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.