Global consumption has been in decline since it peaked in 2007.
Champagne is more closely associated with celebration than wine.
But Pernod Ricard boss Alexandre Ricard would be justified in cracking open a celebratory bottle of red, after the French drinks group’s deal to sell most of its wine business, including the Jacob’s Creek and Campo Viejo brands. It is a wise move: global wine consumption continues to drain away.
Pernod is selling its wine assets in Australia, New Zealand and Spain — representing annual production of 90mn litres — to a consortium of investors led by Bain Capital. The same group earlier this year took over Australian wine producer Accolade Wines, owner of Hardys.
Getting out of lower-margin wine was always likely to be a question of when, not if, for Pernod, whose core businesses revolve around spirits such as Chivas Regal whisky and Absolut vodka. UK rival Diageo unloaded its wine in 2015.
Details on the deal are thin. But Pernod’s operating margins in wine — although never disclosed — are likely to be around half of the group’s average of 27.6 per cent, estimates Jefferies analyst Edward Mundy. In 2023 its wine output fell 2 per cent year over year, versus 11 per cent growth at its international spirits brands. Wine accounts for 4 per cent of its €12.1bn annual net sales.
Global wine consumption has been in decline since it peaked at about 25bn litres in 2007. Last year that fell to an estimated 22.1bn litres, according to the International Organisation of Vine and Wine (OIV).
Younger drinkers prefer throwing back cocktails or spirits. In recent years, wine prices have risen as producers passed on higher costs. But alcohol consumption is also dropping as consumers become more health-conscious.
The result is that global wine production in 2023 was 7 per cent higher than consumption. Volume should decline by an average 1 per cent a year out to 2028, according to drinks research group IWSR. And no growth is expected from rising prices either — even if some parts of the market, like rosé, are more resilient.
In Australia, market conditions have been particularly punishing since China in 2020 imposed tariffs on imported Aussie wines. These were lifted this year, but not before the market suffered a damaging glut. In mid-2023, inventories of Australian wine were 16 per cent above the 10-year average.
The buyer of Pernod’s wine brands will want savings from the combination with Accolade. The deal requires competition approval first: the joint business will have a share of about 27 per cent of the Australian market, according to Bernstein’s Trevor Stirling. But if regulators approve, expect further deals to be uncorked.
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