Pernod Ricard's chief excecutive has talked up the potential of the firm's fledgling winemaking venture in China, as government austerity measures hit the firm's Cognac sales harder than expected.
Pernod Ricard is around five years in to its winemaking project in Ningxia region, around 1,500km west of Beijing.
Speaking in London following the firm’s half-year financial results, chief executive Pierre Pringuet said wine is a better long-term investment bet than local Chinese spirit baijiu.
‘Baijiu is quite closed to foreign companies but, in contrast, wine is much more open and it’s a fast developing industry,’ he told journalists. Premium baijiu sales have also struggled significantly from government efforts to curb spending by officials.
Pernod believes wine is a way to target the ‘meal occasion’ in China, which the firm sees as a relatively untapped sales opportunity.
It has marketed the Jacob’s Creek brand heavily in the country with this in mind. In Asia as a whole, the group also makes quadruple the profit per litre of wine sold than it does in its Europe, Middle East and Africa division.
The project in Ningxia remains small, relying on contract growers to supply a 10,000-tonne capacity winemaking facility that produces the firm’s Helan Mountain range of Chinese wines – including Cabernet Sauvignon and Chardonnay varietals.
‘Our strategy was not to be too visible,’ Pringuet told decanter.com on the sidelines of the London briefing. ‘But if it’s working well, we will expand.’
Pringuet’s comments came after Pernod’s financial results showed that weaker sales of Martell Cognac in China were largely responsible for a 7% drop in group net sales over the six months to the end of December.
‘The difficulties in China will persist for the rest of our financial year. That’s a change from six months ago, when we thought [the market] would gradually recover,’ Pringuet said.
‘But that doesn’t change our view of the future. China will become an even stronger market for Pernod Ricard.’
Read more about China’s Ningxia winemaking region in the April issue of Decanter magazine, due out in early March.
Written by Chris Mercer