Entering the Australian and New ZealandWine and Spirits Markets

The example of

Université MONTESQUIEU – BORDEAUX IVInstitut d’Administration des Entreprises

Diplôme d'Université« Management des Affaires dans les Pays Anglophones »

Promotion 2007-2008

TABLE OF CONTENTS -

Introduction .......................................................................................................................................3

I - PRESENTATION AND ANALYSIS OF THE PERNOD RICARD GROUP.......................4

1-1- Historical development........................................................................................................4

1-2- The Group's main values.....................................................................................................9

1-3- The Group's activity in figures..........................................................................................10

1-4- The analysis of the Group's environment.........................................................................13

II – GLOBAL REACH AS PERNOD RICARD'S INHERENT PRINCIPLE...........................19

2-1- Glocalization: thinking globally but acting locally..........................................................19

2-2- An international ownership of brands..............................................................................23

III – FACING COMPETITON IN THE PACIFIC WINE AND SPIRITS MARKET.............25

3-1- The Pacific wine and spirits market: a strategic area.....................................................25

3-2- A fringe oligopolistic local market: a problem for foreign companies' setting up.......29

3-3- The success of a subsidiary in a fierce competitive market...........................................37

Conclusion.........................................................................................................................................46

References.........................................................................................................................................47

- INTRODUCTION -

Currently, the world wine and spirits market is highly dynamic and is increasingly becoming

competitive. Over the last 25 years, 1.265 mergers and firm acquisitions have been registered all

over the world. These procedures enhance a company strategy based on the external growth, which

is often costly and risky due to the integration of firms with different structures and managerial

cultures.

However, external growth is a kind of corporate development that is most used when growth

opportunities appear in a given market. These business opportunities can emerge in both traditional

(Western Europe) and new producing countries (mainly Australia, New Zealand, the USA and

Chile). Theoretically, the external growth strategy is adopted by a company provided that it can

bring competitive advantages such as a rapid and efficient integration of the firm in the coveted

market. In fact, changes in the strategy of the leader wine and spirits companies are linked to their

willingness to remain competitive by creating value and capturing even more market shares. They

cannot be considered as mere productive companies anymore. Managers run quoted companies,

want to make profit and think about market power rather than production. Consumer is perceived as

the key factor for the success of products. Both the constitution of quality brands portfolios and the

wish to reach the critical size in the market have been leading to a fierce competition between

competing countries, companies and brands.

When it comes to the Pernod Ricard Group, although already set up in the most dynamic

world areas, it decided to conquer the Pacific market to extend its market shares. Since Australia

and New Zealand represent promising wine and spirits markets, the Group tried to enter and invest

there.

Throughout the following report, we will present firstly the Group's historical background,

its values and ethics and an analysis of its internal and external environments. Then, we will deal

with the "Local Roots, Global Reach" motto, i.e. the inherent principle of the Group by explaining

the glocalization process and showing its international ownership of brands. Finally, we will focus

on the fierce competition in the Pacific wine and spirits market. Thus, we will analyze the reasons

why it is a strategic area with huge entry barriers coming from its fringe oligopolistic structure and

show how the Group succeeded in overcoming these difficulties by setting up a subsidiary, known

as Pernod Ricard Pacific.

I - PRESENTATION AND ANALYSIS OF THE PERNOD RICARD GROUP

Pernod Ricard S.A. is a top global producer of wines and spirits. Although it is the world's

largest producer and distributor of anise-flavored alcohol beverages, popularly known as "Pastis", it

is also the world's n°2 in wine and spirits. It is the first operator in both Europe and Asia-Pacific

markets and the second in Americas.

We will show the major steps of its development and its values. Then, we will deal with

some figures to make the readers realize the weight of the company in this specific market. Finally,

we will analyze both internal and external factors of its environment.

1-1- Historical development

A – Merging two Pastis dynasties

The Pernod Ricard group appeared in 1975 from the merger of two of France's largest

suppliers and distributors of aniseed beverages.

Henri-Louis Pernod founded a company in 1805 in Pontarlier and though was the first to

produce anise-flavored aperitifs. After over 100 years as a modest family-run company, the

expansion of Pernod started by the merger of three local distilleries and the takeover of Suze,

another famous French company, encouraging imitators to establish competing firms in the early

1930s. Once such imitator, Paul Ricard introduced his own aniseed aperitif in 1932. This was the

first French long-drink.

The merger of Pernod and Ricard, termed "the equivalent of a merger between General

Motors and Ford", enabled the new company to solidify its base as a major French beverage

company in order to launch an export business. Since the merger, the Pernod Ricard group has

embarked on a massive reorganization and diversification compaign.

B – The first takeovers

In 1976, Pernod Ricard purchased Cusenier of Argentina, which made liqueurs from the

extracted essences of plants, fruits and grains. Cusenier was also the Argentine distributor of Cutty

Sark, Gibey's gin and Ambassadeur aperitifs, in addition to champagnes, fruit juices and syrups.

At this time, Pernod Ricard purchased Campbell, a whisky distiller whose brands included

White Heather and Aberlour scotch and Dubonnet and clan Campbell liqueurs.

By 1979, it was clear that Pernod Ricard had to continue to look outside of France to

maintain its sales growth. Even though the group recorded a 3.2 percent increase in sales of anise

aperitifs, liqour sales domestically had only increased by 1.3 percent. While other Pernod Ricard

brands fared slightly better, the company recognized that its French earning growth would be

limited.

C – The wish to expand the company portfolio in the 1980s

During 1980, Pernod Ricard spent $48 million on a marketing compaign in England, Spain

and Germany mainly through sales promotion (posters, taste tests and product giveaways at discos).

At the time, Patrick Ricard said: "It's the third glass that makes a convert, so we have to put glasses

of Pernod in people's hands". In England, where Pernod Ricardhad a small following, the campaign

succeeded brilliantly and sales increased by 34 percent. So that it might solve a distribution problem

caused by the increased demand, Pernod Ricard purchased its English distributor, the J.R.

Parkington company.

Continuing its expansion program, Pernod Ricard bought its American sales agent, Austin

Nichols, a well-known wine and spirits firm whose best-selling brand was Wild Turkey bourbon.

This acquisition increased Pernod Ricard's revenue in 1980 to about FRF 280 million.

In a 1980 interview with Management Today, Patrick Ricard said, "Ours is a young export

country, and for too long we were held back by an official attitude that it was unpatriotic to invest

abroad, though that is now changing. That's why we're following a policy of buying companies in

prime markets, such as Austin Nichols. It would take too long to start from scratch, building up our

own distribution and sales organization."

Another reason behind the Austin Nichols purchase was the fact that Americans simply were

not excited about anise beverages, which Patrick Picard himself once termed "a strange drink with a

funny taste." While the popularity of anise-flavored drinks remained largely limited to France and

the Mediterranean region, Pernod Ricard's launch into England met with a fair amount of success.

Nonetheless, an overall trend of declining alcohol consumption compelled Pernod Ricard to seek

opportunities in the soft drinks business.

The company's most important acquisition occurred in 1983, with Française des Produits

d'Orangina, makers of Orangina soda, which contained 12 percent real fruit juice, which was more

than the 10 percent in Slice and the 3 percent in Minute Maid orange soda. Orangina was first

introduced in the United States in 1984 as the "French quench" and the "soft drink with juice you

can taste." Patrick Ricard intended to make Orangina a worldwide brand name by the year 2000.

Pernod Ricard officials told Business Week in 1984 that the company had planned for Orangina to

take a 1 percent market share (all orange drinks together constituted only 6 percent of the soda

market). Other companies, such as PepsiCo and Canada Dry, followed suit by test marketing their

own brands of natural soft drinks.

Besides Orangina, Pernod Ricard also began marketing fruit juices (Fruidam, Banga,

Pampryl, and Pam Pam) through its JAF-Pampryl subsidiary. Pernod Ricard ventured into the fruit

preparation business in 1982 with the purchase of a 66 percent interest in SIAS-MPA, the world's

leading producer of fruit preparations for dairy products. Despite poor economic conditions during

the early 1980s, Pernod Ricard's sales grew an average of 20 percent per year. Altogether, the

company would spend some $250 million on its acquisition strategy in an attempt to establish its

products in every French soft drink category.

In order to increase liquor sales, the company arranged an agreement in 1985 with Heublein,

an American alcoholic beverage company, which would give Pernod Ricard access to Japanese and

Brazilian markets and better exposure in the United States. Through a 15 percent interest in

Heublein's Japanese subsidiary, Pernod Ricard sold Wild Turkey and Bisquit brandy in Japan. In

Brazil, Pernod Ricard purchased a 30 percent interest in Heublein Industria e Commercia, Brazil's

leading spirits distributor. Pernod Ricard officials said they joined Heublein in international markets

to increase the company's foreign sales by 5 to 10 percent, despite the fact that the market was

growing smaller. Foreign liquor sales accounted for 19 percent of group turnover, compared to 13

percent when Pernod and Ricard merged in 1974.

Pernod Ricard's export subsidiary SEGM (Société pour l'Exportation de Grandes Marques)

acquired Ramazotti, an Italian aperitif producer, and established a joint venture with Deinhard of

West Germany to sell Dubonnet, Pernod, Bisquit, and Ricard brands. SEGM also orchestrated the

acquisition of Perisem in Switzerland and Prac in Spain. In addition, Pernod Ricard purchased an

additional 45 percent interest in the Société des Vins de France (SVF), France's leading table wine

group, which was Pernod Ricard's largest subsidiary in terms of sales. In February 1987, Pernod

Ricard began negotiating the purchase of yet another European group, Cooymans. A Dutch firm

founded in 1829, Cooymans had three plants and control of half of the Dutch liquor market, with

sales of $37 million in 1986.

Company officials expected a strong increase in earnings during the late 1980s, primarily

from its expanding line of non-alcoholic drinks, which in 1986 represented 36 percent of group

activities. Foreign sales of soft drinks accounted for 25 percent of the company's sales. In France,

the group introduced Pacific, the first non-alcoholic aniseed drink. It was an immediate success. In

the late 1980s, the company also added Brut de Pomme a low-calorie apple-based soft drink.

Further strengthening the company's non-alcoholic beverage arm was its acquisition of Yoo Hoo

Industries and that company's perennially popular chocolate drink in 1988. In 1989, however, the

success of Orangina came to haunt the company when Pernod Ricard lost its France concession of

Coca-Cola, as that company geared up its Minute Maid division, resulting in a cut in the company's

total revenues of some 20 percent. This would be only one of the difficulties the company faced as

it moved into the next decade.

