French spirits maker Pernod Ricard is banking on robust growth in Africa, a market where it has expanded sharply in recent years, in spite of challenging macroeconomic conditions on the continent, said a senior company executive.
Africa has become a major area of expansion for Pernod Ricard and other global consumer product companies such as Diageo, Nestle and Danone, which have all been attracted by the continent’s growing middle class.
Yet political instability and volatile economic conditions, such as a collapse in oil prices and currency devaluations in South Africa, Angola and Nigeria, have presented headwinds.
“There are difficulties and challenges in Africa but this does not change its long-term potential. We are very confident on this region,” Christian Porta, chairman & CEO of Pernod Ricard EMEA (Europe, Middle East & Africa) & LATAM (Latin America), told Reuters in a telephone interview.
South Africa has been Pernod Ricard’s key foothold on the continent since 1993 and main contributor to its African growth. The group claims a spirits market share of 12% in value in South Africa, ranking number two behind British rival Diageo.
In 2012, Pernod started accelerating investments in sub-Saharan Africa at a time when demand in the key Chinese market was slowing, targeting Africa as a new growth area for its Jameson Irish whiskey, Absolut vodka and Martell cognac brands.
As a result, Pernod – the world’s largest spirits maker after Diageo – is now present in Namibia, Kenya, Nigeria, Ghana, Angola and Mozambique, employing more than 500 people in Africa.
“This strategy bore fruits as our revenue grew 15% per year on average between 2012 and 2017 in Sub-Sahara Africa. Clearly Africa is a key expansion area for Pernod Ricard. Our ambition is to continue to grow strongly in the region,” said Porta.
However, he would not commit to a specific growth target due to volatile economic and political conditions in the region.
Among the drivers of Africa’s long-term growth, Porta cited favourable demographics, the potential for increased per-capita consumption as the economy improves, and a consumer desire for status that increases the lure of international brands.
Brown spirits, especially Scotch and cognac, are helping Pernod’s growth in Africa, while Absolut vodka is also doing well and gin is starting to make in-roads, he said.
Pernod’s market share for spirits by volume in Africa plus the Middle East is 4% compared to 15.5% for Diageo, according to market data firm Euromonitor.
Diageo enjoys a competitive edge over other players in Africa because it has had a base on the continent for decades.
Porta said Pernod had no immediate plans to enter new countries, although over the medium-term he said Ethiopia and Ivory Coast were countries of strong interest for the company.
“Our strategy is to develop in these countries and from there supply neighbouring countries. We think that after a five-year investment effort, our footprint is sufficient,” he said.
In Angola, Pernod Ricard grew strongly between 2012 and 2015 but last year, due to restricted access to foreign currencies, it voluntarily reduced shipments to the country.
“In Angola the situation is stabilising. One can hope the situation will improve in the coming quarters if oil stays around $60 a barrel or above,” he said.