Chinese Business Management Pernod – Ricard

Created in 1975 through the merger of Ricard and Pernod, this French spirits giant is specialised in making and distributing wine and distilled beverages.

This is the second group worldwide in this division, just behind Diageo and before Bacardi-Martini thanks to the acquisition of Vin & Sprit which produce especially the vodka Absolut in 2008. In France the group is a leader in the liquor sector with more than 27% of the cumulated market share. The company generates most of its sales in Europe, followed by Asia.

1. Pernod-Ricard’s axis of development

The market maturity of the developed countries encouraged Pernod Ricard to target new geographical areas with high potential. The company accelerated its deployment in the emerging countries, especially in Asia.

The Asia-Pacific area (beside Japan) counts for a growing part of the world luxury market : 14% in 2009 and only 11% in 2006. The booming Chinese economy maintains high the demand in luxury products of the Asian area. China counts 360 000 millionaires in dollars (5% of the world population of millionaires). The rapid increase of the living standard leads the Chinese to a showy and statutory consumption, synonymous with success. Nowadays, according to Pierre Pringuet, Pernod Ricard’s CEO, “China is the second-largest market of Pernod Ricard. Second to the US.” The luxury image of the Pernod Ricard’s products meets success among the young Chinese generation (20 – 35 years old), which is the heart of the clientele of the premium brands in China. The company targets also other countries in Asia such as South Korea, Thailand or India. In opposition to its strategy in other Asian countries, the company does not own local brands in China. It directly exports the foreign production and most of the customers have to be educated about these new alcohols. One of the burning issues for the company is the protected origin designation. The following matrix is a PESTEL analysis that describes the environment in which Pernod Ricard is investing.

2. The firm’s strategy

Premium could be defined as a quality brand positioned in the top segment. Indeed, special events or special services for customers are created in order to make the customer feel rewarded for having buy the product, and to make him feel as if he was part of a privileged group. Premium leads to high return on investment. Thank to the high positioned product, Pernod Ricard is allowed to sells its product very expansive compared to classic liquor. Indeed 69% of the Pernod Ricard’s worldwide turnover for the year 2010 comes from its high quality brands. A special effort is made for marketing in order to make the product unique: PR invested 19% of the annual turnover in the marketing budget. For instance, Absolut Vodka or Martell Cognac have special packaging and limited edition designed especially for China.

Ten years ago, Diageo was far stronger than Pernod Ricard, thus Diageo did not rush on the Asian market but just strengthen its position in the Eastern whereas Pernod Ricard decided to be the first on this market. Finally, there is no leadership without a deep sense of responsibility. This approach is historically rooted in the history of the Group. Its commitment to civil society, unchanged from the beginning, is the best evidence. Formalized by a new platform of social responsibility (CSR), this commitment is illustrated concretely by four priorities:

* reducing environmental impact,
* policy of responsible consumption,
* sharing of cultures,
* promotion of corporate culture.

PR is also making awareness campaign in China in order to prevent people from the danger of the excess of alcohol. It allows the group to keep a good image, and to be well seen by the authorities.

3. Implementation of the strategy

Pernod Ricard owns his distribution platforms. Thus, Pernod Ricard Asia supplies the Chinese Market. It enables the company to master everything between the manufacture and the moment when the consumer buys the product. Financially, Pernod Ricard recovers the entire margin. Pernod Ricard is always trying to takeover local brands to gain good volume sales in local markets and provide the distribution platform for its strategic brands, but if it is not the case, PR will try to make joint-ventures with local companies (Jiannanchun Group for instance). Pernod Ricard has to adapt to the way Chinese people consume its products. That’s why it organizes several meetings with its customers in order to hand out taste education occasional consumers to connoisseurs. Such meetings are used to introduce in China new ways of drinking and ways of consumption.

For his Absolut Vodka, Pernod Ricard launched many championships in India and in China. The goal has to sculpt the shape of the famous bottle. Many famous artists participated to this. For Martell Cognac, Pernod Ricard organised a photo contest, the winner would win a trip to Cognac the land were Martell is made. Many other events are made in order to please the customer and to show him a luxury image.

4. Management of the Chinese Subsidiary

We find the largest engaged professional team in China where Pernod Ricard employs 5000 people (including Pernod Ricard exclusive promoters) out of which 4 out of 5 work in sales and marketing. The asset of Pernod Ricard is its model which is a model of decentralization. This leads to the importance of entrepreneurship. Moreover, decisions are taken on the ground, at an operational level. Indeed, thanks to the decentralization model, decisions are made for each brand and in each subsidiary company, so each subsidiary company can draw up its own projects. These are autonomous, very closed to the consumers and respecting the identity of each brand. There are many projects, as the example of the « Pernod Ricard University », or the program called « MAGIC » which allows marketers to have different experiences in different countries. Pernod Ricard’s values are trust, personal initiatives, adaptation, mobility and diversity. Pernod Ricard is trying to develop its employee’s careers, offering them a lot of opportunities and mobility. As a matter of fact, 78% of the executives work out of France. Exemple of Horace Ngaï’s path :

2002 – 2005 : Marketing director Pernod Ricard Asia
2007 : Deputy CEO Pernod Ricard China
2006 – 2010 : CEO Pernod Ricard Taïwan
« Ricard’s decentralized model allows personal initatives and local adaptation, but it also provides sound foundations for them who dedicate themselves to it » But even if great efforts are made to employ local people, most of the executives are European. And Pernod Ricard must always choose between mobility over diversity and vice versa.

5. Results and Perspectives

Pernod Ricard is still moving fast in China. Thanks to its good positioning on the market (premiumisation), to the advertising campaigns and its own distribution network, PR has succeeded in penetrating the Chinese market. However, its concurrent are not far, and PR has to be always innovating, and making joint-venture with smaller retailers could be a way, if it is always in the respect of Chinese culture. | Positive| Negative|

Intern| Strengths: * Famous brands, * Premium brands, * Development in China for a decade, * Distribution platform ownership.| Weaknesses: * Monetary fluctuations, * Potential product shortages. | Extern| Opportunities: * Huge potential of consumption, * Market with a 2 figures growth, * An upper class with a high level of consumption, * Attraction for high-segmented products.

Threats: * Low consumption per inhabitant, * Little knowledge in the field of cognac and liquor, * Low purchasing power, * Diageo * Counterfeit|

Sources

* http://www.pernod-ricard.com/medias/Finance/PDF/RapportAnnuel/ 20102011/RA_PR_VF_MiseEnLigne_23112011.pdf * http://www.marketing-chine.com/communication-en-chine/le-packaging-special-des-produits-pernod-ricard * http://en.wikipedia.org/wiki/Pernod_Ricard

* http://www.xerfi.com/Etudes_sectorielles_non_imprimablesE/secteur700/pdf/1ENT14.pdf * http://pernod-ricard.com/21/home