After the deal…

Pernod's takeover of Allied was 2005's major news - Hamish Champ asks how has the group fared since?

Presenting Pernod-Ricard's half-year results in London's Great Eastern Hotel struck a particularly sweet note for the company's director-general Pierre Pringuet.

Mr Pringuet revealed that for much of last summer the hotel had been the venue for talks between himself - together with his extensive team of co-executives, lawyers, bankers and assorted advisers - and senior management of Allied Domecq, as the two groups battled over the detail that would ultimately see Pernod acquire the UK's second largest drinks business.

The eventual outcome of those prolonged discussions - at £7.4bn one of the biggest takeovers in the UK drinks sector - is already bearing fruit, as revealed by Mr Pringuet, although one might surely expect this, given the scale of such a large bolt-on acquisition.

Overall sales for the six months to December 31, 2005, grew nearly 67 per cent to E2,029m; gross profits coming in at a shade over 65 per cent at E1,945m, and gross margins at just under 60 per cent.

Driven, as these deals often are, by a desire to take an axe - or more appropriately an hache - to costs, Mr Pringuet noted that Pernod's programme to eke out E300m-worth of synergy benefits by the end of its current financial year was on track. Pernod's debt situation has also been addressed, with Mr Pringuet reporting that the group's debt figure has been reduced by E1bn since the Allied acquisition.

He was also at pains to point to organic growth of 4.5 per cent, E85m. This rise, in the area of the group's key original brands, came at a cost, with Pernod upping its advertising and promotional (A&P) spending by 11 per cent.

In the case of the ex-Allied Domecq brands this hike in spending amounted to E190m, while Allied's contribution to overall sales was E486m, just over 39 per cent of the total.

"We spend in this area, yes, but we have healthy growth when it comes to our brands contribution," says Mr Pringuet, who adds that A&P spending would continue to sustain a number of brands, particularly in Western Europe as well as "accelerating development in Eastern Europe".

Such spending is seen as essential to bolster a number of core products, eight of which are new, including Stolichnaya vodka, for which Pernod secured a new distribution agreement for the UK, Australia, Spain, Benelux and Greece in a E100m deal.

How the deal is affecting regional markets​

The Pernod market that has benefited most from the Allied acquisition is that collectively labelled the Americas. "This is where [the deal] has most changed our business," says Mr Pringuet, who notes that sales grew 117 per cent to E895m, with gross profits up 120 per cent to E561m.

Europe as a market is facing difficult economic conditions, says Mr Pringuet, although the group is seeing a "resilient performance" across the region and gearing up to take on countries in the former Eastern Bloc, particularly Russia, where Mr Pringuet says "there is a lot of money" to be made.

More worrying is France, Pernod's home territory, which despite a good performance from Chivas and Jameson saw a continuing decline in sales of anis, the group's most famous product.

The Allied deal meanwhile saw a re-alignment of Pernod's brand profile. As part of the acquisition Pernod relinquished a number of brands including Courvoisier, as well as non-core assets such as Dunkin' Donuts.

The group says it is very much focused on pressing ahead with its 15 key brands worldwide, although some of the new arrivals had a faltering start during the first six months of the current financial year.

First quarter slumps for brands such as Beefeater gin - "a sound brand that needs re-invigorating" - and Kahlua liqueur - "a product that currently appeals to an ageing consumer group and which also needs a new approach" - were at least offset by slower declines in the second three months.

Closer to home, the group's UK chief executive, Jean-Manuel Spriet (pictured)​, says the Allied deal has led to a corporate reorganisation that is designed to "maximise the potential of the extended portfolio". The sales and marketing team had grown in size from 200 to 270, while the creation of a "virtual wine division has recreated focus within the organisation and enables us to benefit from the synergies [the Allied deal] offered. We have a well-balanced portfolio between wine and spirits, with champagne on top," he adds.

The group is all set to up its on-trade game, a move that will doubtless be strengthened by its new - and more mainstream - wine and spirit arrivals, such as Montana, Malibu and Beefeater. It is in such areas that could see the French group make up some on-trade ground on market leader Diageo. Observers note that Pernod has strengthened its hand in spirits and that in bringing onboard a number of less elite brands it will be able to broaden its appeal to a wider number of customers.

Focus on customers​

Following the integration of spirit and wine brands from Allied, Pernod's UK arm has developed two dedicated channels within the commercial function to support its spirit and wine portfolio.

Will Patten, channel director for on-trade spirits, says the new look business will work more closely with customers.

"The restructure of the team means that we now have specialised account managers, with the ability to focus and work more closely with our on-trade customers, adding real value to their businesses," he says. "For our six focus spirit brands - Malibu, Jameson, Tia Maria, Stolichnaya, Havana Club and Martell - we are busy developing consumer focused strategies to drive the growth of these brands with our on-trade customers."

The group's branded wines and champagne will also get a push, with more attention being paid to where they are being sold and for how much. "We are continuing to focus on our branded wine portfolio of Jacob's Creek, Montana and Campo Viejo," says Ian Minichello, Pernod Ricard UK's channel director for wine.

"For our leading champagne brands - Mumm and Perrier Jouet - we are focused on making sure they are distributed in the right on-trade venues at the right price points."

There is a sense that Pernod-Ricard - long seen by some as a drinks company that has regarded itself as being above the hurly-burly of everyday wine and spirits retailing - has at last decided to roll up its sleeves and tackle the UK pub market with renewed vigour.

The Allied deal affords Pernod-Ricard a golden opportunity to up its game in the UK, where it has trailed the competition. Paying attention to customer needs will be a particular priority. Currently placed second in the wine market here and fourth in overall UK spirit sales, there is certainly room for improvement.