Pernod Ricard is better placed than archrival Diageo heading into an economic recovery thanks to its exposure to emerging markets, though Diageo is making the right moves in China.
Diageo, the world’s biggest spirits group, said on Monday it might spend at least 624 million pounds to take over China’s fourth-largest spirits group Sichuan Shui Jing Fang to add Chinese white spirits to its portfolio of top brands.
The move was likely prompted by concern that just 5 percent of global sales come from fast-growing emerging markets in Asia, compared to about a fifth in the case of Pernod, the world No 2 spirits maker.
A deal would triple the size of Diageo’s business in China adding Shui Jing Fang’s annual sales of around 100 million pounds to Diageo’s current 55 million pounds of sales in the country.
Analysts said that the Chinese acquisition showed Diageo’s keenness to address its weakness relative to Pernod, but that the numbers were still small.
Analyst Melissa Earlam at UBS called it “a small positive” deal in China but noted that China’s contribution to group earnings was still relatively meagre.
“Strategically, Diageo is very keen to expand in China. Diageo’s exposure to China in below 1 percent of group EBIT (operating profit) well below Remy at 22 percent and Pernod at 8 percent,” she said.
The two French groups have a clear advantage due to the Chinese liking for cognac with Remy Cointreau owning the world’s No 2 cognac Remy Martin and Pernod the No 3, Martell.