Pernod Ricard - Peruvian Market

3
INTRODUCTION
I - INTRODUCTION
Pernod Ricard group appeared after a merger between two French companies, Pernod
and Ricard (which produces the aniseed alcohol from south east of France). After
several acquisitions Pernod Ricard became in 2005 the second world alcohol company
in the world just behind Diageo (Guiness, Captain Morgan, Gordon’s, J&B). Since the
economic crisis in 2008, Pernod Ricard has started a premium strategy in highlighting
the quality of the products, increasing their quality and their image. The target is at the
end all the BRICS countries.
The potential of those countries is considerable if you understand that the alcohol
industries are not organised like in Europe. Plus, the capacity of big groups to adapt their
products to a new global demand, make those markets really attractives. From 2006, the
french group is the leader in spirituous in Europe, Japan, China, Russia and Mexico. If
the group is leader in Mexico we were wondering why the group is not the leader in
South America.
That is why we started to study in which countries Pernod Ricard was not yet enough
important. It came quite obviously that Peru could be an important country to target. It is
not a classic country to study but we think the company has a lot to do over there.

4
PART I – PERNOD RICARD ANALYSIS
I - INTERNAL DIAGNOSTIC
A. CORE COMPETENCES
Pernod Ricard has certainly one of the best expertise asset in the spirits market. The
company was founded in 1975 from the merger of Pernod and Ricard, which were older,
1805 and 1932 respectively. These years of expertise made Pernod Ricard leader in a
huge amount of countries around the world, considering they have also their
manufactures in these countries. From February 2015, Pernod Ricard have 101
production facilities 1
around the globe and they mainly decentralize their production in a
country to manage the business on the local market: this strategy allow Pernod Ricard
having better decision making closer to the market and which can respond quickly to the
customers and consumers needs.

1

http://pernod-‐ricard.fr/files/fichiers/DossierDePresse_Pernod_Ricard_fevrier2015.pdf

5
The lead core competence of Pernod Ricard is the “Top 14”, as they call it. The Top 14
is their international brand portfolio with 2 global brands icons (ABSOLUT and Chivas
Regal), 7 strategic premium spirits brands (Ballantine’s, Jameson, Kahlúa, Havana Club,
Ricard, Malibu and Beefeater) and 5 strategic brands spirits and champagne prestige
(Martell, Perrier-Jouët, G.H.Mumm, The Glenlivet and Royal Salute). Each beverage has
a specific position on the spirit market. For instance, RICARD is the N°1 of the aniseed
spirit in the world spirit market and MALIBU is the N°1 world flavoured rums in coconut.
Consequently, Pernod Ricard own really specific feature from one spirit to another that
makes them often leader on the market.

6
Another core competence is the process of innovation of the group. Pernod Ricard
desires to sell high standards spirits in order to have this premiumisation advantage on
the market. This strategy is built on the “value creation” process; it means that the group
want to be the leader everywhere with high quality products on a long-term investment.
Pernod Ricard spending in Marketing is almost 18% 2
of its sales revenue, considering it
as its major investment in the group. Pernod Ricard wants to play on the innovation side,
which represent a growth accelerator for them.
Pernod Ricard answers to three strategic objectives concerning innovation: enrich the
world of brands, renew consumer opportunities and target the most promise types of
consumer. To handle this objective, the group work with a creative collaboration to give
a full new branding to a brand. For instance, Pernod Ricard launched “Malibu Island
Spiced” which was flavoured rum lighter in calories.
B. DYNAMIC CAPABILITIES
Pernod Ricard answers to the risk prevention, namely, the environment of the market.
As a major actor on the spirit market, the group fight against drink driving, education and
youth prevention and pregnant women. In May 2014, Pernod Ricard launched Wise

2

http://pernod-ricard.fr/files/fichiers/DossierDePresse_Pernod_Ricard_fevrier2015.pdf