D - Taking on the Giants in the 1990s

While Pernod Ricard's sales, spurred by its emphasis on international growth, had nearly

doubled from FRF 8.5 billion in 1985 to FRF 14.5 billion in 1992, the company's growth would

slow significantly in the 1990s. At home in France, where Pernod Ricard had previously enjoyed

some 70 percent of the French pastis market, the company was suddenly confronted by the

introduction of less-expensive private label brands from the country's hypermarket chains and other

distribution groups. Pernod Ricard's share of the pastis market would soon drop to less than 55

percent of the total market. Equally troubling, however, was the dwindling popularity of the French

favorite among consumers, especially younger consumers, who were turning toward whiskeys and

"long drinks" based on vodka, gin, and other white alcohol varieties. Pernod Ricard's portfolio

lacked a strong white alcohol complement. In 1993, the company added the distribution of Havana

Club Cuban rums, and in 1994 the company acquired Russia's Altai brand of vodka.

Yet none of the company's white alcohol labels could hope to top the popularity of such

brands as Smirnoff and Gibson. Although established as one of the top beverage distributors in the

world, Pernod Ricard remained nonetheless small in comparison to alcohol giants Grand

Metropolitan and Seagram and soft drink giants Coca Cola and Pepsi. The company needed to

acquire a strong brand name, but these had become much too expensive. Furthermore, as Pernod

Ricard moved to expand the relatively expensive (because of its high real fruit content) Orangina

brand into new markets, particularly Asia, it found itself going head-to-head with the massive

marketing power of Coca Cola and Pepsi. In Vietnam, for example, the company arrived first.

However, Coca Cola arrived soon after, and, with a massive promotional campaign, including the

giveaway of millions of free soft drinks, quickly captured 99 percent of that market. Even in

Europe, Orangina found itself losing market share to the larger companies' new arrivals.

Meanwhile, Pernod Ricard faced an increase in the tax on alcoholic beverages in 1993. Sales

of aniseed drinks plunged 8.5 percent in a single year. By the end of the year, Pernod Ricard saw its

sales slip for the first time in a decade. By 1994, the company was forced to close down some of its

French operations, including its Marseilles plant, the first home of Ricard.

Despite these difficulties, Pernod Ricard remained a major player in the beverage world. Its

non-alcoholic beverage sales had grown strongly, equaling the contribution of alcoholic beverages

for the first time in 1995. Unable to compete on the grand scale with the industry's true giants,

Pernod Ricard turned instead to expanding its portfolio of "niche" alcohols, embarking on a series

of acquisitions that included Somagnum of Portugal in 1995, Venezuela's El Muco Bebidas in 1996,

and the 1997 acquisitions of Riqules, from the Perrier Vittel division of Nestlé; Greece's EPOM, the

number two producer of ouzo in that country with its Mini brand; and Spain's Larios, with the

leading gin brand in that country. Pernod Ricard also invested in the Czech Republic's newly

privatized Jan Becher, maker of Becherovka bitters.

Pernod Ricard remained consistently profitable, posting nearly FRF 1.2 billion in net income

in 1996, after a light drop in net income the previous year. However, the obstacle to the company's

future growth remained in place: in order to compete against the industry's heavyweights, the

company needed to generate a heavy capital investment to finance any future large-scale expansion.

Nevertheless, under Patrick Ricard, the company steadfastly refused to turn to the market for that

capital. There was good reason for this: any further dilution of the company's shares (approximately

60 percent of the company was already owned by the public) could introduce the family-controlled

company to the risk of a hostile takeover. With the heritage of France's favorite aperitif at stake,

Pernod Ricard remained committed to the slow-but-steady approach to growth.

Pernod Ricard continued to build its portfolio by buying local brands in the late 1990s and

beyond, while divesting its non-alcohol portfolio and eventually acquiring a slew of market-leading

international brands through the 2001 purchase of Seagram's. In 1999, the group obtained

international distribution rights to Wyborowa ("exquisite") brand rye vodka by buying a majority

share of the Polish food business Agros. Two years later, Pernod Ricard paid 300 million zlotys

(EUR 82 million) for an 80 percent stake in the vodka's producer, Polmos Poznan, Poland's second-

largest distillery. Armenia's Yerevan Brandy Company had also been acquired in 1999, followed the

next year by the purchase of Mexico's Viuda de Romero tequila.

E - Selling Soft Drinks, Buying Spirits in the 2000s

Pernod Ricard was also selling off its non-alcohol assets. A majority interest in the

company's soft drinks businesses in Continental Europe, North America, and Australia was acquired

by Cadbury Schweppes plc in 2001 for EUR 700 million. These activities had sales of EUR 466

million a year, half from Orangina. Cadbury bought the remaining interest in the soft drinks

business three years later. Coca-Cola Co. had tried to buy Orangina for FRF 5 billion ($840 million)

but the deal was blocked by the French government in 1999.

The Italian flavorings subsidiary San Giorgio Flavours was sold to the Irish Kerry Group

and fruit preparation producer SIAS-MPA was also divested. BWG, a distributor in the British Isles,

was disposed of the next year.

The proceeds from these divestments helped fund acquisition of 39.1 percent of Seagram's

wine and spirits business from French media conglomerate Vivendi Universal SA for $3.2 billion in

March 2001. (Pernod Ricard's partner in the buy was Britain's Diageo PLC.) Pernod Ricard

acquired four brands (Chivas Regal and Glenlivet whiskey, Martell cognac, and Seagram's gin)

which together had combined sales of more than $1 billion a year. The Seagram's deal doubled

Pernod Ricard's size and made it the world's third-largest producer of wines and spirits.

At the time of the company's 30th anniversary in 2004, Pernod Ricard had become the

leading wine and spirits supplier in Continental Europe and South America, second in Asia and the

Pacific, and sixth in North America. Annual sales were EUR 3.6 billion, producing a net profit of

EUR 487 million, and the group had more than 12,000 employees at 68 production facilities. The

Ricard family remained the largest shareholder, owning 12 percent of the capital and controlling 19

percent of voting rights through SA Paul Ricard.

New Zealand's Framingham Winery was acquired in 2004. At the same time, Pernod Ricard

was attempting to boost the large but lagging market for aniseed pastis in France by introducing

ready-mixed versions of the drinks. Pernod Ricard was also looking for growth in China,

particularly in the fast-growing wine market.

Pernod Ricard, then the world's third largest wine and spirits producer, made another play

for a portfolio of leading international brands. It launched a friendly takeover bid of British rival

Allied Domecq plc in 2005, offering EUR 10.7 billion ($13.9 billion) for the company1. If the offer

were successful, the combination of Pernod Ricard and Allied Domecq would be second only to

Diageo plc in the global wine and spirits market. Allied Domecq was then ranked second in the

world; its brands included Beefeater gin, Stolichnaya vodka, and Perrier Jouet champagne. To avoid

antitrust issues, Pernod Ricard intended to sell off assets worth EUR 4 billion to Fortune Brands,

Inc. of the United States.

1-2- The Group's main values

Pernod Ricard promotes a set of values which have historically characterized the Group:

1 This acquisition will be presented in the third chapter of this report

conviviality and straightforwardness, entrepreneurship, integrity and commitment.

✔ Conviviality and straightforwardness: Pernod Ricard encourages a willingness to reach out

to others, openness, sharing and friendship. This holds true both for internal relations and for

relations with clients and the public.

✔ Entrepreneurship: Pernod Ricard strongly supports decentralised decision-making, as the

only way to encourage an entrepreneurial spirit at all levels. It encourages employees to take

initiatives. Moreover, employees have a direct interest in the financial performance of the

Group.

✔ Integrity: All employees are encouraged and trained to work in a way that respects ethics

and transparency. Shareholders, clients and consumers can all have confidence in the

reliability of Pernod Ricard information, in the excellence of Pernod Ricard's products and

in the company's commitment to the local community.

✔ Commitment: Employees are proud of Pernod Ricard's products, and committed to

respecting and developing the Group's brands. The Group is committed to respecting its

employees and their cultures.

1-3- The Group's activity in figures

After having presented some general points about Pernod Ricard's history and values, it is

relevant to deal with its current activity through figures so as to emphasize on the Group's weight in

the global wine and spirits market.

Thanks to the chart below, we can see that Pernod Ricard's wine and spirits sales increased

regularly from its merger in 1975 to 2006. Another important aspect to underline is the progressive

giving up of other activities. These activities were not profitable enough for the group, so it decided

to focus on wine and spirits products which are supposed to be the most profitable. We can say that

in 2005, there was a real refocusing on strategic activities. Moreover, across the 2005/2006 period,

the turnover is excellent, with wine and spirits sales reaching 6.066 billion euros.

The following income statement shows a huge increase in sales between 200/2005 and

2005/2006. We can notice increases in both operating profit and net profit. These trends testify of

the Group's performance in the market.

We have also chosen to analyze another period of activity: from 2006 to 2007. According to

Patrick Ricard, Pernod Ricard's CEO, this period was marked by a huge economic growth. In fact,

all the strategic brands soared. He explains that the success of the premium brands and the rapid

growth in emerging countries were the two main factors of this performance. He added that this

should lead to a dynamic growth for the next period.

In June 2007, the group generated € 6.443 billion in consolidated sales, € 17.9 billion in

market capitalisation and € 831 million in Group share in net profit (+30% growth over a 12-month

period). The share price increased by a factor of 1.82 since 2005.

The growth of the 15 strategic brands was important (the volume increased by 9% and the value by

13%) due the Group's premiumisation strategy.

The spirits activity rose by 11% and the wine activity by 1,3%.

When it comes to the French Stock Exchange, in June 2003, the Pernod Ricard Group was

to enter the Cac 40 index replacing the Crédit Lyonnais, a famous French banking company. This is

a chart showing the evolution of the Pernod Rivard share from September 2006 to September 2007.

We can compare it to the evolution of the Cac 40.

1-4- The analysis of the Group's environment

In order to realize the importance of the Group's strategy, we will analyze the business

environment of Pernod Ricard through two marketing matrix.

A – The PESTEL analysis

This analysis is useful to have an idea of the internal strengths of the Group's business. It is

based on six aspects:

Political: We will focus on the internal policy applied by the Group, and more precisely on the way

its brands are controlled. The Pernod Ricard Group is a French company subject to commercial law

and thus is subject to the French law.

