Interview Synopsis

Pernod Ricard – US strategy & growth outlook

  • Public Equity
  • Consumer
  • North America

The US spirits market has been shaken by the COVID-19 pandemic. Consumption remained robust but the “new normal” also prompted new drinking trends. Third Bridge Forum spoke to a former EVP at Southern Glazer's Wine & Spirits LLC to discuss Pernod Ricard’s US business, including volumes and profitability, portfolio challenges and opportunities, the competitive landscape and COVID-19’s impact.

The Interview started with a focus on trading dynamics, with robust volume growth last year of 3-4%, and even higher, at 7.5%, in the control states. There’s also a premiumisation trend, we’re told. “While volume grew 3-4%, it looks like the value was probably in the 6-7% area,” the expert said. 

Turning to categories, tequila, Cognac and American whiskey are leading the growth, with tequila “the hottest category I’ve seen in 40 years”. However, the specialist also explained some of the nuances within those categories and was less upbeat about gin and rum.

Meanwhile, Tito’s has become the number one spirit in the US, the Interview revealed. “It’s really created tremendous headwinds for anybody else to grow in the vodka category because of their unbelievable growth the past few years, probably past 10 years now,” the specialist said. 

Other areas to watch are pre-mixed cocktails and craft, although they have been boosted and hampered by COVID-19 respectively. “We’ve gone from around 500 craft distilleries in 2015 to over 2,000 in 2020… and in 2020 their tasting rooms were closed,” the specialist said. “They were definitely impacted.” Whether increased consumption of pre-mixed cocktails will stay once more bars and other establishments reopen remains to be seen. 

In terms of the pandemic’s overall impact on US spirits, the expert noted that Q2 2020 — one of the most disruptive periods — coincided with St Patrick’s Day and March Madness. Although on-premise consumption is expected to return to pre-COVID-19 levels once restrictions are lifted, business represents about 15% of on-premise sales and is likely to remain depressed. 

Pernod’s growth versus the broader US spirits market was also on the agenda. Overall, the company has continued to grow despite its reliance on the hard-hit Jameson brand. Another question was whether other Irish whiskies could become a bigger threat to Jameson, or whether American whiskey could steal share from the US Irish whiskey market.

How growth is likely to play out between Pernod and Diageo, including Pernod’s route-to-market strategy, was also discussed. “I think it’s just a scale standpoint, where Diageo is much larger and they have the partnership with Moët Hennessy, that Pernod goes at it alone,” the expert said. 

To access all the human insights in Third Bridge Forum’s Pernod Ricard – US Strategy & Growth Outlook Interview, click here to view the full transcript. 

The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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