Pernod Ricard (RI.PA), the French beverage company, has decided to sell most of its wine brands due to the global decline in wine consumption. Instead, the company will focus on expanding its champagne and premium spirits labels, particularly in the United States.
The company, which already owns popular brands such as Absolut Vodka, Jameson Whiskey, Olmeca Tequila, and Beefeater Gin, announced on Wednesday that it will be selling seven wineries located in Australia, New Zealand, and Spain. This strategic move will allow Pernod Ricard to allocate more resources towards its premium spirits and champagne brands, which are the main drivers of its business growth.
The sale will be made to Australian Wine Holdco Limited, a consortium of international investors. As part of the deal, Pernod Ricard will be offloading ten wine brands, including Jacob’s Creek, Orlando, St Hugo, Stoneleigh, Brancott Estate, Church Road, Campo Viejo, Ysios, Tarsus, and Azpilicueta. However, no financial details regarding the sale have been disclosed at this time.
The agreement comes in the wake of a significant drop in global wine consumption last year, reaching its lowest point in 27 years according to the International Organisation of Vine and Wine (OIV), an industry organization.
Pernod Ricard, the company behind the wine brands being sold, reported a 7% decline in sales for these brands in the first quarter of this year. This drop can be attributed to the waning popularity of Jacob’s Creek in India and Campo Viejo in the US.
The decline in wine consumption has been a consistent trend since 2018, driven by reduced consumption in China and a global decrease in disposable incomes due to high inflation. Consumers are increasingly opting for beer and spirits or choosing to abstain from alcohol altogether for health reasons.
Sarah Barrett, the executive editor of Wine & Spirits Daily, a trade publication based in the US, commented that the divestment by Pernod Ricard is a logical move considering the underperformance of the segment and the ongoing challenges in the global wine market.
Barrett noted that the sale is part of a broader trend in the industry, with major distillers like Diageo also divesting from non-core businesses. For example, Diageo sold its wine business to Treasury Wine Estates in 2015.
In contrast, Pernod Ricard is focusing on American whiskey and announced plans for a new US-based company called North American Distillers. This move is aimed at strengthening their American whiskey portfolio, which includes popular brands like Jefferson’s and Rabbit Hole. Richard Black, who will lead the new specialized business, expressed optimism about the growth potential of the American whiskey category.
The decline in global wine consumption and challenges in wine production have led to the closure of many European vineyards. According to the OIV, wine production in 2018 reached its lowest level since 1961 due to extreme weather and fungal disease impacting vineyards.
Australia has been significantly impacted by the global decline in wine consumption, leading to the destruction of millions of vines in response to excessive production. This oversupply has resulted in plummeting grape prices, posing a serious threat to the livelihoods of both growers and wine makers in the country.