strategy in an attempt to establish its products in every French soft drink category.

Company Perspectives:

Pernod Ricard promotes a set of values which have historically characterised the Group: conviviality and straightforwardness, entrepreneurship, integrity and commitment. Conviviality and straightforwardness. Pernod Ricard encourages a willingness to reach out to others, openness, sharing and friendship. This holds true both for internal relations and for relations with clients and the public. Entrepreneurship: Pernod Ricard strongly supports decentralised decision-making, as the only way to encourage an entrepreneurial spirit at all levels. It encourages employees to take initiatives. Moreover, employees have a direct interest in the financial performance of the Group. Integrity: All employees are encouraged and trained to work in a way that respects ethics and transparency. Shareholders, clients and consumers can all have confidence in the reliability of Pernod Ricard information, in the excellence of Pernod Ricard's products and in the company's commitment to the local community. Commitment: Employees are proud of Pernod Ricard's products, and committed to respecting and developing the Group's brands. The Group is committed to respecting its employees and their cultures.

In order to increase liquor sales, the company arranged an agreement in 1985 with Heublein, an American alcoholic beverage company, which would give Pernod Ricard access to Japanese and Brazilian markets and better exposure in the United States. Through a 15 percent interest in Heublein's Japanese subsidiary, Pernod Ricard sold Wild Turkey and Bisquit brandy in Japan. In Brazil, Pernod Ricard purchased a 30 percent interest in Heublein Industria e Commercia, Brazil's leading spirits distributor. Pernod Ricard officials said they joined Heublein in international markets to increase the company's foreign sales by 5 to 10 percent, despite the fact that the market was growing smaller. Foreign liquor sales accounted for 19 percent of group turnover, compared to 13 percent when Pernod and Ricard merged in 1974.

Pernod Ricard's export subsidiary SEGM (Société pour l'Exportation de Grandes Marques) acquired Ramazotti, an Italian aperitif producer, and established a joint venture with Deinhard of West Germany to sell Dubonnet, Pernod, Bisquit, and Ricard brands. SEGM also orchestrated the acquisition of Perisem in Switzerland and Prac in Spain. In addition, Pernod Ricard purchased an additional 45 percent interest in the Société des Vins de France (SVF), France's leading table wine group, which was Pernod Ricard's largest subsidiary in terms of sales. In February 1987, Pernod Ricard began negotiating the purchase of yet another European group, Cooymans. A Dutch firm founded in 1829, Cooymans had three plants and control of half of the Dutch liquor market, with sales of $37 million in 1986.

Company officials expected a strong increase in earnings during the late 1980s, primarily from its expanding line of non-alcoholic drinks, which in 1986 represented 36 percent of group activities. Foreign sales of soft drinks accounted for 25 percent of the company's sales. In France, the group introduced Pacific, the first non-alcoholic aniseed drink. It was an immediate success. In the late 1980s, the company also added Brut de Pomme a low-calorie apple-based soft drink. Further strengthening the company's non-alcoholic beverage arm was its acquisition of Yoo Hoo Industries and that company's perennially popular chocolate drink in 1988. In 1989, however, the success of Orangina came to haunt the company when Pernod Ricard lost its France concession of Coca-Cola, as that company geared up its Minute Maid division, resulting in a cut in the company's total revenues of some 20 percent. This would be only one of the difficulties the company faced as it moved into the next decade.

Taking on the Giants in the 1990s

While Pernod Ricard's sales, spurred by its emphasis on international growth, had nearly doubled from FRF 8.5 billion in 1985 to FRF 14.5 billion in 1992, the company's growth would slow significantly in the 1990s. At home in France, where Pernod Ricard had previously enjoyed some 70 percent of the French pastis market, the company was suddenly confronted by the introduction of less-expensive private label brands from the country's hypermarket chains and other distribution groups. Pernod Ricard's share of the pastis market would soon drop to less than 55 percent of the total market. Equally troubling, however, was the dwindling popularity of the French favorite among consumers, especially younger consumers, who were turning toward whiskeys and "long drinks" based on vodka, gin, and other white alcohol varieties. Pernod Ricard's portfolio lacked a strong white alcohol complement. In 1993, the company added the distribution of Havana Club Cuban rums, and in 1994 the company acquired Russia's Altai brand of vodka.

