France is home to four of the world’s largest drinks firms - Pernod Ricard, Belvedere, LVMH andRémy Cointreau. However, all four have been hit hard by the global economic downturn, and for severalthe downturn has come at a particularly inopportune time.
Rémy Cointreau reported an 11.6% decline in sales for the 12 months to the end of March 2009. Full yearsales fell to EUR714mn with the firm hit by a 41% slide in sales in the fourth quarter of the year. Thismassive fall in Q4 was partly attributed to the exiting of the Maxxium distribution partnership, which intotal led to a EUR50mn reduction in sales for the period. However, it was also hit by wholesalerdestocking and by a fall in demand for premium drink varieties.
Rémy Cointreau has established a numerous set of bilateral agreements to replicate its distribution profileunder Maxxium, including a deal with William Grant & Sons in the UK, a partnership with Roust inRussia, and an agreement with Suntory in Australia. However, there is a strong possibility that theseagreements will take time to bed in, and this may lead to a difficult transition period. These difficultiescould not have come at a worse time, having coincided with the economic downturn which has had aparticularly marked impact on the super- and ultra-premium sectors in which Rémy Cointreau is focused.
Meanwhile, in the first quarter of 2009 Pernod Ricard raised EUR1bn through a rights issue, and a furtherUS$575mn through the sale of its Wild Turkey Bourbon brand to Italy-based Gruppo Campari. Themoney is to be primarily used to pay down debts, which have ballooned following the EUR5.7bnacquisition of Absolut maker Vin & Spirit. This move pushed the firm’s net debt to EUR12.96bn, whichis larger than the firm’s market capitalisation and almost 80% higher than the net debt of rival drinks firmDiageo. Sales of Absolut have been disappointing since the onset of the downturn and it can be arguedthat this move was poorly timed, having led to a massive rise in debts shortly before global creditconditions worsened.
LVMH’s drinks business, which is centred on champagne and super-premium spirits, has also been hithard by the economic downturn. In the first quarter of 2009 the unit’s sales declined by a massive 22% inorganic terms. This is in line with the Comité Interprofessionnel du Vin de Champagne reporting thatchampagne sales fell by 34% in the first two months of 2009. During the quarter, rumours emerged thatthe world’s largest drinks firm Diageo is eyeing up a bid for LVMH’s wine and spirits arm, and with thiskind of sales contraction, LVMH must be wondering whether its drinks division is worth holding on to.
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