7
Drinking mobile application, the first worldwide application dedicated to the promotion of
responsible consumption, available in 37 languages.
As Pernod Ricard focus on the premiumisation of its products, the group got an
environmental awareness. For instance, in Australia, the entire wastewater is
reprocessed and reused for irrigation drip: 90 million litters have been saved.
Moreover, the French group is engaged in charity.
C. STRATEGIC MANAGEMENT
Pernod Ricard is based on a strong corporate culture with more than 18 000 associates
around the world. The group has a true special strategic management, which produces a
real competitive advantage. The major values of the French group are the
entrepreneurial spirit, mutual trust and the ethic sense. Those values create a strong
collective involvement to get great performance figures.
The entrepreneurial spirit is the core value of the Pernod Ricard as the group
decentralize their business on local business and establish subsidiaries. This value aims
to have better entrepreneur, which will be able to take better decision for the local
market.
The mutual trust is based on trust between associates which sets up full trust in
decision-making and faith in their managers.
The last but not least is the ethic sense, which provide a strong corporate culture with
the full transparency policy and the charity engagement with the respect value.

8
II – EXTERNAL DIAGNOSTIC
First, it is important to understand how the Peruvian alcohol market is regulated in Peru:
how is the political environment? How is the economy in Peru? How the Peruvian are
consuming alcohol? For all those questions it is essential to use the PESTEL tool to
explain those stakes.
A. PESTEL
POLITICAL
Government policy on the alcohol and spirit directly affects this market. Indeed, there are
different taxes and regulations according to the country and the market place. First, with
the OMS the taxation of alcoholic drinks has been largely implemented and studied as a
political measure against the damaging effects of alcohol. In 2010, the World Health
Assembly approved a resolution confirming a global strategy to reduce the harmful use
of alcohol, which forced countries to strengthen national responses to public health
problems caused by the harmful use of alcohol. For instance with campaigns to raise
awareness against the dangers of drinking and driving and on health in the aim of
reducing consumption
In addition, we need to highlight a new agreement between France, Colombia and Peru3
about a free trading agreement for different kind of goods: consumer goods, capital
good, agricultural machinery. The alcohol market is part of this agreement and it means
that Pernord Ricard has got here an incredible opportunity to increase is trade with Peru.
ECONOMICAL
The economical aspect includes risks related to fluctuations in exchange rates with a
significant negative effect of currencies on the international market and the inflation but
also all the different issues in the world as the strong GDP growth, the uncertain

3

http://www.tresor.economie.gouv.fr/7809_entree-en-vigueur-de-deux-nouveaux-accords-de-libre-echange-ue-colombie-
et-ue-amerique-centrale

9
economy because of the crisis, the location advantage on a growing market with the
cheap labour and the significant development costs (30% of the turnover).
In Peru, the GDP per habitants is 6800$, the GDP is growing around 2% per year and
the unemployment rate is around 7.7%. Even so, the non-declared work is important so
it is difficult to be sure about those figures. Furthermore, Pernod Ricard has to analyse
the importance and percentage of rich people in this country and their capacity to buy
premium alcohol. It will be a main problem to adapt the prices to the capacity to
consume.
SOCIO-CULTURAL
Peruvian people are well known to drink the local alcohol: the Pisco (colourless or
yellowish-to-amber coloured brandy produced). According to an annual report from
WTO4
(World Trade Organisation), we learn that Peru is the third consumer of alcohol in
America (North and South). Except that Pisco local alcohol, the Peruvian are drinking
local beers (in quantity), Whisky, Rum and Vodka in the last position.
It is not a problem or a risk for Pernod Ricard to continue its expansion in Peru if the
company try to adapt its range of product with the Peruvian expectations.
TECHNOLOGIC
The technological aspect could be questionable for a market where the authenticity is
one the main characteristic of it. However, the spirit industry is investing a lot in
innovation. For instance, the agronomical and oenological research and development
has allowed optimising the process of vinification and conservation. Thus, the production
quality has improved.
Innovation in the spirit industry is evolving completely because of the new way consumer
drink and the consumer individualism. The biggest company in the industry change
slowly and slightly their brand to a new younger face which is targeting the millennial.

