Less Pain for Pernod

After Diageo's disappointing results for Scotch, the picture was more positive from Pernod in its latest full year results announced last week. Ian Fraser explores how these two giants of the industry are bearing up …

How are the Scotch whisky businesses of Diageo and Pernod Ricard faring against each other amid signs that the premiumisation bandwagon has stalled, and given the recent disturbing global dip in Scotch sales? An analysis of the two giants' recent full year numbers confirms both are struggling – but that Diageo is in more trouble, at least for now, than Pernod's whisky arm - Chivas Brothers.  

In its recent FY24 results, Diageo's Scotch sales tumbled 10% by value, having risen 11% in the year to June 2023 after an amazing leap of 29% in the year to June 2022. By contrast, Pernod's Scotch whisky sales fell at the more sedate pace of 1.6% in FY24, which is not bad when you consider the deleterious effect of stopping exports to Russia in April 2023 (an export cessation which, incidentally, came more than a year after Putin's invasion of Ukraine, and a year after Diageo ceased exporting to the Russian Federation). In FY23, Chivas Brothers' sales climbed by 17%, and surged by 25% in FY 2022.  

Diageo is largely blaming the fall in its Scotch whisky sales on the carnage it experienced in Latin America and the Caribbean (LAC), where the London-based group's overall spirits sales collapsed by 23%. Speaking on results day, CEO Debra Crew admitted some of its inventory in LAC "was more premium than what the market really was" – which might be de-jargonised as; 'we realised we were trying to sell our stuff at too high a price.' LAC accounts for just one-tenth of Diageo's overall sales but one-quarter of its Scotch sales – hence the leveraged effect on its Scotch category. 

"The issues were severe in Latin America and the Caribbean for Diageo and I believe this largely explains the difference in performance between its whisky business and that of Pernod," says Lawrence Whyatt, director of beverages equity research at Barclays. "Pernod had weaker LAC performance in FY23, but Diageo's weakness came in FY24 – firstly from the weak consumer, and then a whole lot of destocking."

Crew said the US, where Johnnie Walker reported a 10% fall in sales as a result of 'normalisation' in demand, is holding up better thanks in part to the successful launch of Buchanan's Pineapple. In Northern Europe she said growth of Johnnie Walker Red Label was in double digits, "as consumers shifted into the standard price tier" and that "Scotch grew 11% in India, with strong growth of Black & White and Johnnie Walker." 

Pernod Ricard chairman and CEO Alexandre Ricard insists that a 4% fall in sales and 7% fall in profit at Diageo's Paris-based rival is "robust" given "an environment of economic and geopolitical uncertainty and spirits market normalisation after two years of exceptional post-pandemic growth."

The company said it returned to growth in the second half of FY24, up 5%, after a 6% fall in sales in the first six months. The group said Ballantine's net sales were up 1% while Chivas Regal fell 1.2%, despite growing 5% in Western Europe and 22% in Japan. Chivas Brothers' chair and CEO Jean-Etienne Gourgues said Japanese growth was underpinned by the core ranges of Chivas Regal and Ballantine's, adding that Ballantine's, The Glenlivet and Royal Salute had been flying off the shelves in travel retail. Chivas Brothers' sales surged by 35% in Africa and the Middle East, but were down by 1% in Greater China, 8% in Central and South America, and 19% in North America. The company blamed a 6% fall in global sales of leading single malt The Glenlivet on the brand's heavy presence in the difficult North American market.

Paradoxically, the comparative performance of Diageo and Chivas Brothers in the sector in the year to the end of 30 June differs from their performance in the calendar year - at least by volume.

An analysis of Spirits Business's Brand Champions reveals that Diageo has eight brands – including Johnnie Walker, Black & White, J&B and Buchanan's – among the world's biggest-selling Scotch whiskies. These brands had combined sales of 35.5 million nine-litre cases in 2023. On average the brands suffered volume sales declines of 12.8% vis-a-vis 2022.

By contrast Chivas Brothers had just five brands in the top two dozen Scotch whisky brands globally – including Ballantine's, Chivas Regal, 100 Pipers and Passport. With combined sales of 17.5m cases, these suffered higher average falls in sales than Diageo's Scotch portfolio, with their volume sales dwindling by an average of 17.7% in 2022-23.

It is also worth noting the two firms segment their blended Scotch ranges quite differently. Chivas Bros segments by brand, starting with Ballantine's, then seeking to shift consumers to more expensive Chivas Regal (always 12-years-old or more), and then on to Royal Salute (always 21-years-old or more). The approach appears to be working, with Royal Salute achieving a historic sales high in FY24. 

Diageo, however, takes a colour-coded approach to segmentation as Debra Crew explained on its results day. "We feel good about Johnnie Walker, in particular – we're gaining share," she said. "This is the magic of having the same brand that covers Red to Black to Blue. We're certainly seeing some switching around but Black is still doing well in the US." 

Overall, however, Chivas seemed marginally more upbeat about its whisky portfolio and premiumisation strategy than Diageo. Gourgues told Drinks Business: "Whisky is and always will be a long-term game and with a positive 12% compound annual growth since full-year 2021, our eyes are fixed on the future. Our return to growth in the second half has set a good level of confidence as we enter the current fiscal year."