The holding company defines the Group's main strategies, controls its activity and share the best

practices with the subsidiaries. These subsidiaries are mostly wholly-own companies. The holding

company is in charge of:

the Group's strategy, including the policy of internal and external growth

the management of mergers and acquisitions

the management of the financial policy of the Group

the implementation of the tax policy

the payment policy, the management of international executives

the corporate communication and the relations with investors

The holding company controls the performance of subsidiaries and the accounting and financial

information. The Regions, which are autonomous subsidiaries, ensure the operational and financial

control of their subsidiaries. They put together subsidiaries set up in the same geographic region:

Asia, Asia-Pacific, North America, South America and Europe. The Brand Owners companies are

responsible for the production and the development of brands strategies. The Distribution

companies manage distribution and development of brands in the local markets.

Economic: As we mentioned in the previous pages, the Pernod Ricard Group shows a real

performance in the wine and spirits market, marked by an important sales growth. This result is due

to its wine and spirits refocusing strategy. Moreover, over the last few years, the group has been

ensuring a debt-reduction policy through its financial performance, a successful management of

investments and transfers of non-strategic assets.

Social: We have to take into account the specific relations between the Group and its :

Shareholders: the Group ensures transparency and ethics while taking decisions, favours

value creation for its shareholders and informs them directly.

Employees: Pernod Ricard tries to develop its employees' careers, remunerates them for

their performance and motivation, promotes diversity and favours dialogue between

employees and trade unions.

Customers: the Group scrutinizes the quality of raw materials used in the producing process,

tries to answer to the evolution of taste and consumption habits and advocates its brands

Premium status through perfect quality.

Suppliers: Pernod Ricard ensures ethical rules linked to both employment law and the

Group's purchasing function.

Another important aspect of Pernod Ricard's social policy is its willingness to take care of

society. The Group is aware of the risks posed to individuals and society by excessive or

inappropriate alcohol consumption, encouraging the general public to drink in moderation (drink

driving, excessive alcohol intake, ...etc). In fact, it made a financial contribution to the ESPAD

Europe enquiry about the youth's alcohol consumption.

Finally, Pernod Ricard made a huge effort in employees' protection to reduce the number of

accidents at workplace. It also advocates parity between men and women and fights against

discrimination at work.

Technological: Pernod Ricard owns a Council of Scientists whose members advise the Group on

research projects. This Council is specialized in different areas: raw materials, microbiology,

chemical analysis, food security, ... etc.

Moreover, the Group also has a research centre in charge of strategic missions such as the

assessment of the quality of products or the preservation and the compliance with the main brands

formula. The Marketing Department suggests innovating concepts to develop new products and

packaging.

Environmental: The Group takes care of the environment by limiting ecological impacts of its

activities such as soil discharges and ensuring energy savings, recycling and the protection of water

resources. It advocates a Sustainable Development clause from all the subsidiaries it bought out.

These subsidiaries are asked to require eco-friendly agreements from their suppliers and to ensure

their implementation.

Moreover, Patrick Ricard wishes to involve the Group in the Global Compact project, aiming at

encouraging companies to find together solutions to remedy to current problem coming from the

sustainable development. The Group's environmental policy is based on the implementation of

managing systems in accordance with the ISO 14001 international standard.

Legal: All over the world, the legal context of the wine and spirits trade is very strict. In France, the

Evin Act focuses on alcohol advertising and thus weakens the wine and spirits trade. Pernod Ricard

acts in favour of society's protection. For example, it abstains from sponsoring with motor sports

even if new communication possibilities have just appeared in this field, and above all in the United

States.

B – The SWOT analysis

The aim of any SWOT analysis is to identify key factors of the Pernod Ricard Group:

internal factors are the strengths and weaknesses internal to the company

external factors are the opportunities and threats presented by its external

environment

The table below shows several elements coming from the Pernod Ricard Group's analysis.

STRENGTHS

famous brands wide range of products internationalization debt-reduction strategy

WEAKNESSES

in the European markets aging brands difficulties of Chivas brand in the United

States

OPPORTUNITIES

growth of Jacob's Creek in Australia growth strategies in the Americas Asian and Australian distribution of

spirits

THREATS

competitors alcohol intake regulations economic issues and cultural constraints

✔ STRENGTHS

➢ Famous brands:

Pernod Ricard has several important key brands. Among them, Jacob's Creek contributed to

the 2004 profit. Recently, the wine and spirits products have shown an imortant growth and

significant synergies were created since the acquisition of Seagram. Seagram's brands such as

Montilla and the Royal Stag are known globally and have just completed the Pernod Ricard's

portfolio. The staff of the sales and marketing departments increased due to the integration of

Seagram's main employees.

➢ Internationalization:

The wine and spirits industry is a mature industry in which growth is possible thanks to

acquisitions and a portfolio strengthening. The Pernod Ricard Group can benefit from these

opportunities thanks to both its position in the market and growing brands. The company is globally

known and has a significant presence in the emerging countries of Eastern Europe and Asia., thus a

good potential for its long-term growth.

➢ Debt-reduction strategy:

In June 2004, Pernod Ricard negotiated a new repayment method with BNP Paribas, Calyon,

JP Morgan and SG CIB about its 1.4-billion-euro loan. This operation enabled the Group to pay

back its loan for the acquisition of Seagram and benefit from more financial advantages. In 2003,

Pernod Ricard implemented a progam to reduce its debt. However, the company hardly can make

other acquisitions due to its high debt. To remedy to this burden, it paid 307 million euros to reduce

the debt, which enabled to save 54 million euros in financial expenses.

✔ WEAKNESSES

➢ Weaknesses in the European markets:

Although the Pernod Ricard Group owns one third of the French wine and spirits market, the

company was criticized for being unable to increase its margin due to this dominant position in the

market. The French market is a market in which trade fees are growing and dependencies to

supermarkets and prices are important. Although Pernod Ricard has strong distribution channels and

a significant capacity to create new products, the products sold in France generate a little profit. The

Group has to focus on its high-margin products and revitalize its range of products. Moreover, in

2004, the Group was facing difficult trade conditions in both Spanish and Polish markets.

➢ Aging brands:

Even if the brands are well known by consumers, they should be revived in the markets and

become more fashionable so as to encourage the demand. The Ricard sales decreased by 4% in

2004 and the Martell sales decreased in 2003 too. In 2003, the image of the Ricard brand was

depreciated because of a bad economic climate and the decline of the sales.

➢ The slow advance of the Chivas brand in the United States:

One of the main goals of Pernod Ricard's management is the wish to reconquer shares

among the Scottish Whiskey range in the USA thanks to the Chivas Regal brand. However, the

Johnny Walker's Black Label belonging to Diageo is a huge competitor.

✔ OPPORTUNITIES

➢ The growth of Jacob's Creek in Australia2:

The sales of the Jacob's Creek brand show an annual growth rate of 25%. It is expected that

the company's wine sales increase by 1.5%, reaching 10 million cases. Moreover, the company has

adopted new strategies to increase its market shares: it has launched a new range of wine including

Jacob's Creek Limited Release and Jacob's Creek Chardonnay Pinot Noir.

➢ Growth strategies in the Americas:

At the beginning of 2005, the sales increased by 7.8% reflecting a good performance in

North America and a restoration in South America. Currently, Pernod Ricard occupies the second

rank in the US market. Between 2005 and 2006, the Group grew by 7% in the USA. The acquisition

of Tequila brands completed an important products range and encouraged the local demand. On the

other hand, Jacob's Creek increased its range in the US market through the introduction of Jacob's

Creek Chardonnay Pinot Noir in May 2004 and the high-quality Polish vodka Wyborowa in April

2 We will present a comprehensive study of Jacob's Creek in the third part of this report

2004.

➢ The Asian and Australian distribution of spirits:

The merger with Allied Domecq was an opportunity to increase the Group's activities in

both Asia and Australia. These regions presented significant results in terms of sales in 2004, with a

value increasing by 13.1%, mainly due to Chivas Regal, Royal Salute, Martell Cordon Bleu and

Martell XO in China, Royal Stag a local whisky brand in India, Jacob's Creek and Wild Turkey in

Australia.

✔ THREATS

➢ Competition:

Diageo, the market leader, has a wider range of products and brands than that of Pernod

Ricard. The Diageo's growth increased by 4% in 2004, whereas Pernod Ricard's was between 1%

and 2%. However, Pernod Ricard's major competitive advantage is the flexibility of its structure.

The company must base its future growth on this advantage.

➢ Alcohol intake regulation:

The French authorities implemented a campaign on the risks of alcohol driving.

Consequently, alcohol sales decreased by 4% in 2004. The spirits sales were also affected. It was

analyzed that the impact of this campaign will lead to a crucial change in the French alcohol

consumption in the long term.

➢ Economic issues and cultural constraints:

In 2004, the economic decline and, above all, the currency market led to a 9%-decrease in

wine and spirits sales. Spain and Poland were the most difficult markets. In Ireland, a taxation

increase on alcohol badly affected results. In America, Pernod Ricard's results were strongly

affected by high exchange rate. In order to avoid the effects of such tendencies, Pernod Ricard

focused its major plans on the growing markets such as Asia and Latin America. However, the

Group will face difficulties to increase its sales in countries with a trend for traditional drinks.

II – GLOBAL REACH AS PERNOD RICARD'S INHERENT

PRINCIPLE

The main ambition of the Pernod Ricard Group is to develop business all over the world.

This is a necessity to remain competitive on the wine and spirits market. In fact, the Group is the 2nd

world operator in the market and has distribution channels in every continent. It ranks at the first

position in Europe (1st in Ireland, France and Russia; 2nd in Spain, Greece, UK and Italy), in Asia-

Pacific (1st in Japan, China and India; 2nd in South Korea) and at the second position in Americas (1st

in Argentina and Mexico; 2nd in Canada and Brazil; 5th in the USA) and in the Travel Retail market.

However, its global presence relies on two major strategies: the specific adaptation in every

local market and the premiumisation of brands.

2-1- Glocalization: thinking globally but acting locally

A – From global ambitions . ..

So as to explain what is the meaning of "glocalization", it is relevant to describe the current

economic context of wine and spirits companies' business.

Companies are thinking globally, that is to say they are enlarging their traditional market by

focusing on the world market. In fact, facing a huge competition in the market, companies are

following a global phenomenon, known as globalization. However, globalization in the wine

industry is not a new phenomenon. In fact, 2000 years ago, this Mediterranean product started its

first trade during the Roman Empire. Later, during the Coal and Steel Revolution, a vast

consumption market was created in Europe. Finally, in the 1980s, the wine consumption decline in

traditional producing countries led companies to focus on development opportunities in Latin

America or Pacific countries such as Australia.

