Dec. 2 (Bloomberg) -- Pernod Ricard SA is turning to cocktails, coconut snowflakes and tequila to revive flagging sales at its Malibu rum brand.
Pernod dropped to a 7.6 percent share of the U.S. spirits market, the biggest by volume, in 2010 from 8.4 percent in 2008, according to data compiled by Bloomberg. Competitor Diageo Plc is No. 1 with 23 percent, measured in millions of cases. Global sales of Malibu, a coconut-flavored rum, have been growing more slowly than Pernod’s top 14 brands as a whole, which also include Absolut vodka and Chivas Regal whisky.
“The brand’s been struggling to connect with the consumer in the U.S. for a number of years,” said Simon Hales, an analyst at Barclays Capital in London. Innovation is “clearly what U.S. consumers are demanding at the moment.”
Distillers are focusing marketing budgets on their biggest brands to drive sales, offering seasonal varieties and unusual blends to grab consumer attention. Pernod, France’s biggest distiller, is selling a festive version of Malibu with “flakes” of coconut and collaborating with hip-hop artist Ne-Yo on Malibu Red, a rum-and-tequila concoction to go on sale in the U.S. in March.
The association could help Paris-based Pernod revive the image of the Malibu brand, according to Trevor Stirling at Sanford C. Bernstein.
Pernod shares have dropped 2 percent this year, compared with a 14 percent gain at Diageo and a 1.9 increase in the Bloomberg Europe 500 Beverages Index, amid concerns about a slowdown in Chinese cognac sales and worries about the company’s level of debt. Pernod fell 1.5 percent to 68.96 euros yesterday, giving the company a market value of 18.3 billion euros ($24.6 billion). It had 9.79 billion euros of total debt on June 30.
Malibu used to belong to Diageo, which sold the brand for about $800 million 10 years ago to gain U.S. regulatory approval to buy Seagram’s drinks unit. Pernod gained control of the brand through its $14 billion purchase of Allied Domecq Plc in 2005.
Since then, sales have stagnated, growing 2 percent in 2006 and 3 percent last year on an organic basis, lagging behind Pernod’s overall 7 percent improvement in the year ended June.
Pernod started selling Malibu Cocktails in the U.S. last year, premixed drinks in flavors including rum punch and “Caribbean cocktail.” The company added Malibu Black this year -- a stronger version of the liquor -- aimed at men.
Making Brand Fun
“The recent innovation has been very important for Malibu, and is key to driving growth again,” said Jamie Isenwater, an analyst at Deutsche Bank AG in London. “It’s making the brand fun again.”
Products such as premixed cocktails -- which come in pouches with a carrying handle and a dispenser -- can give consumers ideas about how to mix the liquor, and what with, said Ian Shackleton, an analyst at Nomura in London.
“One of the problems has always been ‘what is Malibu?’” he said. “Do most consumers know it’s a rum? It doesn’t fit easily in one category.”
Pernod will sell the rum-and-tequila blend Malibu Red at a premium to the original. A 750 milliliter bottle of Malibu costs $12.99 on Binny’s Beverage Depot website.
Singer and rapper Ne-Yo, or Shaffer Chimere Smith Jr., may help attract his fans to the brand in bars and clubs, where drinks are generally more expensive and more profitable for distillers.
Catching Club Crowd
“If you take music, particularly hip hop, it speaks to that club-going audience,” John Birnsteel, director of corporate brand strategy at FutureBrand, said. “There’s an inherent sexiness with alcohol that makes it appealing to people who have an edgy persona.”
Diageo has also collaborated with celebrities to sell alcohol, introducing cream liqueur Qream With a Q with rapper Pharrell this year. Sean “Diddy” Combs, the Grammy Award-winning singer of “Shake Ya Tailfeather” has been promoting -- and taking a share of the profits from -- Diageo’s ultra-premium Ciroc vodka since 2007.
Revenue from Ciroc, sold in more than 70 countries, soared 122 percent last year, tapping into demand for so-called super-premium vodkas. Diddy, who gets half the profit from the brand, could earn more than $100 million from the partnership, Diageo estimated in 2007. Pernod declined to say how much profit Ne-Yo will make from the Malibu Red collaboration.
“Celebrity is part of the way we can communicate our brand values,” said Martin Riley, head of marketing at Pernod. However, “it has to be something that has a credible fit. It’s not just about paying someone to say ‘I like to build this brand’ -- it’s more long term.”
There can also be pitfalls to getting a well-known personality to endorse a brand. While Diddy has used parties and television interviews to push grape-based Ciroc vodka, businesses run the risk of personal scandal creating negative associations.
“Tiger Woods was the moment where people recognized the celebrity endorsement cut both ways,” Birnsteel said. The golfer lost endorsement contracts with companies including AT&T Inc., Accenture Plc and PepsiCo Inc. after a 2009 car crash led to his admission of marital infidelity.
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