Pernod Ricard to step up advertising spend after ‘significantly’ boosting ROI

Pernod Ricard has hailed the impact of its digital transformation scheme in “enhancing” its marketing spend and making it work more efficiently.

The alcoholic drinks giant, which owns brands such as Absolut, Jameson and Malibu, plans to increase its marketing spend in the second half of its financial year to “ensure [it is] seizing the opportunity on the ground”.

Advertising and promotional (A&P) spend in the first half of the business’s 2023 financial year, which ended on 31 December, was approximately 14% as a ratio of net sales. For the full year it intends to “accelerate” marketing spend to 16% of net sales.

The 16% target remains broadly consistent with the ratio spent in Pernod Ricard’s 2022 financial year. However, CEO Alexandre Ricard told investors on a call today (16 February) that the return on investment on A&P spend this year would be “far greater” due to the work carried out in the company’s digital transformation programme.

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He credited Matrix, a tool which leverages data to measure the impact of each marketing touchpoint more precisely, as boosting the return on investment (ROI) on media campaigns “quite significantly”. Jameson in the US has been able to grow ROI by 40% due to the tool, Ricard claimed.

“What this allows us to do is save money, and that money which is saved is invested behind other brands,” he said.

As a result the business has been able to activate a much broader base of brands through its marketing spend, rather than having to concentrate it on certain areas.

Ricard cited another tool, D-Star, as aiding the business in knowing where to invest to make the most impact. This tool utilises data and AI to help the business’s sales teams in decision-making around investment.

Price increases so far not deterring sales

Digital transformation is a top priority for Pernod Ricard, and the business said it had been investing “significantly” behind it.

Such investments have been fuelled by what the company termed “very strong broad-based growth”. Sales in the first half reached €7.1bn (£6.3bn), marking organic growth of 12%. This was in part driven by a favourable foreign exchange impact of €355m (£316m), however. Profit from recurring operations hit €2.4bn (£2.2bn), an organic growth of 12%.

Ricard hailed the “quality of growth” generated in the half, with premiumisation and broad growth across markets. The business’s ‘premium plus’ portfolio delivered around 80% of the company’s in the period.

In Europe sales rose 6%, including “very strong” performances in Western Europe and travel retail. All spirits segments underwent double-digit growth, with strategic international brands – including Jameson and Absolut – up 13%. Pernod Ricard’s strategic wines segment experienced a 2% decline, however, driven by a softened UK market.

The business increased prices by 10% in the period, with no negative impact on sales volumes, which rose across the portfolio by 3%. Ricard attributed this to a “disciplined approach” to brand equity.

“Some specific brands have strong equity that basically can handle some price increases,” he said.

For the rest of the year, the company cannot predict exactly what level of price increases it will make, as this is in the hands of local teams to determine the “optimal” level.

However, Ricard said he “would not be surprised” if the business finished the year with an overall price increase level in the high single digits. This would mean the business undertakes fewer price increases in the second half of its year, which is partly due to the cycling of some increases taken in the second half of its 2022 financial year.

Last month rival drinks giant Diageo also reported strong growth, particularly in its premium segments. The business intends to “invest strongly” in marketing in 2023, while continuing to use its own effectiveness tools to increase the efficiency of its spend.