Globalization is a term that is very used to refer to the integration of national economies into

the international economy through trade, foreign direct investment, capital flows, migration and

spread of technology. For companies, acting global aims at acquiring economical power by

capturing shares of the world market. It is a good means to remain competitive and differentiate

itself from competitors and, above all, impose its commercial weight in the market.

Globalization shows the companies' willingness to have an international activity. When it

comes to Pernod Ricard, we can say that the Group is aware of the advantages of becoming global.

In fact, thanks to its motto "Local Roots, Global Reach", we can easily understand its motivation.

This motto shows that the Group is proud of its French origin and continues to act in the French

market that made its notoriety while trading as a family business. But now, in a context of a huge

wine and spirits competition, the Group wants to extend its market by investing abroad, conquering

new markets and caputring foreign market shares. The wine and spirits globalization is one of the

main factors of market power held by wine and spirits firms.

The following map shows the different areas where the Pernod Ricard Group is set up. We

can see four major regions: Europe, Americas, Asia and Pacific.

To conclude on this globalization trend, we can say that the wine and spirits market has

become global over the past 20 years, due to the appearance of new producers set up far from

traditional areas of production and consumption. This market has become increasingly competitive

encouraging companies to become global players and increase their size.

B – ,,, to local adaptation

The globalization trend is an important strategy for wine and spirit companies to strengthen

their world presence and to improve their performance. However, in order to be more efficient on

the global market, companies must study the characteristics of the local market they focus on. They

have to adopt specific strategies in accordance with the market so as to be more performant.

This particular aspect is called "glocalization". The term first appeared in the late 1980s in

articles by Japanese economists. It combines the word globalization with localization. It is a term

that was invented in order to underline that the globalization of a product is more likely to succeed

when the product or service is adapted specifically to each locality or culture it is marketed in.

When it comes to the Pernod Ricard, we can say that its strategy is based on this notion of

Glocalization. In fact, the Group is conquering the world wine and spirits market by adopting a

particular structure, known as decentralisation. Applying a decentralised structure is a managerial

principle which enables it to take decisions closer to the different markets. In fact, its decentralised

organisational structure unifies successfully both its local and global dimensions.

More precisely, the holding company's headquarters are located in Paris (France). Far from

its different markets, it relies on its four regional holdings (Pernod Ricard Europe, Pernod Ricard

Americas, Pernod Ricard Asia and Pernod Ricard Pacific) to apply overall strategy and control the

Group's activity. These four regional holdings leave operational decisions to their subsidiaries.

There are two types of subsidiaries:

"Brand Owners companies", that are responsible of the production and the strategy for their

brands

"Distribution companies" of these international brands, which markets them on all key

markets, supported by powerful local brands.

Moreover, decentralisation gives the Group the advantage of being closer to consumers and

in touch with their expectations. The Group's global strategy can be described as a marketing of the

demand strategy since it is adapted to local needs and customs through the subsidiaries.

The following diagram shows the organization of the Pernod Ricard Group's decentralised

management structure:

We can say that the Pernod Ricard Group is aware of the advantage of being closer to

specific local needs in a context of competition. Through its decentralised management structure, it

applies entirely the principle of glocalization. The fact of delegating a part of its decision-making

power to its abroad subsidiaries' managers and adapting its corporate culture to local conditions

enables the Group to become even more competitive. According to some economists, "the ability to

think globally and act locally can be a source of competitive advantage, because the company is

adept at adapting sales promotion, distribution and customers service efforts to local needs"3.

Patrick Ricard, the Group's CEO, said: "We must set a global strategy, and then adapt it in

accordance with the local needs and the customs of each country. We cannot successfully react to a

South American consumer from an office in Paris. We must be able to react quickly in each market.

That is why managers of Pernod Ricard subsidiaries across the world operate as if they were

managing their own companies". Glocalization is a kind of globalization that gives itself limits and

has to adapt to local realities, instead of ignoring or rejecting them.

In fact, as we mentioned earlier, operational decision-making takes place at the level of

brand owners and distribution companies. Brands owners develop their marketing strategy and the

distribution subsidiaries adapt this strategy to national markets. As a consequence, operating

3 Warren J. Keegen, Mark C. Green, Global Marketing, Person International Editions, 4th edition

subsidiaries are independent and responsible: they are close to their consumers and to the individual

cultures of every markets.

2-2- An international ownership of brands

As we mentioned in the introduction, the Pernod Ricard Group is set up all over the world.

He owns wine and spirits brands in different geographic areas. Every point on the map below shows

a brand belonging to the Group.

The Pernod Ricard Group's marketing strategy is based on an international brand portfolio

and a specific concept known as premiumisation of brands. The Group's strategy for international

success is based on brands with strong ties to their geographic origins and traditions.

A – The advantages of a multi-brand policy

For the Pernod Ricard Group, the fact of being the owner of a brand portfolio implies a

global vision of competition in the wine and spirits market. The Group is aware of the importance

of having an international brand portfolio. In fact, the value of a brand can be increased if it is a part

of a wider portfolio. The advantage is that the Group can benefit from this increasing brand value

and be more competitive in the market.

The Pernod Ricard's multi-brand policy enables it to maximize its market covering. The

increase in the number of brands is a consequence of the market segmentation. So, acquiring a wide

brand portfolio is a means to compete by covering a larger geographic business area.

Moreover, an international brand portfolio can be an entry barrier for new competitors. In

fact, by applying a multi-brand policy, the Group tries to limit the area of extension of a potential

competitor. This a way to protect itself from the threat of competitors in the market.

To conclude on this multi-brand policy, we can say that the Pernod Ricard's Group tries to

consolidate its brand portfolio through vertical integration. It tries to set up in new producing

countries and benefit from economies of scale. In these countries, investments can be accompanied

by progressive withdrawal of those in Europe. Pernod Ricard has gradually withdrawn from its

producing activities in France.

B – The Premiumisation marketing strategy

Although the Pernod Ricard Group is the owner of an international portfolio, it has to adopt

a particular marketing strategy towards its brands in order to enhance their value and differentiate

them from those of competitors.

In fact, Pernod Ricard is developing its brand portfolio, in particular its 15 key brands, by

following a strategy known as Premiumisation. The term of "market premiumisation" was created

by Jean-Paul Richard, the Group's marketing director. This strategy entails giving priority to high-

margin prestige products. The objective is to meet the growing expectations of consumers in both

developed and emerging countries. Pernod Ricard made a marketing study on its customers. It was

analyzed that in developed countries, more and more consumers want quality and luxury for which

they are willing to pay a higher price. In emerging countries such as India or China, improvements

in the standard of living are leading consumers to seek better quality products than those

traditionally offered locally. In emerging countries, the glocalization process can be applied by

offering products that are adapted to the specific needs of local markets in terms of quality

expectations. Thus, the Group acts on the global market by characterizing its supply locally.

The premiumisation strategy is a particular marketing strategy based on bigger investments

to develop the upmarket key brands of the Group. These premium brands follow three main

objectives: maintaining an irreproachable quality, offering a real difference and conveying an

emotional dimension. Since Pernod Ricard has to create an important wealth for its shareholders,

the premium brands are essential: they present a strong growth and imply an improvement of

margins.

After having dealt with Pernod Ricard's major strategies and its global reach, we will focus

on its presence in the Pacific area. More precisely, we will present the situation of its subsidiary

acting in both Australian and New Zealand markets.

III – FACING COMPETITION IN THE PACIFIC WINE AND

SPIRITS MARKET

The Pacific market refers to both Australian and New Zealand local wine and spirits

markets. We will deal with the reasons why this market seems attractive for foreign companies.

Then, we will present the problems linked to a fierce local competition. Finally, we will speak about

the solutions found by the Pernod Ricard Group to overcome entry difficulties and succeed its

setting up.

3-1- The Pacific wine and spirits market: a strategic area

In order to understand the reasons why the Pernod Ricard Group decided to enter the Pacific

area, we will make a study of the specificities of both Australian and New Zealand wine and spirits

markets.

A – The context of the new wine-producing countries

Australia and New Zealand belong to the new wine producing countries as well as

Argentina, Canada, Chile, South Africa and the United States. Their wines are known as New World

wines to qualify wines produced outside the traditional wine-growing areas of Europe.

Since New World vineyards are generally in hotter climates than those of Northern Europe - in fact

some major New World regions are irrigated desert - New World grapes tend to be riper. Thus, New

World wines tend to be correspondingly more alcoholic and full-bodied.

Traditionally, New World wines used names of well-known European regions, such as

Burgundy, Champagne. Sherry, Port, and Hock. This gave consumers a general idea of how the

wine might taste. The New World winemakers have rediscovered the art of blending wines, with

blends such as Shiraz/Cabernet Sauvignon, Semillon/Sauvignon Blanc and the Rhone combination

of Grenache, Shiraz and Mourvedre (known as "GSM") all becoming more common. As New

World viticulturists have better understood the soils and climates of their vineyards, terroir has

come to the New World, with the "terra rossa" of Coonawarra (Australia) known for its Cabernet

Sauvignons. Being less dependent on geography, New World wines have placed more emphasis on

branding as a marketing tool. With supermarkets selling an increasing proportion of wine in many

markets, New World producers are better positioned to take advantage of this trend towards high

volumes and low margins.

B – The specificities of the Australian and New Zealand wine industries

Australian and New Zealand wines have won an international reputation for quality and

value. Their wines have taken key international awards, competing favourably against longer-

established national wine industries. Innovative local winemakers are sought internationally for

their expertise. They produce a full range of favoured wine styles from full-bodied reds and deep

fruity whites through to sparkling, dessert and fortified styles. Prized bottlings grace the menus of

many of the world's leading restaurants, while popular varietal and blended wines compete on the

shelves of wine shops and supermarkets in some 80 countries around the world. In global terms,

Australia was ranked 7th in the list of world wine producers in 2003, producing 1,085 million litres

of wine whereas New Zealand occupied the 25th rank.

➢ Australian wines' dynamics

The Australian wine industry is the fourth largest exporter in the world, exporting over

400,000,000 litres a year to a large export market that includes "Old World" wine-producing

countries such as France, Italy and Spain. There is also a significant domestic market for Australian

wines. The wine industry is a significant contributor to the Australian economy through production,

employment, export and tourism. As far as tourism is concerned, we can refer to Banrock Station

which combines both the pleasure of quality wines consumption and the protection of ecological

balance of its wetlands near Adelaide (South Australia) through an ecotourism project.

When it comes to the Australian wine production, there were 7.861 wineries across the

country in 2006. This figure keeps on increasing every year with mergers of important companies.

The local small wineries have their own vineyards whereas the biggest ones own premium and

strategic vineyards. Australian wine producers have been able to create strong identifiable brands.

