Pernod Ricard’s wine disposal will diminish its UK presence

While global brewers are busy making moves to diversify, spirits powerhouses are having a clearout.

Pernod Ricard has today (17 July) reached an agreement to sell its international strategic wine brands to Accolade Wines owner Australian Wine Holdco Limited (AWL). It’s the latest in a slew of disposals from spirits companies seeking to renew focus on the most profitable parts of their business.

Diageo – Pernod’s biggest spirits rival – sold Archers, Picon, several African beer assets and a clutch of mainstream Indian spirits brands in recent years. It was also ahead of the Paris-headquartered group in pivoting from wine when it sold its major category interests to Treasury Wine Estates in 2015.

Last year, Pernod offloaded mainstream whisky brand Clan Campbell, and Suntory Global Spirits found a buyer for Courvoisier in Campari, enabling it to focus on American whiskey, Japanese spirits and tequila.

Analysts at Jefferies describe this trend as “decluttering the tail”. They note wine forms just 4% of Pernod Ricard’s group sales, and that disposal of these assets will “enable the company to direct resources to its portfolio of premium international spirits and champagne brands”.

Not a surprise

Brands of note in the proposed sale are Jacob’s Creek, Campo Viejo and Brancott Estate. The Mumm and Perrier-Jouët champagne brands – which sit outside premium wines – are being retained, as are brands in France, the US, Argentina and China.

Pernod has been flirting with a wine offload for some time. In September, it was “continuously exploring options” after reports surfaced that it sought a buyer for its Australia and New Zealand wine operations. Back in 2010, the Absolut brand owner insisted it was “very happy” with its wine portfolio, after declining revenues sparked suggestions of a sale. 

Jefferies analysts estimate Pernod’s wine business has declined by 6.5% in value over the last decade. In the group’s Q3 results in April, sales in its ‘Strategic Wines’ division were down by 9% “mainly driven by US and UK declines”.

By contrast, its ‘Strategic International Brands’ unit, comprising household brands like Jameson, Absolut and Beefeater, as well as Mumm and Perrier-Jouët, grew 1% against a challenging global spirits backdrop.

Therefore, the disposal shouldn’t come as a surprise.

Accolade gains further UK scale

Adding Pernod’s portfolio to Hardys, Jam Shed, Echo Falls and Mud House – all of which ranked in The Grocer’s Top 100 Alcohol Brands  this year – will give Accolade further scale, both globally and in the UK. The combined portfolio puts the Aussie giant in a strong position to challenge Treasury as the dominant UK wine player.

The acquisition will be the first under the Bain & Co consortium which seized control of the group earlier this year. Joshua Hartz, a spokesperson for AWL and a Bain partner, said combining Accolade Wines with Pernod’s wine assets would “create a more certain and financially sustainable future for the business”.

“Backed by AWL, the combined business will be better able to adapt to changing consumer tastes and meet the structural challenges facing the global wine industry,” he added.

Accolade – for all its global travails – feels like a natural home for Pernod’s wine assets. Here they should benefit from the synergies that exist in a global, wine-focused business.

Reduced UK presence

Getting out of wine will improve margins at Pernod – Jefferies analysts estimate a 60 basis-point boost – but is also likely to reduce the group’s presence in the UK. Wine makes up as much as a third of its revenues in the market, and Campo Viejo, Brancott Estate and Jacob’s Creek deliver combined off-trade sales of more than £160m [NIQ 52 we 24 April 2024].

The category remains a challenging one, but recent NPDTapabrava and Greasy Fingers suggested Pernod was at least somewhat invested in finding a solution. With wine ceasing to be a focus, it’s inevitable the group will dedicate less time and resource to the UK moving forward.

Jefferies analysts state Pernod has historically used wine to cover structural costs in the UK. Profits have, for the most part, come from its higher-margin premium spirits portfolio.

Take the wine business away and suddenly investment in the market doesn’t look so good on the balance sheet.