Yet none of the company's white alcohol labels could hope to top the popularity of such brands as Smirnoff and Gibson. Although established as one of the top beverage distributors in the world, Pernod Ricard remained nonetheless small in comparison to alcohol giants Grand Metropolitan and Seagram and soft drink giants Coca Cola and Pepsi. The company needed to acquire a strong brand name, but these had become much too expensive. Furthermore, as Pernod Ricard moved to expand the relatively expensive (because of its high real fruit content) Orangina brand into new markets, particularly Asia, it found itself going head-to-head with the massive marketing power of Coca Cola and Pepsi. In Vietnam, for example, the company arrived first. However, Coca Cola arrived soon after, and, with a massive promotional campaign, including the giveaway of millions of free soft drinks, quickly captured 99 percent of that market. Even in Europe, Orangina found itself losing market share to the larger companies' new arrivals.

Meanwhile, Pernod Ricard faced an increase in the tax on alcoholic beverages in 1993. Sales of aniseed drinks plunged 8.5 percent in a single year. By the end of the year, Pernod Ricard saw its sales slip for the first time in a decade. By 1994, the company was forced to close down some of its French operations, including its Marseilles plant, the first home of Ricard.

Key Dates:

1805:

Société Pernod Fils is formed in Pontarlier.

1915:

Pernod's absinthe-based elixir is banned.

1951:

Pernod launches its first pastis.

1980:

Pernod Ricard launches a $50 million European marketing campaign.

1983:

Orangina fruit drinks is acquired.

1988:

Yoo Hoo Industries is acquired.

1995:

Non-alcohol drinks account for half of the company's sales.

1997:

Pernod Ricard acquires the continent's top gin, Larios of Spain.

2001:

Poland's Polmos distillery is acquired; a share of Seagram's wine and spirits business acquired; the company divests its soft drinks products.

2005:

Pernod Ricard launches a friendly takeover bid for Allied Domecq PLC.

Despite these difficulties, Pernod Ricard remained a major player in the beverage world. Its non-alcoholic beverage sales had grown strongly, equaling the contribution of alcoholic beverages for the first time in 1995. Unable to compete on the grand scale with the industry's true giants, Pernod Ricard turned instead to expanding its portfolio of "niche" alcohols, embarking on a series of acquisitions that included Somagnum of Portugal in 1995, Venezuela's El Muco Bebidas in 1996, and the 1997 acquisitions of Riqules, from the Perrier Vittel division of Nestlé; Greece's EPOM, the number two producer of ouzo in that country with its Mini brand; and Spain's Larios, with the leading gin brand in that country. Pernod Ricard also invested in the Czech Republic's newly privatized Jan Becher, maker of Becherovka bitters.

Pernod Ricard remained consistently profitable, posting nearly FRF 1.2 billion in net income in 1996, after a light drop in net income the previous year. However, the obstacle to the company's future growth remained in place: in order to compete against the industry's heavyweights, the company needed to generate a heavy capital investment to finance any future large-scale expansion. Nevertheless, under Patrick Ricard, the company steadfastly refused to turn to the market for that capital. There was good reason for this: any further dilution of the company's shares (approximately 60 percent of the company was already owned by the public) could introduce the family-controlled company to the risk of a hostile takeover. With the heritage of France's favorite aperitif at stake, Pernod Ricard remained committed to the slow-but-steady approach to growth.

Pernod Ricard continued to build its portfolio by buying local brands in the late 1990s and beyond, while divesting its non-alcohol portfolio and eventually acquiring a slew of market-leading international brands through the 2001 purchase of Seagram's. In 1999, the group obtained international distribution rights to Wyborowa ("exquisite") brand rye vodka by buying a majority share of the Polish food business Agros. Two years later, Pernod Ricard paid 300 million zlotys (EUR 82 million) for an 80 percent stake in the vodka's producer, Polmos Poznan, Poland's second-largest distillery. Armenia's Yerevan Brandy Company had also been acquired in 1999, followed the next year by the purchase of Mexico's Viuda de Romero tequila.

Selling Soft Drinks, Buying Spirits in the 2000s

Pernod Ricard was also selling off its non-alcohol assets. A majority interest in the company's soft drinks businesses in Continental Europe, North America, and Australia was acquired by Cadbury Schweppes plc in 2001 for EUR 700 million. These activities had sales of EUR 466 million a year, half from Orangina. Cadbury bought the remaining interest in the soft drinks business three years later. Coca-Cola Co. had tried to buy Orangina for FRF 5 billion ($840 million) but the deal was blocked by the French government in 1999.