With few restrictions on grape variety, yield or region, Australia has become known for creating

interesting wines and combining tradition with new thinking.

As far as wine consumption is concerned, Australia is the Pacific country where wine

consumption per capita is the highest (20,5 litres per capita a year). From now on, wine is part of

Australian life. Wine consumption has evolved in terms of volume and quality. This market is far

from being mature and local consumption is increasing due to a competitive local production on a

worldwide scale. The internal wine market is very important and shows a steady growth (+25%

since 1990), reaching 461.9 million litres in 2005/06. Even though this trend is slightly decreasing,

consumers still prefer white than red wines. There is a clear rebalancing in wine consumption: white

wines are gradually capturing market shares whereas red ones are soaring.

➢ New Zealand wines' dynamics

In 2007, New Zealand wine exports were worth $698.3 million, a massive increase from the

$60 million the industry was exporting just a decade earlier and a 37 percent increase over 2006.

Once small and family-based, the New Zealand wine industry has grown and today is

technologically advanced, producing a wide variety of distinctive, clean, character-filled wines.

Many of the country’s winemakers and viticulturalists have studied winemaking and worked in

Australia, Europe or North America.

When it comes to the New Zealand wine production, while it was Sauvignon Blanc from

Marlborough that first captured the world’s attention, the impressive quality of numerous other

varietals are enhancing New Zealand’s reputation as a producer of world-class wines, including

Pinot Noir, Chardonnay, Riesling, Cabernet Sauvignon and Merlot blends. The Pinot Noir series of

conferences every three years has done much to put this variety on the international stage and, in

2006, it became the second largest export varietal. There is a diversity of methods of the New

Zealand wine production. The traditional concept of a vineyard, whereby grapes are grown on the

land surrounding a central simply-owned or family-owned estate with its own discrete viticultural

and wine making equipment and storage, is only one model. While the European cooperative model

is uncommon, contract growing of fruit for wine-makers has been a feature of the New Zealand

industry since the start of the wine making boom in the 1970s. Indeed a number of well known

quality wine producers started out as contract growers. Alternately, many fledgling producers

started out using solely contract fruit as their own vines matured into production. Some producers

use contract fruit to supplement the range of varieties they market, even using fruit from other

geographical regions. It is common to see, for example, an Auckland producer markets a

"Marlborough Sauvignon Blanc", or a Marlborough producer markets a "Gisborne Chardonnay".

Another example of the adaptation of New Zealand methods towards the new industry was the

universal use of stainless steel in wine making adapted from the norms and standards of the New

Zealand dairy industry. This pervasive use of stainless steel almost certainly had a distinctive effect

on both New Zealand wines styles and the domestic palate. The New Zealand's wine industry has

become highly successful in the international market. To meet the increasing demand for its wines,

the country's vineyard plantings have more than tripled in the ten years ending in 2005. Sales

continue to increase. For example, from 2004 to 2005, exports to the United States skyrocketed 81

percent to 1.45 million cases, more than two-thirds of which was Sauvignon Blanc, still the

country's undisputed flagship wine.

As far as wine consumption is concerned, there is a steady increase in the number of bought

bottles. In 2005, New Zealanders consumed 82 million litres, which represented a 39,2% increase

over a ten-years period. The annual wine consumption reached 20,8 litres per capita. This

consumption has not come to maturity and is expected to grow for the next few years. Moreover, in

comparison with other alcoholic drinks, New Zealanders tend to consume more and more spirits

whose growth has reached 41,7% over the last ten years. Wine consumption represents 36,1% of the

total acohol consumption. Consumers increasingly are prefering quality than quantity and thus they

are rejecting cardboard-packaged wines for fashionable bottles with caps. Generally, consumers

focus on awarded wines and best products. Wines are consumed within a two-days time after

purchasing.

To conclude on the specificities of the Australian and New Zealand wine industries, we can

say that their greater size has made them attractive targets for multinational drinks companies to

exploit the trend towards drinking wine rather than spirits or beer. In fact, some aspects of this local

industry have led foreign companies to invest there. For instance, New Zealand winegrowers

succesfully markets and positions New Zealand internationally as a producer of premium quality

wines. Australian winegrowers are also aware of the importance of producing quality wines and

focus on an eco-friendly production.

The characteristics of these markets, such as wine consumption habits, have made them

attractive for the Pernod Ricard Group insofar as they are included in the Group's main values since

it is trying to refocus its activity on strategic products by enhancing premiumisation and quality of

its brand portfolio. Wines become its major business while trading abroad. Choosing countries

where wine production is a key developing market and offers huge opportunities for investing is a

good way for the Group to remain competitive and capture more and more global market shares.

3-2- A fringe oligopolistic local market: a problem for foreign companies'

setting up

The Pernod Ricard Group decided to enter the Pacific wine market so as to extend its global

market shares. For the Group, the Pacific area is a strategic market where the wine industry is very

promising for the characteristics we presented in the previous chapter.

However, setting up a subsidiary in the Australian and New Zealand wine markets is quite

difficult an enterprise for a foreign company. In fact, both in Australia and New Zealand, there is a

fierce competition in the local wines market.

Competition in these markets enhances a particular structure, known as fringe-oligopoly.

Basically, an oligopoly is a market condition in which the production of identical or similar

products is concentrated in a few large firms. In such a difficult situation, a firm must consider the

effects of its actions on others in the industry: for example, if one company in the oligopoly

attempts to undersell the others, then the other firms will respond by also lowering prices. As a

result, price cuts in oligopolies tend to result in lower profits for all of the firms involved. The

established, experienced firms in an oligopoly also enjoy significant cost advantages that make it

difficult for new firms to enter the industry. This is a reason why the Pernod Ricard Group was

facing difficulties while deciding to enter the Pacific wine market.

In this market, there is a fringe-oligopoly trend. This means that the market is characterized

by a dominant oligopoly, made up of a few large wine companies, and a fringe, made up of a

multitude of smaller local companies.

A – The giants of the dominant oligopoly

When the Pernod Ricard Group decided to enter the Pacific market, it was facing four major

wine giants in Australia: Southcorp, Beringer Blass BRL Hardy and Orlando Wyndham. The first

two companies now belongs to Foster's Group and BRL Hardy to Constellation Brands Inc.

However, Orlando Wyndham was acquired by the Pernod Ricard's Group4. On the other hand, there

were two competing giants in New Zealand: Montana Wines and Nobilo Wine Group Ltd.

Currently, Montana Wines belongs to Pernod Ricard due to its recent takeover on Allied Domecq

4 We will deal with this acquisition in the next chapter.

and Nobilo Wine Group Ltd belongs to Constellation Brands Inc.

➢ Foster's Group

Foster's Group is a beer group with interests in brewing, wine-making and soft drinks.

Foster's Group is the brewer of the Foster's Lager. Foster's Group Limited is a publicly-listed

company on the Australian Stock Exchange and is based in Melbourne (Victoria). It was founded in

Melbourne in 1886 by two American brothers, William and Ralph Foster.

In 1983, Carlton and United Breweries purchased Elders IXL, a giant Australian diversified

conglomerate, and was renamed the Elders Brewing Group. Then in 1990, the Elders Brewing

Group changed its name to the Foster's Group, to reflect the name of their most internationally

recognised product.

Wolf Blass Wines, a famous wine company established in the Barossa Valley in 1966,

merged with Mildara in 1991 to form Mildara Blass. Foster's acquired Mildara Blass in 1996

heralding their entry into the wine industry for the first time.

In 2005, Foster's Group acquired the Australian wine-making group Southcorp. This

acquisition added famous brands such as Penfolds, Lindemans and Rosemount to the Foster's

portfolio and around $1 billion AUD to revenues and announced the creation of the world's leading

premium wine business and Australia's leading multi-beverage business.

Foster's Group imports, licenses and distributes a large number of brands. In Australia,

Foster's distributes the Asahi Super Dry, Cinzano, Corona, Kronenbourg 1664, Perrier, Skyy vodka,

Stella Artois and 42 Below import brands among many others.

As the leading alcohol company in Australia and the Pacific, Foster's is the proud owner of

the region's favourite brands and the world's most famous Australian beer, Foster's Lager. Foster's

also produces the region's finest wine brands including Wolf Blass, Penfolds, Rosemount,

Yellowglen and Lindemans.

With an Australian brewing and wine-making heritage stretching from the mid 19 th century,

Foster's remains at the forefront of innovation with a new multi-beverage distribution model,

focused cross-category sales force and an integrated logistics and administrative network.

Foster's supplies over 38,000 customers, from wholesalers and importers, to hotels, bottle shops and

restaurants. As part of a unique cross-category drinks portfolio, Foster's operates three distilleries,

two cideries, six breweries and 16 wineries. Employing around 6,200, Foster's sells over 120

million 9lt equivalent cases across the region, with export brands growing swiftly in key markets

such as Japan, China and India.

In the global market, Foster's produces and markets an international portfolio of premium

quality wines including Beringer, Lindemans, Penfolds, Rosemount Estate and Wolf Blass in the

Americas. On the other hand, Foster's markets a range of the UK and Europe's favourite New World

wines, with Ireland and the Nordic countries representing key growth markets for our wine brands.

As the major export market for Australian wine, and with strong growth from Californian and New

Zealand brands, Foster's has the strongest premium import portfolio in the United Kingdom and

Europe.

➢ Constellation Brands

Contrary to Foster's Group, Constellation Brands Inc. is not an Australian company. It is

headquartered in Fairport, New York, as a leading international producer and marketer of beverage

alcohol brands with a broad portfolio across the wine, imported beer and spirits categories.

Constellation is the largest wine company in the world; the largest multi-category supplier of

beverage alcohol in the United States; a leading producer and exporter of wine from Australia and

New Zealand; and both a major producer and independent drinks wholesaler in the United

Kingdom.

Constellation was founded in 1945 as a wine manufacturer and currently has over 200

beverage alcohol brands over two operating divisions: Constellation Wines and Constellation Beers

& Spirits. Hardys and Renmano are the two main Australian wine brands of its portfolio. When it

comes to Hardys, it is a brand belonging to Hardy Wine Company, Australia's largest wine producer

and the Australian subsidiary of Constellation Brands, with a broad geographic spread of vineyard

and winery facilities across Australia's major wine regions.

Moreover, Pacific Wine Partners is one of Constellation's subsidiaries set up in California

that is the U.S. importer for Banrock Station, Hardys, Leasingham, Barossa Valley Estate and

Château Reynella from Australia. Here are some Australian fine wine brands of Constellation's

global portfolio: Tintara, Thomas Hardy, Starvedog Lane, Selaks, Nobilo, Leasingham,

Kimcrawford, Inniskillin, Goundrey Estate, Eileen Hardy, Drylands, Brookland Valley, Bay of Fires

and Barossa Family Estate.

