Chivas Brothers’ CEO Georges Nectoux on integrating Seagram’s £2bn Scotch whisky empire, why Britain is no longer a priority, and possible distillery sales
GEORGES Nectoux, the Frenchman who for 10 months has been re-forging the auld alliance by slotting Chivas Brothers, makers of Chivas Regal and The Glenlivet, into the Pernod Ricard global drinks empire, does not mince his words about how these brands were treated by their former owner, the drinks-to-movies conglomerate Vivendi Universal.
He says: “In Vivendi Universal, spirits were not a priority at all. And inside the spirits portfolio, Scotch whisky business was last on the list. It was much more fun to sell Absolut, Captain Morgan and Mumm champagne.
Nectoux, a 58-year-old graduate of Paris’s Haute Ecole de Commerce, has spent 30 years with the Pernod group. He adds: “The whisky brands had certainly been neglected in terms of commitment. They were last a priority [for Seagram] in the 1960s and 1970s.”
Having paid over £2 billion for the spirits range in a joint bid with Diageo (which completed last December) Nectoux and his Pernod colleagues must have been concerned this would have caused the portfolio to have lost some of its aura with consumers.
“To our pleasant surprise this was not the case,” says Nectoux. “This is a long-term business so you can make mistakes for many years before you start to damage your brand. But, conversely, it takes a lot of effort to bring it back.”
Nectoux, now chairman and chief executive of an enlarged Chivas Brothers, seems unconcerned that only 10 of Seagram’s former marketing team made the transition from their former HQ, the Ark near Hammersmith London Underground station, to the merged operation just down the road, an office in Chancellors Road overlooking the Thames near Hammersmith Bridge.
The business — including Pernod Ricard’s Campbell Distillers and Pernod’s global duty-free group — today employs 120 people in London and 800 in Scotland.
“It’s better to have no-one from the past,” Nectoux laughs. “It means you can start afresh,” he says. “The severance policy was very generous so, for a lot of people, it was financially more interesting to leave.”
Starting with a clean sheet of paper, Nectoux believes his team, led by Martin Riley, a former Ballantine’s marketeer who became Chivas Brothers’s marketing director earlier this year, is well placed to revitalise the brands and sharpen their marketing focus.
Chivas’s incumbent global ad agency TBWA is already working on new campaigns, which are due to be launched in early 2003.
“We should be able to give a new life, a new vitality, and a new impetus, not because we’re better than Seagram, but because we’re more focused,” Nectoux says. He expects “a bit of evolution” in terms of label design across the whisky range.
Chivas Regal’s biggest markets are currently the US, Japan, Latin America, Asia and duty-free, in which it is the second biggest selling brand. But Nectoux believes big gains can be made by pushing the brands into the on-trade — the plusher hotels, restaurants, bars and night clubs. “The on-trade was neglected all around the world by Seagram,” he says.
You can expect Pernod to build on its existing links with the on-trade — which provides a showcase for its products and can be more profitable — in fast-growing markets for Scotch whisky such as Spain, Greece, France, Italy and Russia.
Other imminent initiatives will see the Strathisla distillery in Moray converted into the spiritual home of Chivas Regal, along similar lines to what Edrington has done with its Famous Grouse Experience in Crieff.
Nectoux also believes that his collection of Scotch whisky brands — which also include The Glenlivet, Glen Grant, Aberlour and Royal Salute — are poised for solid growth because most are targeting the top end of the market. “Globally, that is the segment of the market that is growing the fastest.”
He also highlights a lack of overlap between the Chivas Brothers’ and the Pernod Ricard whisky businesses. The latter revolved around Clan Campbell (a mid-range Scotch whisky that Pernod has propelled to market leadership in France) and Aberlour (the market-leading malt in France).
Industry commentators have questioned Pernod’s abilities to grow its newly acquired brands in markets outside Europe. But Nectoux sees no difficulties. He points to the retention of Seagram’s sales teams in markets including Mexico, Venezuela, Brazil, China, Taiwan and Singapore.
Despite Chivas’s origins in Aberdeen 200 years ago, the Frenchman does not believe the UK will ever be a priority for Chivas Brothers. He said: “You must pay big margins to retailers and big excise tax to the government. What’s left for the producer is quite meagre. This means the UK is not a profitable market… the other problem with this market is that Scotch is seen as a drink for old people. It will be years before you can change that.”
But Nectoux does not believe Scotch has a similarly negative image elsewhere — not even in the US. “In France, Scotch has been in fashion for the 30 years. There is no Smirnoff Ice, no beer, you have nothing else really.”
Despite the pressing need to stay fashionable, Nectoux has no intention of taking Scotch into the ready-to-drink arena — in which Diageo has enjoyed marked success with Smirnoff Ice. “We believe that ready-to-drinks are a bit of a fad. For the moment we don’t believe it’s right for our Scotch business.”
Nor does the new Chivas Brothers intend to launch any new brands, despite pumping Chivas Revolve, the swan song of the ancien regime, into the Korean hostess bar scene. Nectoux’s preference is to focus on new variants of existing brands.
But what of production, where Chivas Brothers employs 800 people in 10 distilleries and three bottling plants?
After the acquisition completed last December, Pernod Ricard discovered that Seagram had been overstocking the trade with Chivas’s products causing relevant sales to dip in early 2002.
Nectoux argues that, having received compensation of £13m from Seagram, the matter is closed. “It was an amicable discussion,” he says.
Earlier this month, however, it emerged that Chivas has mothballed several distilleries in Scotland due to over-capacity. Nectoux says: “Under Seagram, the distilling capacity was far greater than their needs.”
Instead of keeping all 11 distilleries ticking over part-time, as Seagram did, Pernod has mothballed four: Allt a’Bhainne, Braeval, Benriach and Caperdonich. Glen Keith, mothballed in 1999, remains shut. But Nectoux stresses: “These four are ready to start at the push of a button. We can start it with one week’s notice.”
The company’s six single malt distilleries, at Glenlivet, Glen Grant, Strathisla, Longmorn, Aberlour and Glenallachie, are now working full time.
Having sold the Edradour distillery to entrepreneur Andrew Symington for £5.4m in July, Nectoux says Chivas would consider offers for its idle distilleries.
Chivas would gain clear economies of scale by consolidating its bottling operations into a single site. But Nectoux has no plans to do so, perhaps for fear of riding roughshod over trade union sensitivities.
“Right now we have five bottling halls — three in Paisley, one in Newbridge and one in Kilwinning. All five will be kept, Nectoux says, though he added that cost savings from consolidation were not so obvious. “For us the priority is sales and marketing. The rest is far less of a priority. We have saved in IT, and in some other areas we have made some very quick savings [as a result of the merger].”
Pernod Ricard has been totally transformed following its Seagram acquisition, since when it has sold off a lot of non-core businesses, including soft drinks Orangina and Pampryl.
In Scotch it is currently selling 8m nine-litre cases, which places it around the same level as Allied-Domecq — but still a way behind industry leader Diageo, which sells around 27m annually. Asked if he can envisage overtaking Diageo in Scotch whisky sales, Nectoux says: “My grandchildren certainly can.”
Copyright SMG Sunday Newspapers Ltd 2002
This article on Chivas Brothers was published in the Sunday Herald on 20 October 2002