4
http://gestion.pe/tendencias/peru-tercer-pais-que-mas-consume-alcohol-region-2138585

10
One of the major aspects in innovation is the proliferation of flavours to better meet to
expectations of their target and attract new consumers. The flavoured vodka category
widened by 25% between 2010 and 2011 in the US.
The most important thing to understand for Pernod Ricard is to adapt its product to this
local market: understand the tastes, the way to consume alcohol.
The major actors of the spirit industry work a lot on the packaging of their product to
make them attractive first, but also convenient.
Concerning the advertisement, the spirit industry is focusing on excitement by giving
greater emotional engagement in drinks advertising. For Instance, when Balantines
launched Ballantine’s Brazil in Paris, they organize a free warehouse party with great Dj
where they served free Ballantine’s cocktail all night long. The event launching product
for consumer take the next level in the spirit industry. Basically, Pernord Ricard has to
develop those kinds of events to penetrate the Peruvian market.
ENVIRONMENT
Environmentally, the spirit industry is not to blame. Spirits is a liquid always in a
container, which is in glass or plastic. Those latter are:
Waste management & recycling
PET (polyethylene terephthalate) bottles are recording some success in alcoholic drinks.
The plastic material is one of the most recycling plastic in all his family.
“In 2010, still red, white and rosé wine were all available in a 750ml PET bottles at the
Swedish state alcohol monopoly, Systembolaget. PET bottles have continuously spread
to new product areas as they are lightweight, convenient and incorporate excellent
closure features.” - 1 January 2011 - Dr Benjamin Punchard
However, plastic bottle are harder to recycle than glass. One green fact even more
important is the ease of recycling glass into plastic. In the recycling process, glass is
healthier for the environment than plastic. Through recycling (Glass Is 100% recyclable
and infinite). In 2012, in Europe, over 12 million tonnes of raw material were saved.
It will be a strike for Pernod Ricard to develop a good policy about recycling.

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LEGAL
“The N°28681 law”5
Concretely, it is important to understand that the alcohol selling activity has to face a lot
of law rules. In Peru, it is forbidden to sell alcohol to people under 18. Moreover, in Peru,
the N°28681 law force the advertiser to put a message to alert the consumer about the
danger of alcohol. Plus, the ads are not allowed to promote arguments that could attract
people under age to consume alcohol.
We can also say that Peruvian’s economy will grow in a near future and like every
developed country, the lobbies or restriction will be stronger in the future.
B. PORTER’S 5 FORCES
The threat of new entries
The local productors are the potential competitors and might be a threat for the
company. To protect their monopoly, the companies already settled some barriers:
The financial barrier:
The spirituous sector is fully concentrated. The critical size is increasing
constantly, starting up a business in alcohol industry cost always more money and
the acquisition are already too significant for a small company. The working capital
requirement problem is important: the spirituous like Armagnac or whiskey need to
be retained during few years.
Furthermore, to start up the business with all the equipment’s needed the financial
need is truly tremendous.
The legal barrier:
The constraints about advertising and alcohol sales are important in Peru and are
close to what the ones we know in Europeans countries. The N°28681 law is the
one which constraints the alcohol sales and advertising (cf PESTEL).

5

http://docs.peru.justia.com/federales/leyes/28681-mar-3-2006.pdf

12
The technological barrier:
Starting up a business in wine and spirituous requires an old know-how. Pernod
Ricard started its business quite a long time ago, and got a certain legitimacy on
the market. Plus, the company has proceeded to several acquisitions that permit to
settle some safe and legitimate business.
The company should follow its original strategy to penetrate the Peruvian market.
The threat of substitution:
We can assure that there are no direct threats because when people want to drink
alcohol, there are no substitutes. The free alcohol (like the free alcohol beer) imitates the
taste of beer so the consumer wants to create the same sensation. Maybe the only
substitution could occur after a certain age: the beer could be replaced by wine or
spirituous but it is still alcohol.
Typically here, we know that the Peruvian consume a lot of beer: Pernod Ricard does
not sell beer thus the company will have to be focus on the spirituous and the wine to
compete with the Peruvian and Chilean wines.
The buyer power:
When you are talking about buyer in this business, it is important to dissociate the B to B
(with the supermarkets, restaurants and bars) and the population.
Such as Pernod Ricard does not have a direct pressure: the brand is successful and got
an almost constant demand. Moreover, the capacity of Pernod-Ricard to manage B to B
and B to C permits to have a total control on the activity. Even if Pernod Ricard is still not
the leader in Peru, its name branding is known and its capacity to negotiate will not be a
barrier to enter in the market.
Supplier power:
In this case, Pernod Ricard has to look after its relationship with the producers (ex:
farmer). Indeed, they are producing the product and they have the power to negotiate
depending on the quality of the cultivated land. It is clear that the Peruvian farmers may
not have the same expectations as the European ones but nonetheless, the importance
of the fair-trade in the unconscious in more and more important. It will be a principal
stake to settle a healthy business and a good capacity to negotiate with local actors if
Pernod Ricard wants to be a leader.