➢ Montana Wines Ltd

Montana is New Zealand's leading wine range. With vineyards in Gisborne, Marlborough

and Hawke's Bay, Montana produces a matchless range of quality still wines. Montana is the top

selling New Zealand wine internationally and more people around the world drink Montana than

any other New Zealand wine.

By 1973, the company needed to look beyond Auckland for vineyard resource, leading to

the development of Gisborne as a premium winemaking region. This coincided with a concerted

effort to increase the quality of the wines produced. Montana purchased the Waihirere Wine

Company and built a large modern winery to process the new grape supply. The wines produced

helped move the industry from predominately sherry production, to one based on table wines. Much

of the wine produced at the Montana Gisborne Winery is Chardonnay, for which the region is justly

famous. Since the first release of the popular Montana Gisborne Chardonnay in 1974, the Montana

Gisborne Winery has produced many gold medal Chardonnay wines, including the benchmark

Montana Ormond Estate Chardonnay.

Montana pioneered grape-growing in Marlborough with the planting of the first modern

vineyard in the traditional sheep-farming region in 1973. It proved to be an inspired choice, as was

Montana's decision to grow Sauvignon Blanc. Marlborough has since become New Zealand's

premier grape growing region, with Marlborough Sauvignon Blanc undoubtedly the country's

signature wine on the international market. For Montana Cabernet and Merlot grapes, a number of

key vineyards in Hawke's Bay was developed, including Ngatarawa, Korokipo, Twin Rivers,

Montana Terraces, Fernhill and Phoenix.

Today, the acquisition and planting of new vineyards in all the main areas continues with a

focus on Sauvignon Blanc and Pinot Noir in the South Island and Chardonnay in Gisborne. On the

international stage, Montana wines were first exported in July 1980 and are now available in over

30 countries.

➢ Nobilo Wine Group Ltd

Nobilo Wine Group Ltd is the second largest wine producer of New Zealand. It is owned by

the largest wine business in the world, Constellation Wines, which is a division of Constellation

Brands Inc.

Steeped in history, Nobilo Wine Group is proud owner of some of New Zealand's most

respected pioneering wine brands. In September 1998, Nobilo Vintners, then a family company,

purchased another successful New Zealand wine company, the thriving Selaks operation, to form a

strong wine association. Today the Selaks brands Premium Selection and Founders Reserve have an

enviable reputation both in New Zealand and overseas. In mid-2000, Australia's second largest wine

producer, BRL Hardy, purchased Nobilo Vintners, which later merged with Constellation Brands

Inc. in 2003. The resultant global wine company, Constellation Wines, now incorporates the parent

company's wine interests in the USA, Australia, UK/Europe, South America and New Zealand.

Nobilo Wine Group, currently exports a combination of key brands, including House of Nobilo

Regional Collection, Icon, White Cloud, Selaks and Drylands. Special attention, by the viticulture

and winemaking team, is given to these brands for their individual international market

requirements. Its wines perform well in all international and domestic wine competitions. Nobilo

Wine Groups' portfolio in New Zealand also includes the high profile imported Australian brands

Hardys, Banrock Station, Stonehaven, Leasingham, Houghton and Barossa Valley Estate. The

Banrock Station and Hardys brands, including Hardys Nottage Hill are some of New Zealand's

market leaders. The group has taken the opportunity to also import, market and distribute select

complementary agency brands, namely Taylors of Australia and Mondoro Asti from Italy. This

association now combines to form the second largest wine company in New Zealand, providing the

perfect synergy for marketing successful wines. It provides a diverse quality portfolio for New

Zealand wine consumers.

B – Some local wine companies belonging to the fringe

After having presented the major wine giants of the dominant oligopoly set up in the Pacific

wine market, we will deal with some of small local companies constituting the fringe. The smaller

medium sized companies are determined not to be left out of the competitive game. They tend to

become real competitors since they intend to organize some mergers among them. These companies

have not been bought out by international giants and try to compete with them on the market. They

are real obstacles for foreign companies' setting up. This is a non-exhaustive list:

➢ Taylors Wines

The Taylor family were first inspired by the excellent Bordeaux wines such as Mouton-

Rothschild. These quality French wines had long held a fascination and producing wines of

comparable quality in Australia prompted the family’s foray into the winemaking industry.

An inspired combination of Old World estate philosophy and New World winemaking innovation

has resulted in the crafting of a range of wines that regularly receive international awards and

accolades. Wine lovers know they can trust Taylors to deliver superb quality table wines year after

year- the family spare no expense or effort to ensure just that.

The first range of wines released under the Taylors banner was the Estate grown and bottled

range. Initially, it consisted only of a Cabernet Sauvignon and a Shiraz. The first ever release of

Taylors Estate Cabernet Sauvignon 1973 won Gold medals at every national wine show. A

reputation was forged then and continues today with Taylors Estate Cabernet Sauvignon winning

medals at national and international shows every year since. The range continued to grow over time

and now includes Chardonnay, Merlot, Pinot Noir, Riesling and Gewurztraminer – all sporting the

distinctive Taylors black and gold band. These wines too are regular recipients of medals both

nationally and internationally – cementing Taylors Wines’ reputation as Australia’s most

consistently awarded winemakers.

➢ McGuigan Simeon Wines Ltd

McGuigan Simeon Wines Ltd is the culmination of the McGuigan family’s involvement in

the Australian wine industry for more than fifty years. The primary aim of its skilled and innovative

winemaking and production team is to produce a range of complimentary wine styles that deliver to

customers exceptional value for money. To ensure their wine styles are correct, the winemaking

team spend a considerable amount of time in both the domestic and international markets

conducting wine tastings. This assists in determining the needs and wants of customers. The

premium fruit, the modern winemaking facilities and the good understanding of their customer's

needs, enables the company to produce premium quality product at a price that represents

exceptional value for the high quality wine on offer. Quality wine linked to an interesting and

innovative package ensures that their products and styles suited to all markets and most consumers.

From a standing start in 1992, McGuigan Wines now has the 2nd largest vineyard holdings in

Australia. This capacity translates to more than 225,000 tonnes across the group. To process these

quantities, five state of the art wineries run year round, each with very specific winemaking duties.

These wineries are: Hunter Ridge (Hunter Valley NSW); Hermitage Road Winery (Hunter Valley,

NSW); Yaldara (Barossa Valley, SA); Buronga (Sunraysia, NSW); and Loxton (Riverland, NSW).

➢ De Bortoli Wines Pty Ltd

De Bortoli Wines is an exciting, innovative family owned wine company. The winemaking

team has been responsible for many winemaking innovations and developments. The winemaking

philosophy is that great wine begins in the vineyard and that the winemaker should use minimal

handling and interference in the winery. Wine should have a sense of regionality and be an

expression of the soil in which it is grown. The company's winemakers strive to create wines that

they find interesting and exciting, wines that may be quirky or unusual but wines that above all have

provenance and a sense of place. De Bortoli has wineries in diverse wine growing regions, each

with its own regional style, as well as vineyards in the King Valley.

De Bortoli Wines first began exporting wine during the 1980s. Today, the company exports

to a more than 60 countries, including Vietnam, Korea, Japan, the European Union, Canada and

North America. De Bortoli has swiftly adapted to the changing global market and looks forward to

developing and broadening its export markets. All markets are important whether large or small.

Managing Director Darren De Bortoli attributes the international success of the Australian wines to

their incredible quality, diversity and unique Australian character. He said: "At De Bortoli we make

wine in a style that we find interesting and exciting - if the rest of the world likes it, that's great".

➢ Yalumba

Yalumba wines have a style all of their own and each have been influenced by a diverse

range of elements. Elements Yalumba likes to call 'the controllables', such as the Yalumba Vine

Nursery and on-site cooperage – as well as other factors that cannot be emulated by any other

winery. Yalumba’s history and tradition combined with a reputation for innovation. Yalumba adopts

a holistic approach to environmental practices, focusing on the sustainability of its natural

resources.

In fact, as a wine business operating in the rural environment for over 150 years Yalumba

understands the significance of sustainability. Therefore, Yalumba does not only aim to meet its

legal obligations but, as part of normal operating practice, also strives to integrate cost-effective

environmental and social objectives into relevant business activities. Yalumba's environmentally-

friendly sustainable activities are recognised as an intrinsic aspect of wine quality. In order to

substantiate this aspect of quality, Yalumba has implemented a brand stewardship programme that

reflects authenticity, due diligence, product safety and credible environmental management. By

addressing those activities that have a significant environmental impact Yalumba ensures its

employees and other stakeholders a healthy and productive life in an environment that is safe,

aesthetically pleasing and ecologically functional. To achieve its commitment to sustainable grape

growing, winemaking, packaging and distribution Yalumba shall use an environmental management

system framed on the standard ISO14001, Environmental Management Systems – Requirements

with Guidance for Use. As part of the environmental programme, suppliers shall be encouraged to

reduce their environmental impacts by adopting clean technology and best practice procedures.

Furthermore, the company shall seek to encourage its customers to dispose of product packaging in

an environmental responsible manner. Yalumba shall also seek to establish strategic partnerships

with relevant stakeholders to ensure that its commitment to sustainability addresses shared and

extended responsibilities.

➢ Whitehaven Wine

Whitehaven Wine Company was established in Marlborough (New Zealand) in 1994. 1995

was Whitehaven’s first significant vintage with 5,000 cases produced. Although the 1995 vintage

was the most difficult in Marlborough history, Whitehaven gained immediate success with a double

gold medal Riesling and a 5 star rating for its Sauvignon Blanc. Numerous other successes

followed, especially for Whitehaven’s flagship variety Sauvignon Blanc, which is now highly

regarded for its quality, intensity and consistent expression of Marlborough’s unique style.

Production rose to 13,000 cases from the low yielding 2000 vintage and included Pinot Noir, Pinot

Gris, Gewurztraminer, Riesling, Chardonnay, and of course, Sauvignon Blanc. While Sauvignon

Blanc continues to dominate Marlborough wine production, Pinot Noir is considered by many to

have an exciting future in Marlborough. The Company has now built production of this variety to

commercial levels with plans for further substantial growth in the next few years.

In November 2001, the company purchased 16 hectares of prime grape growing land and set

about building a new 5,000 tonne winery, planting the remainder of the land in vines. The winery

was completed just in time for the 2002 vintage and 1700 tonnes of grapes were processed. Vintage

2008 will see the winery process 4,000 tonnes (200,000 cases) for Whitehaven’s own labels and for

several contract clients.

