Diversification by LVMH

LVMH is a publicly listed French Luxury Brand conglomerate. It operates in multiple verticals, including Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, and Watches & Jewellery.

LVMH is the world leader in champagne and cognac. The company’s Wines & Spirits division comprises approximately 13% of the total group revenues. Champagnes and Still Wines generated EUR2.0Bn in revenues in 2014 (2% annual growth) and Cognacs and Spirits generated EUR2.0Bn in revenues (-11% decline in annual revenue). This decrease in annual revenue is in spite of an increased number of bottles sold in both sub-divisions.

Key parent brands (or ‘houses’) in this division includes: Chateau D’Yquem, Dom Perignon, Ruinart, Moet & Chandon, Hennessey, Veuve Cliquot, Chateau Cheval Blanc, Glenmorangie, Krug, Mercier, Wenjun, Chandon Argentina, Chandon Brazil, Chandon China, Cloudy Bay, Belvedere and Wenjun.

LVMH Wines & Spirits has significantly expanded its geographical coverage via its international distributors since going public. Currently, the sales by geographic region in the Wines & Spirits division are: 

• U.S. – 27%
• Asia – 24% (ex. Japan)
• Europe (ex. France) – 21%
• France – 6%
• Japan – 6%
• Other markets – 16%.

Note: Other markets include a number of emerging economies, notably those in Latin America and Africa, where LVMH has pursued of strategy of setting the standard for quality and taste.  

This geographic dispersion is markedly more diverse from recorded sales in 2002: 

• U.S. and South America – 38%
• Asia – 12% (ex. Japan)
• Europe (ex. France) – 26%
• France – 12%, Japan – 10%
• Other markets – 2%.

Although South America has been reclassified into Other Markets, we can observe diversification away from older more traditional markets (France, Japan, Europe) into newer, higher growth markets, Asia (ex. Japan) and Emerging Markets. This diversification has been facilitated by development and expansion of the company’s base of distributors. LVMH’s deep portfolio of brands allows the company to exercise great influence with its distributors in new markets.

To drive growth LVMH Wines & Spirits has continued to acquire brands to bolster its portfolio, gain access to new markets and respond to shifting consumer tastes. Since the year 2000, LVMH has made four notable acquisitions: Belvedere Vodka (2002), Glenmorangie (2004), Wenjun Distillery (2007), and Clos des Lambrays, Burgundy (2014).

I think LVMH’s Wines & Spirits strategy post IPO has been very successful. The company has grown at an annualised rate of 5% from the year 2000 to date. The group is currently experiencing some downwards pressure due to de-stocking by Chinese distributors. Nonetheless, in light of the company’s century’s long history I think developing a diversified global footprint is a winning strategy for sustained long term growth.