The Italian flavorings subsidiary San Giorgio Flavours was sold to the Irish Kerry Group and fruit preparation producer SIAS-MPA was also divested. BWG, a distributor in the British Isles, was disposed of the next year.

The proceeds from these divestments helped fund acquisition of 39.1 percent of Seagram's wine and spirits business from French media conglomerate Vivendi Universal SA for $3.2 billion in March 2001. (Pernod Ricard's partner in the buy was Britain's Diageo PLC.) Pernod Ricard acquired four brands (Chivas Regal and Glenlivet whiskey, Martell cognac, and Seagram's gin) which together had combined sales of more than $1 billion a year. The Seagram's deal doubled Pernod Ricard's size and made it the world's third-largest producer of wines and spirits.

At the time of the company's 30th anniversary in 2004, Pernod Ricard had become the leading wine and spirits supplier in Continental Europe and South America, second in Asia and the Pacific, and sixth in North America. Annual sales were EUR 3.6 billion, producing a net profit of EUR 487 million, and the group had more than 12,000 employees at 68 production facilities. The Ricard family remained the largest shareholder, owning 12 percent of the capital and controlling 19 percent of voting rights through SA Paul Ricard.

New Zealand's Framingham Winery was acquired in 2004. At the same time, Pernod Ricard was attempting to boost the large but lagging market for aniseed pastis in France by introducing ready-mixed versions of the drinks. Pernod Ricard was also looking for growth in China, particularly in the fast-growing wine market.

Pernod Ricard, then the world's third largest wine and spirits producer, made another play for a portfolio of leading international brands. It launched a friendly takeover bid of British rival Allied Domecq plc in 2005, offering EUR 10.7 billion ($13.9 billion) for the company. If the offer were successful, the combination of Pernod Ricard and Allied Domecq would be second only to Diageo plc in the global wine and spirits market. Allied Domecq was then ranked second in the world; its brands included Beefeater gin, Stolichnaya vodka, and Perrier Jouet champagne. To avoid antitrust issues, Pernod Ricard intended to sell off assets worth EUR 4 billion to Fortune Brands, Inc. of the United States.

Principal Subsidiaries

Chivas Brothers Ltd (Scotland); Havana Club International S.A. (50%; Cuba); Irish Distillers Ltd. (Ireland); Martell & Co; Pernod SA; Pernod Ricard Australia; Pernod Ricard Europe; Pernod Ricard USA; Ricard SA.

Principal Divisions

Pernod Ricard Europe; Pernod Ricard North America; Pernod Ricard World Trade; Pernod Ricard Asia; Pernod Ricard Central & South America; Pernod Ricard South Asia.

Principal Competitors

Allied Domecq plc; Bacardi-Martini; Diageo plc.

Further Reading

"30 Years of Uninterrupted Success," Entreprendre: The Magazine for Pernod Ricard Shareholders, No. 46, Special "30th Anniversary": 1975–2005, pp. 12–23.

"Allied Domecq Confirms Takeover Talks with Drinks Peers," Agence France Presse, April 5, 2005.

Branch, Shelly, "Diageo, Pernod Sort Out Seagram Terms with Deal to Pay $8.15 Billion for Unit," Wall Street Journal, December 20, 2000, p. B10.

"Hangover Clears on Polish Vodka Trademark Rights," European Report, July 21, 2001.

"Pernod Ricard Aims for Mass Sale of Ready-Mixed Pastis (Le 'petit Ricard' veut reveiller le marche de l'anise), Echos, June 3, 2004, p. 21.

"Pernod Ricard Bids 10.7 Bln Euros for Allied Domecq in Drinks Shake-Up," Agence France Presse, April 21, 2005.

"Pernod Ricard Falls as Orangina Sale Plan Blocked," Echos, November 25, 1999, p. 12.

"Pernod Ricard Pursues Growth in China (Pernod Ricard poursuit son offensive en Chine)," Echos, May 27, 2005, p. 19.

"Pernod Ricard Signs Formal Agreement on Sale of Orangina to Cadbury Schweppes," Agri-Industry Europe, October 19, 2001.

—updates: M. L. Cohen;

Frederick C. Ingram