Whitehaven Wines are marketed through exclusive agents in New Zealand, Australia, the

United Kingdom, Ireland, Hong Kong, Japan, the United States, and Canada

While Whitehaven has grown well beyond the original expectations of its shareholders, the

management, winemaking, and viticultural team remain small and focused, working in an

environment where their talents can be combined to produce elegant wines with distinctive regional

character.

➢ Saint Clair Estate Wines

Saint Clair Estate Wines is owned by Neal and Judy Ibbotson, viticulture pioneers in

Marlborough since 1978. Grapes were originally supplied to local wine companies; however a

desire to extend the quality achieved in the vineyard through to the finished wine led to the

establishment of Saint Clair Estate Wines. From 1994, when wines from the first vintage all won

medals including gold, the name Saint Clair has been synonymous with quality and its award-

winning record continues today. Saint Clair Estate Wines also has the distinction of being the first

New Zealand wine company to win major international trophies for Sauvignon Blanc and Pinot

Noir in 1995.

Saint Clair Estate Wine’s success is founded on the 27 years of extensive pioneering

viticulture, ongoing as a critical part of the highest quality winemaking practices. The company's

mission is to create world-class wines that exceed their customers every expectation.

Today, the company is something of a family business with the next generation also

involved. Saint Clair Estate Wines produces a wide range of varieties, including Sauvignon Blanc,

Pinot Gris, Chardonnay, Riesling, Gewürztraminer, Pinot Noir and Merlot, available in four ranges

of wines – the Reserve Range, Pioneer Block, the Premium Range and Vicar’s Choice.

To conclude on this particular form of oligopoly, we can say that the Pacific wine market

enhances important penetration difficulties for foreign companies that are willing to set up a

subsidiary there. The global giants that succeeded their setting up and the local giants represent over

70% of the Australian and New Zealand wine productions put together. Difficulties also come from

the presence of local smaller companies of the fringe that are increasingly becoming competitive in

this market. We will study the solution found by the Pernod Ricard Group to enter this strategic

market.

3-3- The success of a subsidiary in a fierce competitive market

We will deal with the setting up of the Pernod Ricard Group in the Pacific wine and spirit

market. The main issue of this chapter is how to explain the Group's successful subsidiary in this

fiercely competitive local market. We will focus on the business strategy adopted by the Group, and

more precisely its specific entry mode, as a solution to overcome entry difficulties.

A – The setting up of a subsidiary: Pernod Ricard Pacific

➢ General presentation of the subsidiary

Created in February 2006, from the merger of the Australian Orlando Wyndham Group and

Allied Domecq Wines New Zealand (acquired by the Group in 2005), Pernod Ricard Pacific is the

regional entity of Pernod Ricard in the Pacific region. Managed by chairman and CEO Laurent

Lacassagne, it is a leading wine and spirits company employing over 2,000 people and generating a

turnover of approximately AUD $1,2b. Influenced by a strong Australian and New Zealand wine

heritage, Pernod Ricard Pacific has to ensure the two major responsibilities confered on regional

entities by the Goup through its decentralised management structure:

as a Brand Owner for Pernod Ricard Australian and New Zealand wines, it is responsible for

winemaking, viticulture and global marketing, managing alongside its four wine strategic

brands Jacob's Creek, Wyndham Estate, Montana and Stoneleigh, a large portfolio of locally

produced brands including Richmond Grove, Poet's Corner, Morris, Gramp's, Orlando,

Trilogy in Australia and Corbans, Church Road, Lindauer, Triplebank in New Zealand, to

name a few.

as a Distributor in the Pacific region for the entire wine and spirits portfolio of the Group, it

manages domestic sales, marketing and distribution of premium international spirits brands

Ballantine's, Beefeater, Stolichnaya, Kahlua, Malibu and Tia Maria alongside Chivas Regal,

Jameson, Wild Turkey, Martell, Havana Club, Pernod and Ricard as well as its extensive

range of leading Australian and New Zealand premium wines, and champagne Mumm and

Perrier Jouët.

We remind the reader that these two responsibilities are the result of the glocalization

process which aims at promoting the Group's global development by adapting supply to local needs

and consumption habits.

➢ Business structure

Pernod Ricard Pacific is structured around four operational business units and reciprocal

support functions:

Orlando Wines, based in Adelaide (South Australia). It manages worldwide marketing of

Australian wine brands including Jacob's Creek and Wyndham Estate, as well as all

Australian wine-making and viticultural activities

Pernod Ricard Australia, based in Sydney (New South Wales). It manages Australian

domestic sales and marketing of the new group's wine and spirits. It is a major player in the

Australian wine and spirits market, representing a distinguished portfolio of premium wines,

spirits, ready-to-drink and non-alcoholic products. It aims at delivering both profitable and

sustainable growth and increasing market shares across all categories.

Pernod Ricard New Zealand, based in Auckland. Managed by Managing Director Fabian

Partigliani, Pernod Ricard New Zealand is the country’s premier wines and spirits company

at the forefront of New Zealand’s wine industry, employing over 830 people, which

increases to over 1,500 during vintage and generating a turnover of approximately NZD

$450 million. Today, it is the number one selling New Zealand wine company in both the

domestic and export markets.

Pernod Ricard Pacific Travel Retail, based in Sydney. It manages the region's duty-free

sales as well as Pacific Island customers and airlines. Travel retail refers to shops set up in

strategic places (airports, stations, ...etc) where there is a lot of travellers coming through.

Here is the organization chart of Pernod Ricard Pacific with both business units and

functional divisions:

After having presented Pernod Ricard Pacific, we will briefly show an analysis on the choice

of the geographic localization for a firm's setting up. In fact, this analysis, known as Dunning's

eclectic paradigm, is based on the "OLI" factors5, which stands for:

Ownership: this factor refers to the firm's competitive advantages. The Pernod Ricard Group

is based on an ancestral know-how, a wide portfolio of international brands and a strong

management structure. These aspects give the Group huge adavantages in the wine and

spirits market.

Localization: the Group has to analyze the national comparative advantage of the host

country. The host Pacific countries (Australia and New Zealand) are very attractive markets

where consumers' demand is important. The characteristics of both markets that we dealt

with in previous chapters make up a strategic localization for the Pernod Ricard Group.

Internalization: this factor enhances the question whether is it necessary for the Group to

integrate the local entity or to produce by itself. In this case, some elements have to be taken

into account to find the most profitable solution. When it comes to Pernod Ricard's Pacific

subsidiary, we will show what were the solutions adopted by the Group while entering the

market and facing a fierce local competition.

B – External growth through companies' takeovers

Basically, for a company, the process of external growth consists in buying out other firms

either competing firms (specialization) or firms belonging to other activity fields (diversification). It

is a means to acquire quickly competencies in a new field or capture market shares of a maturity

industry.

When it comes to Pernod Ricard, since its creation in 1975, a strong external growth through

ambitious acquisitions have enabled the Group to develop one of the best product-endowed

portfolios of the wine and spirits industry.

➢ Firm acquisitions as a solution to overcome competition's difficulties

5 Strategor, Politique générale de l'entreprise, Editions Dunod, 4ème édition, 2006

Being focused on an unique activity, the wine and spirits business, the Pernod Ricard Group

has a strong developing potential. In a context of oligopolistic battles, some acquisitions correspond

to an anticipation so as to neutralize or get ahead of a competitor. In fact, the Group is aware of the

necessity of taking the control of a firm if its acquisition by a competitor could modify the

industry's future.

Pernod Ricard's acquisitions in the Pacific wine and spirits market were horizontal

acquisitions: it brought together with competing companies. This aimed at increasing its local

market shares, creating economies of scale for the Group and strengthening its market power.

More precisely, these acquisitions were part of the Group's business and corporate strategies.

When it comes to its business strategy, acquisitions enabled it to improve its competitive position in

the market through an increasing internal efficiency. On the other hand, its corporate strategy

perceived acquisitions as a means to widen the Group's portfolio with local brands.

We can say that acquisitions were a strategic means to overcome entry's difficulties to the

extent that this procedure provided the Group with an immediate presence and a start without any

delay of its activity. It also benefited from existing clientele, collaborators and market shares6.

Generally, four main objectives, which can be perfectly applied to the Pernod Ricard's

international strategy, lead to companies' acquisition in the wine industry:

the "scope effect": through a company acquisition, the increased turnover will enable

reduction in the production costs thanks to economies of scale, and thus better face

competitors. However, the scope effect depends on the companies market, i.e. on the

availability of sufficient assets in a country.

notoriety reinforcement: brand notoriety among consumers should be strengthened through a

powerful local brands ownership. Since brand is the best element of success of the Pacific

wineries, acquiring companies with a premium or superpremium brands portfolio is a

relevant means to be competitive and intend to enter the dominant oligopoly.

safety of grapes supplying: a company should buy out wineries with a sufficient supplying

in raw materials. This is a factor encouraging acquisitions through vertical integration.

control of distribution channels: a competitive wine company must be able to get closer to

consumers so as to satisfy their needs and capture even more market shares.

6 A. DEYSINE, J. DUBOIN, S'internationaliser, Stratégies et techniques, Edtitons Dalloz, 1995

How can we explain the success of the Group's acquisitions and setting up in the Pacific

wine and spirits market ?

Firstly, the Pernod Ricard Group has a corporate reputation worldwide. This reputation is a

strategic assets for the company insofar as it can contribute to the creation of a competitive

advantage in the local market. Corporate reputation is the relative position of the company towards

both its industry and competitors.

Secondly, as a multinational company, the Group has a specific weapon towards local giants.

It can launch an offensive against a local competitor thanks to profits and financial resources

provided by another subsidiary set up in another country.

➢ Two main companies taken over by the Pernod Ricard Group

As we mentioned, the Pernod Ricard Group set up its subsidiary in the Pacific wine and

spirits market by taking over some huge companies: Jacob's Creek and Allied Domecq.

Jacob's Creek, a strategy based on brand control

Jacob's Creek is the Australian wine brand most sold in the world. As a high-quality and

reasonably-priced brand, Jacob's Creek is considered as the Australian wine ambassador in more

than 65 countries, including Australia, New Zealand, the UK, the USA, Canada, Ireland, Asian and

Scandinavian countries, and was rewarded in more than 3.500 competitions all over the world.

Historically, while being owned by the Orlando Wyndham company, one of the most powerful

Australian exporters, the Jacob's Creek brand was launched in 1976 in the Australian market with a

Shiraz Cabernet Malbec. Since this successful initial operation, the company launched new wine

varieties made from Riesling and Chardonnay vines.