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PART II – STATEGIC RECOMMANDATION TO PENETRATE PERUVIAN MARKET
I – MARKET STRATEGY
A. PERNOD RICARD IN MEXICO
Pernod Ricard is the number 2 in Mexico in the alcohol and spirits sector. The rich
portfolio of brands Casa Domecq (Pernod Ricard Mexico), supported by its quality in
production, sales and distribution, has ensured the success of the exercise.
The subsidiary consolidated its leadership, increasing its overall market share, driven by
the performance of its premium brands and its imported brands, particularly whiskeys.
In volume, Chivas Regal grew by 20%, Ballantine's by 21%, sales of Jameson were
multiplied by seven, and Passport grew by + 65% in volume. ABSOLUT has been
successfully integrated to the network, consumer sales increasing by + 13%. Despite
adverse market conditions, Olmeca, international tequila brand of Casa Pedro Domecq,
continued to gain market share.6
In February 2009, the subsidiary signed a distribution agreement in Mexico of Tequila
Sauza, which will further strengthen its position in the tequila segment, where it already
enjoys beautiful brands: Real Hacienda and Agavia.
Casa Pedro Domecq received several awards during the year, including the "Corporate
Excellence Prize" delivered by the National Association of Self-Service and Department
Stores (ANTAD) to the company that provided the best quality service and products. In
addition, the National Association of wine and spirits distributors (ANDIVYL) awarded six
times Casa Pedro Domecq, named in 8 of 10 categories.
In the category of brandies, the activity focused mainly on Azteca de Oro, the most
premium brand of the subsidiary, through a new advertising campaign entitled
"Vale Oro" ("It is gold").
B. PERNOD RICARD IN VENEZUELA
Pernod Ricard is the number 2 in Venezuela in the alcohol and spirits sector.
The company has largely rethink its distribution system to better target customers and
provide the best quality market service to its customers, while consolidating its partners
and optimizing its profitability.

6
http://pernod-ricard.fr/files/fichiers/archives/finance/rapports-annuels/3ezones.pdf

14
Areas subject to taxes were distributed among leading distributors to leverage synergies,
while Duty Free zones, largely contributors to the result, are now handled 100% by
Pernod Ricard Venezuela.
Among the advantages of this new business model include cost reductions and
optimization of the evaluation and compensation of distributors that will promote the
overall development of the portfolio of the subsidiary, with an emphasis on premium
brands.
In addition, Pernod Ricard Venezuela has deployed the global campaign Chivas Regal
"Chivalry" in the media, along with an innovative communication campaign entitled
"Knights" in which opinion leaders recognized are the ambassadors of this rich concept
'chivalry. A tournament was also set up to communicate internally about the campaign
and its values.
C. PERNOD RICARD IN BRASIL
Pernod Ricard is the number 3 in Brasil in the alcohol and spirits sector.
The company outperformed the industry in key categories, with particularly positive
results for Chivas Regal (best performance of super-premium Scotch segment, which
wins more than 2% market share by value and Ballantine's, with growth + 10% in value
for Ballantine's Finest.
As for the local brands, Pernod Ricard Brasil remains the leader with Montilla who won 1
point of market share in volume (77%) in a stable category. With the support of a new
advertising campaign, Montilla, despite significantly less favorable taxation, maintained
its volumes in the northeast of the country where the brand is mainly established.7
Other regional brands such as Passport, also performed well and managed to maintain
and even expand, their market shares in their respective categories.

