Diageo, Pernod Ricard to cut jobs

Diageo and Pernod Ricard, the world’s top two liquor companies, are cutting their workforces in Korea due to declining whiskey sales, their Korean branches said Wednesday.

Last week, Diageo Korea said it will provide an early retirement program for all managers and executives in a move to cut costs amid slowing sales, a spokesman for the U.K.-based company said by telephone.

“We are receiving applications from those who choose to retire early with some compensation for two weeks through this Friday,” the spokesman said. “Whiskey once reached 80 percent of (Diageo’s) overall sales. It stands at 70 percent and is expected to wane further.”

Diageo had 40 employees leave the company in 2009 under the same program to survive a slump following the 2008 financial crisis was put in place, he said.

Pernod Ricard, a Paris-based liquor company, is planning to provide the early-retirement plan for all of its employees late next month amidst a long-running slowdown in the whiskey market. A total 27 employees left Pernod Ricard under the program in 2009, according to a company spokesman.

“After May 16, we will provide the details of compensations planned for those who apply to leave the company early,” Pernod Ricard spokesman Yoo Ho-sung said by phone.

Currently, the 350-strong Diageo and the 270-member Pernod Ricard are the two biggest players in the Korean whiskey market. The former takes up 40 percent of the local whiskey market and the latter 32 percent, the companies said.

In Korea, whiskey was preferred for business meetings for decades until the mid-2000s. The strong liquor was also preferred over soju as a good mate of beer to make a “bomb shot” during dinner meetings.

But now soju and beer is the most widely accepted combination for after-work meetings. Soju is Korea’s traditional distilled liquor.

The soju and beer markets reached 4 trillion won in Korea, Asia’s fourth-biggest economy, according to KDB Daewoo Securities.

“Liquor consumption by female consumers is on the rise as they are a growing workforce. They prefer less strong liquor such as beer and wine,” said KDB Daewoo analyst Baek Woon-mok.

“As consumers increasingly care about their health, whiskey sales are not likely to make a rebound.”

Wine imports from countries that signed free trade pacts with Korea nearly quadrupled to $172 million in 2013 from $46 million in 2003. Whiskey imports fell to $185 million from $250 million during the same period, according to the Korea Customs Service.

The analyst said high prices of whiskey remain a major obstacle which keeps consumers away from the strong liquor. No doubt, weaker sales of whiskey resulted in poor performance in the past three years.

Diageo Korea shifted to a net loss of 39.66 billion won in the 2012 fiscal year that ended in June 2012 from a net profit of 104.12 billion won a year earlier.

The liquor behemoth turned around in the 2013 fiscal year but its net income stood at 56.64 billion won on lower demand for whiskey, showed data from the Financial Supervisory Service (FSS).

Pernod Ricard’s earnings didn’t advance in the past three years. Its net profit fell to 26.84 billion won in the 2013 fiscal year from 27.80 billion won two years earlier, according to FSS data.

To promote whiskey consumption, Pernod Ricard is seeking to create a drinking culture in which consumers don’t guzzle whiskey but savor it instead.

Diageo is promoting a “food-matching” program in which whiskey is served with a variety of foods, the companies said.

Still, “Despite their promotions, whiskey will be reduced to an option for consumers in the long term,” Chung Hye-seung at HMC Investment Securities said. By Choi Kyong-ae The korea times