When it comes to its takeover by the Pernod Ricard Group, we can say that this acquisition

was an efficient strategy. In fact, at the very beginning of the acquisition, the Group wanted to enter

the UK wine market because it was, and still is, a test-market for wine companies. It decided to buy

out a small company, known for its sales of Austrian wines. But, this initiative was an absolute

failure and all sales suddenly stopped. In order to find a substitute wine, the Group focused on the

Australian market. There, it discovered Jacob's Creek which had never been exported to the UK. In

1984, the Jacob's Creek company exported its first bottles to the UK. There was an immediate

success based on both white and red wines. In 1989, Pernod Ricard took over Orlando Wyndham

with a strong ambition for international spreading. This led to the huge success of Jacob's Creek

wines.

Today, since Jacob's Creek is wholly owned by Pernod Ricard Pacific Pty Ltd and is part of

this international organization, wines are currently distributed via the Pernod Ricard distribution

network in each market. 85% of its sales are exported to 65 markets and 7,5 million cases were sold

in 2005/2006 which represented a 7% increase in comparison with the previous year. This figure is

the result of both the powerful premium strategy of the Pernod Ricard Group and marketing

campaign based on an improved packaging.

Moreover, Jacob's Creek is famous for its centre offering public wine tasting areas for

coaches and the general public, as well as private facilities for professional functions and

specialized tastings. A gallery area includes information on the history of the Barossa, of the

Orlando wine company and of the Jacob's Creek brand, as well as wine production techniques and

viticulture. In addition, visitors are invited to enjoy a la carte dining at our fully equipped Jacob’s

Restaurant, which offers a menu of contemporary Australian cuisine using quality local produce

married with our wine maker’s recommendation from a selection of our premium wines.

To conclude on the Jacob's Creek brand, we can say that its acquisition by the Pernod Ricard

Group and its control by Pernod Ricard Pacific was a relevant strategy for the Group to enter such

an oligopolistic market. Since Australian wine consumers tend to focus on quality and reasonable-

priced wines with a local brand, this acquisition was a good means to capture effectively market

shares.

Controlling an existing firm enabled it to avoid the possible failure of a foreign wine

company's setting up in a fierce competitive market while facing local and international giants

already set up as the dominant oligopoly.

Allied Domecq plc, a strategy based on brand transfer

Contrary to Jacob's Creek brand, Allied Domecq is not a local wine company. It is an

international company, headquartered in Bristol, UK that operated spirits, wine, and quick service

restaurant businesses. The acquisition of Lyons in the 1970s, then the takeover of Dunkin' Donut's

in 1989 and, above all, the merger with the Spanish company Pedro Domecq in 1994 led Allied

Domecq to the second rank of the spirits industry.

The Pernod Ricard Group acquired Allied Domecq plc in 2005 through a friendly takeover

bid. Basically, a takeover bid is a business operation enabling a company to inform shareholders of

another company that it is willing to buy their shares at a given price. In return, it is necessary for

the acquiring company to propose a widely higher price than the stock exchange value of the share,

so that shareholders accept the proposal. Another aspect of this procedure is the implementation of

advertising: the offer draws the attention on the business opportunity to grasp and can lead to other

competing purchasers' reaction7.

When it comes to the Pernod Ricard Group, this takeover bid was another strategy to

strengthen its position on the global wine and spirits market. On 21st April 2005, the Group launches

a friendly takeover bid on Allied Domecq plc, which was one of its main competitors. Before this

operation, Pernod Ricard was the second largest wine and spirit company in the world and Allied

Domecq was the third. To acquire Allied Domecq, Pernod Ricard became allied to Fortune Brands,

a US giant acting in the global wine and spirits market but was threatened by an offer attempt from

Constellation Brands. Constellation Brands' offer failed due to its strong indebtedness to the bank.

Diageo, the global wine and spirits market leader, also took advantage from the operation thanks to

an exclusive agreement signed with Pernod Ricard, and thus received some of Allied Domecq's

wine brands. This is another example illustrating the fierce competition in an oligolopolistic market

where a few huge wine and spirits companies keep on contesting the shares. On 30th June 2005,

Pernod Ricard's shareholders accepted the acquisition project and those of Allied Domecq did the

same on 4th July. On 26th July 2005, Pernod Ricard officially became the owner of Allied Domecq.

In this way, the Pernod Ricard Group has reached a critical size in the main world markets (first

position in Europe, Asia and Latin America and the second one in North America and Africa),

strengthened its market shares in western markets (mainly Spain, the UK and the USA) and become

a leader in markets with a strong developing potential

As far as Pernod Ricard Pacific is concerned, this acquisition was beneficiable for its wine

brands portfolio. In fact, the advantages of the takeover were the same as those mentioned for

Jacob's Creek acquisition: it concerned existing brands whose output was immediate, automatically

increased the market shares, was a good means to overcome entry barriers and provided the

subsidiary with an advantage with respect to competitors. Before this operation, its portfolio was

mainly made up of Australian wine brands such as Jacob's Creek. Thanks to it, the subsidiary

strengthened its presence in the New Zealand market since Allied Domecq was the wine leader

there. From now on, it owns local wine brands such as Stoneleigh, Montana and Corban. Marketing

initiatives have increased through the launching of new packagings of the New Zealand key wine

brands and the introduction of four new wine ranges (Montana Terroir Series, Triplebank, ... etc)

emphasizing on the strategic willingness of Pernod Ricard New Zealand to assert its know-how in

the superpremium wines segment. Key brands of its spirits portfolio have also shown important

performances testifying of their growth potential.

7 J.-P. THUILLIER, OPA, Fusions et Acquisitions, Editions Dunod, 1992

To conclude on Pernod Ricard's external growth through its takeovers in the Pacific wine

and spirits market, we can say that the two acquired brands show different strategies: a brand

control vs. a brand transfer.

On the one hand, Jacob's Creek takeover is qualified as a brand control since the whole

brand is owned by the Group. Its business structure is managed and controlled by the Group.

On the other hand, Allied Domecq illustrates a brand transfer since its brands were shared

between two competing companies: the Pernod Ricard Group and Fortune Brands. In fact, Fortune

Brands and Pernod Ricard became allied to form Goal Acquisitions Ltd. Fortune Brands took some

of the spirit brands whereas other spirit key brands (Ballantine's, Malibu, Beefeater, Kahlúa and

Stolichnaya) and the wine portfolio were transfered to Pernod Ricard.

- CONCLUSION -

The global wine and spirits market has been extending over the last 20 years, mainly due to

the appearance of new wine-making companies set up far from traditional areas of production and

consumption. Over the years, this market has become increasingly competitive, encouraging

companies willing to remain or become "global players" to increase their size. The development of

multinational companies has led to offensive strategies aiming at acquiring the critical size in the

market. In this context, the procedure of an external growth through acquisitions seems unavoidable

but requires sufficient resources to finance the movement of firms' restructuring.

However, when it comes to the Pacific area, foreign companies willing to enter the

Australian and New Zealand wine and spirits markets are facing huge difficulties coming from a

local dominant oligopoly. This oligopoly is made up of both international giants and local

companies and a multitude of smaller firms that tend to become real competitors. The only way for

foreign companies to succeed their setting up is to take over some local firms.

Our study of the Pernod Ricard Group, and more precisely its Pacific subsidiary, has shown

a successful setting up. The main reasons for this success is the worldwide corporate reputation of

the Group and the important profit it generates from its acquired firms. In 1989, Jacob's Creek was

reluctant to be taken over by such an important group because Australian consumers were used to

buying their traditional high-quality and reasonable-priced wines and mistrust that a foreign

purchaser of one of their favourite wine brands could modify the products and no longer meet their

expectations in terms of taste or quality. This is why, at the very beginning, the takeover did not go

as well as planned for the Group. However, the acquisition proved to be successful because the

Group organized its business by adapting itself to the existing structure and respecting consumers'

consumption habits (glocalization) without modifying the products' characteristics. In 1993, Jacob's

Creek wine range started developing, increased significantly its profit and entered the global market

as the first Australian wine brand most exported all over the world. As far as Allied Domecq is

concerned, the Pernod Ricard Group shared the acquired company's brands portfolio with Fortune

Brands through a brand transfer strategy. In 2005, the friendly takeover bid was succesful insofar as

the Group now owns strategic wine and spirits brands in New Zealand, extending its wine portfolio,

and acts as a leader in this area.

The Pacific wine and spirits market enabled the Pernod Ricard Group to strengthen its 2nd

world rank in spirits after Diageo plc, and its 4th world rank in wines after Constellation Brands.

- REFERENCES -

➢ BIBLIOGRAPHY

✔ English books

J.H. Dunning, The Globalization of Business, Routledge Editions, London, 1993 W.J. Keegen, M.C. Green, Global Marketing, Person International Editions, 4th edition E. Penrose, The Theory of the Growth of the Firm, Oxford University Press, 1995 A. Auerbach, Corporate Takeovers, Causes and Consequences, University of Chicago Press,

1988 K. Andrews, The Concept of Corporate Strategy, R. Irwin Editions, Ontario, 1980 A.-M. Coelho, J.-L. Rastoin, Financial strategies of multinational firms in the world wine

industry: an assessment, Agribusiness Editions, 2006

✔ French books

Strategor, Politique générale de l'entreprise, Éditions Dunod, 4ème édition, 2006 E. Montaigne, F. d'Hauteville, J.-P. Couderc, H. Hannin, Bacchus 2006: enjeux, stratégies et

pratiques dans la filière vitivinicole, Éditions Dunod, 2005 B. Guilhon, Les Firmes Globales, Éditions Economica, 1998 J.-P. Thuillier, OPA, Fusions et Acquisitions, Éditions Dunod, 1992 J.L. Mucchielli, Multinationales et Mondialisation, Éditions Seuil, Collection Points, Paris,

1998 J.-L. Magakian, M.-A. Payaud, 100 fiches pour comprendre la stratégie d'entreprise,

Éditions Bréal, 2ème édition, 2007 A. Deysine, J. Duboin, S'internationaliser, Stratégies et techniques, Éditions Dalloz, 1995

➢ WEBSITES

✔ English websites ✔ French websites

www.pernod-ricard.com www.inra.fr

www.pernod-ricard-pacific.com www.ubifrance.fr

www.vinimarket.com www.sommelier-france.org

www.referenceforbusiness.com www.delegfrance-ocde.org

www.winemarket.com

www.drinksmediawire.com

www.sonicsoftware.com