7
http://pernod-ricard.fr/files/fichiers/archives/finance/rapports-annuels/3ezones.pdf

15
II – HOW TO ENTER THE MARKET
A. ALCOHOL MARKET IN PERU
Spirits consumption
Peru is ranked as the 5th biggest consumer of alcohol behind Brasil, Argentina,
Colombia and Venezuela. However, according to market study, the consumption of
alcohol should increase by 4,6% in 2015 compare to 2014.8
In 2012, beer consumption in Peru is on average 32 liter per person9
over the year. This
figure is a great opportunity for Pernod Ricard as they don’t sell beer but only spirits and
wines.
In 2011, consumption of alcoholic beverage were about 1250 millions of liters, including
1000 millions of liters only for beers. The 250 millions remaining is split into whisky, rum,
vodka, pisco and other liquors.
Moreover, another key fact is the preferred beverage of peruvian is the Pisco (a local
liquor, similar to the brandy). Pisco has experienced a really good improvement from the
last 15 years. Natively, Pisco is homemade low quality liquor very popular in Peru.
However, two factors help the development of pisco improvement: the first one is the
support of the government for the promotion of the pisco, the second is the
enhancement of the production line with better infrastructure and greater quality.
Nowadays, you can find pisco with a clean branding and good quality.10
However, the preferred spirit beverage of peruvian following the pisco is whisky, rum,
then vodka. As Pernod Ricard is N°2 of the whisky in Argentina with Blender’s Pride and
N°3 of the whisky in Venezuela with the blended scotch whisky Something Special, we
can spell out that those kinds of whisky could be in the top 3 of whisky in Peru.
Concerning the part of spirit importation, in 2013, Peru imported 380 000 boxes of 9
litters of whisky, 210 000 boxes of 9 litters of rum and 70 000 boxes of 9 litters of
vodka.11
The government estimate that those figures should increase the next years

8
http://gestion.pe/economia/whisky-y-ron-son-licores-que-mas-importo-peru-primer-trimestre-2130975
9
http://rankings.americaeconomia.com/2013/ranking_500_peru_2013/sector-bebidas-licores.php
10
http://www.revistabusiness.com.pe/2011/12/13/licores-en-crecimiento/
11
http://peru.com/estilo-de-vida/gastronomia/entperate-cuales-son-bebidas-mas-pedidas-peruanos-noticia-293257

16
coming. As Pernod Ricard has already a subsidiary in Lima and production sites in Brazil
and Argentina, it should be quite easy to enter the Peruvian spirit market as leader.
Major competitors and leader on the spirit market
The major group and companies on the alcohol market in Peru are AJE Group, UCP
Backus y Johnston (belong to Bavaria Group), Corp. José R. Lindley and Ajeper. Those
four groups provide mainly beers and soft drinks that are not direct competitors for
Pernod Ricard but still are competitors because they own large market share on the
alcohol market.
B. HOW TO POSITION PERNOD RICARD ?
As we saw before with the Pisco market, originally a low local quality alcohol, its quality
improved those last years. Pernod Ricard does not have yet a brand with the same taste
to offer. That is why it could be interesting to think about an acquisition or a joint venture
and create a kind of premium Pisco. The company could see how the demand is
reacting and it could be a way to adapt their strategy to a local specificity.
Then we learnt Peru is consuming first whiskey and then Rum. Pernod Ricard already
owns brands able to seduce the Peruvians consumers. Now the question is how? Maybe
adapt the packaging, sponsor local events and also keep this premium strategy in order
to touch people with a high purchase power.
C. WHY ENTER THIS MARKET
Pernod RIcard should enter the Peruvian spirit market before other multinational. The
group has a competitive advantage in Latin America compare to other multinational
because it is leader in whiskey in Argentina, Venezuela and Brazil.
Moreover, Pernod Ricard has already decentralized his company in Peru and Colombia
as they set up subsidiaries in Lima and Bogota, the two capitals of those countries.
Deeply researched, Peruvian population preferred Whiskey to Rum and Vodka. Pernod
Ricard own Chivas Regal, which is a high quality product that Latin American appreciate
much even if it’s a bit above their financial capability. That’s why the group launch lower

