Julien Hemard started working with premium beverage maker Pernod Ricard in 1995. He took a marketing director position with Pernod Recard China in 2003. Three years later he took a year-and-a-half detour through the Philippines, where he served as country managing director, before returning to the mainland to take up his current position. It was, he said, an “easy decision” to make. He spoke to China Economic Review about the firm’s performance in China and teaching local consumers to drink better booze.
Q: How has the last year been for your brands?
A: It’s been pretty good so far this year. In fact, the market was quite resilient overall, given the bad economic situation, so we still managed to see some growth for our brands, which was a pleasant surprise. But obviously business has grown at a slower pace than it used to.
Q: Pernod Ricard has a large portfolio. What are your best performing brands here?
A: In our portfolio we have Chivas Regal, which is the market leader, and also the number-three brand Ballantine’s. Together, they have been holding up quite well, especially Ballantine’s. In terms of cognac, Martell is in the number-two position. The brand is going quite strongly and we have narrowed the gap with the market leader, Hennessy. We are also the market leader in the super-premium sector of cognac, the XO category. Then we added the Absolut vodka brand, which we are investing in more and more, and we have quite a good portfolio of wine. The key wine brand here is Jacob’s Creek, which is the leading Australian wine in China.
Q: What’s the typical consumer profile of your customers?
A: Our core consumer target is between 25 and 40 years old, mostly in the top-tier cities, tier one and tier two, and obviously upper- and middle-class people. They are drinking our product when they go out for business, for entertainment, and also at private functions.
Q: Some have said that Chinese consumers still have difficulty tasting the difference between brandy and whiskey. Is this true, and if so, what kind of consumer education are you involved in?
A: Yes, I fully agree with that. These liquors are still in a relatively new category for Chinese consumers. So we have a lot of work to do. However, in terms of consumer demand, they are becoming more sophisticated and discerning in their choices, so it’s important that they understand the type of product we are offering. We use a combination of traditional advertising, advertorials and mentoring activities like face-to-face tastings which we do throughout the country. We host dinners and we tell them how to match our product with Chinese food.
Q: Some say that Western liquors and wines are difficult to match with Chinese food because the flavors are so different.
A: No, I disagree. I think that our products go very well with Chinese food, which is very rich, very complex, very exciting and varies a lot from one province to another. You have a lot of diverse tastes. It’s a fantastic match. At the end of the day the purpose is not to say that you have to have a certain product with a certain type of food, but we are trying to help them discover the two going together, and whether they like it or not. If people ask me what is the best wine with this kind of food, my answer is, do you like it or not? If you like it, it’s a good wine. For example, in south China there is a strong tradition to drink cognac with Cantonese food like abalone and lobster. As a French guy, I love it as well. It’s not something I would think about doing back in France but it is actually a very good match.
Q: What is domestic competition like? Are you seeing competition from local producers of cognac and whiskey?
A: Well, not for cognac because that can only be produced in France. Domestic brandy, yes, but it is still small. But in a way domestic competition is good because it helps bring the taste of this class of product to the local consumer. In terms of local wine, they are growing very fast, there’s a strong marketing push, and we think that is great for the future of wine in this country. We are developing a local wine, a product from Ningxia province and we are starting to make some high quality wine. It’s a good sign for this type of product to have some local players to develop the understanding of these product categories.
Q: Any policy impacts? What are import barriers like?
A: As far as we are concerned there is no issue there. Since China entered the WTO, it has followed the plan in terms of taxation, so there is no big gap between imported and local brands. There is tax on imported wine but it is quite reasonable and we are not complaining about it. It’s not making imported wine prohibitively expensive. There are a lot of countries in Europe that have much more discriminatory taxes on imported wines.
Q: One businessman told us there is no point in trying to sell Chinese people on low- and mid-priced wine since they either drink the cheapest they can or the most expensive product.
A: I completely disagree. For us it is the mid-range wines that are growing the fastest. The low end is also growing quite well, mostly local wine. Most of the imported wines are at the middle price point and people are being quite careful in choosing which brand, which varietal and what price. For cognac and whisky, however, China is a premium market. We start at the VSOP grade, which is quite pricey. For whiskey we start at 12-year-old level, which is also expensive. Unlike most other European markets, where we would have what we call a strong standard whisky segment, in China it starts at a higher price point.
Q: Why the difference in demand between wine and liquor?
A: I think wine is still fairly new, and it’s also a much more fragmented market. Whisky and cognac are easier to understand because you have fewer brands, and it is a much more brand-driven demand. People don’t ask for a cognac, they ask for a Martell, a specific brand. In a way it’s similar for wine, which is why the key local wine brands like Changyu are so dominant – people will ask for these brands because they want the reassurance. For a new wine to come in with a new brand, it is going to be quite difficult initially. People aren’t going to ask for “a Bordeaux,” they want a specific brand. But we believe the market will go premium once people get to know imported brands better.
Q: What is Pernod Ricard’s growth strategy in this country?
A: We are obviously keen to continue growing. We are starting from a strong position already, so we want to at least grow together with the market, and we are also developing new brands like Absolut. Of course we see quite a strong future in wine, with Jacob’s Creek and with our local brand, called Helan Mountain. The price for Helan varies between RMB70 (US$10.25) and RMB300. It is made all from local grapes, everything is done in Ningxia. It’s all 100% Chinese-made.