17
quality product, which are still good quality compare to the markets product as Blender
Pride (Argentina) or Something Special (Venezuela).
As Pernod Ricard is completely innovation focus, they can provide what the population
needs in terms of spirits. The Peruvian and the other Latin American population got an
high standard demand of whiskey and rum: Pernod Ricard can answer to this
requirement.
In 2015, Havana Club (brand of Pernod Ricard) made a partnership with The Bitter Truth
in Cuba for the creation of a new product line of aromatic Havana Club name "The
essence of Cuba". This product line included 4 flavours (island fruit, aromatic leaf, coffee
and honey), which has been design to enhance the taste of natural aroma of "Havana
Club Añejo 7 Años". This product line has been established only on natural ingredient
from the Island.12
The group should make an acquisition or a joint venture with a Peruvian spirit company
(as the information is hard to find, we can’t afford a real Peruvian company name). In
this way, Peruvian population will deeply appreciate whiskey based on local taste of
Peru and they won’t be confused with an unknown brand and could still afford top range
quality product.

12
http://pernod-ricard.fr/12922/presse/actualites-et-communiques/news/havana-club-met-en-relief-les-saveurs-cubaines-
grace-a-the-essence-of-cuba

18
CONCLUSION
CONCLUSION
In conclusion, Pernod Ricard got many competitive advantage from his competitors due
to his powerful core competences as premiumisation, decentralization and its top 14.
Pernod Ricard should definitely focus on acquisition and joint venture in Peru with local
Pisco producer and add its own french touch of innovation to the beverage : Peruvians
will still appreciate drinking the Pisco as they know it, but they will be able to try freshly
new taste.
Basically here, Peru is split in two different population : there is a deep cleavage
bewteen rich and poor people. Pernod Ricard should play his card of Premiumisation as
they do it in other Latin American countries. The smartest way to penetrate this spirit
market is to think out of the box and sell pretigious premium wisky to wealthy people and
to keep a standard premium whisky for poor people. Everybody is winning on the map
where each Peruvians can afford great to outstanding spirit quality.

19
BIBLIOGRAPHY
BIBLIOGRAPHY
Web articles:
• http://pernod-ricard.fr/
• http://pernod-ricard.fr/files/fichiers/DossierDePresse_Pernod_Ricard_fevrier2015.pdf
• http://www.andlil.com/analyse-swot-de-pernod-ricard-145673.html
• http://pernod-
ricard.fr/files/fichiers/Finance/Documents/PDF/CA%20et%20resultats%20FY%202013-14_0.pdf
• http://www.youscribe.com/catalogue/rapports-et-theses/education/corriges-de-devoir/dossier-
pernod-ricard-management-strategique-complet-2489498
• http://pernod-ricard.fr/files/fichiers/archives/finance/rapports-annuels/Pages_36-49_de_RA05-06-
Partie-institutionnelle-3.pdf
• http://www.iesanetwork.com/v.millet/portfolio/marketing.html
• http://gestion.pe/empresas/pernod-ricard-planea-traer-nuevas-marcas-whiskies-y-rones-2015-
2112541
• http://www.lemoci.com/actualites/pays-marches/libre-echange-laccord-uecolombie-perou-suscite-
la-controverse/
• http://pernod-ricard.fr/files/fichiers/DossierDePresse_Pernod_Ricard_fevrier2015.pdf
• http://www.tresor.economie.gouv.fr/7809_entree-en-vigueur-de-deux-nouveaux-accords-de-libre-
echange-ue-colombie-et-ue-amerique-centrale
• http://gestion.pe/tendencias/peru-tercer-pais-que-mas-consume-alcohol-region-2138585
• http://docs.peru.justia.com/federales/leyes/28681-mar-3-2006.pdf
• http://pernod-ricard.fr/files/fichiers/archives/finance/rapports-annuels/3ezones.pdf
• http://gestion.pe/economia/whisky-y-ron-son-licores-que-mas-importo-peru-primer-trimestre-
2130975
• http://rankings.americaeconomia.com/2013/ranking_500_peru_2013/sector-bebidas-licores.php
• http://www.revistabusiness.com.pe/2011/12/13/licores-en-crecimiento/
• http://pernod-ricard.fr/12922/presse/actualites-et-communiques/news/havana-club-met-en-relief-
les-saveurs-cubaines-grace-a-the-essence-of-cuba
• http://peru.com/estilo-de-vida/gastronomia/entperate-cuales-son-bebidas-mas-pedidas-peruanos-
noticia-293257

Pernod Ricard - Peruvian Market

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