Pernod Ricard Faces a Slowdown: Causes, Impacts, and Adaptation Strategies

Since the beginning of fiscal year 2024/2025, Pernod Ricard, a global leader in spirits, has been experiencing a significant decline in revenue despite an increase in sales volumes. This paradoxical situation is explained by several factors, including declining sales in the Chinese and U.S. markets, an unfavorable macroeconomic and geopolitical context, and increasing pressure on operating margins.

Causes of the Decline in Activity

1. Declining Sales in China and the United States

China: The Chinese market, once a key growth driver for Pernod Ricard, has seen a significant downturn. Sales dropped by 25% in the first half of 2024/2025. This decline is attributed to a difficult macroeconomic environment and weakened consumer demand. Additionally, the introduction of anti-dumping measures by the Chinese government in December 2024 suspended the duty-free regime for cognac, severely impacting sales of the Martell brand.

United States: In the U.S., sales declined by 7% over the same period. While the overall spirits market recorded growth of around 1%, Pernod Ricard's brands experienced a 6% drop in consumer sales. This situation is due to post-pandemic market normalization and inventory adjustments by retailers and wholesalers, exacerbated by high interest rates.

2. Macroeconomic and Geopolitical Context

Tariffs and Trade Tensions: Trade tensions between China and the European Union have led to the imposition of tariffs on European brandy imports to China, directly affecting Pernod Ricard’s cognac sales. Simultaneously, the potential for new U.S. tariffs on European products, such as Jameson Irish whiskey, adds further uncertainty for the company.

Currency Fluctuations: Adverse currency movements, particularly with the Argentine peso, Turkish lira, and Nigerian naira, negatively impacted the company’s reported revenue by €177 million in the first half of 2024/2025.

Consequences for the Company

1. Financial Impact

Pernod Ricard's revenue for the first half of 2024/2025 reached €6.176 billion, reflecting an organic decline of 4% and a reported decrease of 6%. This contraction is primarily due to poor performance in China and the United States.

Current operating profit (COP) also decreased by 2% organically and 7% in reported terms, reaching €1.985 billion. This decline was partly offset by a 65-basis-point increase in operating margin, driven by revenue growth management initiatives and strict cost control.

2. Revised Outlook

In response to current challenges, Pernod Ricard revised its forecast for fiscal 2024/2025, now anticipating a "low single-digit" organic decline in revenue, compared to a previous expectation of growth. Additionally, its long-term growth targets for 2027-2029 have been adjusted to a range of 3% to 6%, down from the previous 4% to 7%.

Corrective Measures Implemented

1. Cost Optimization and Efficiency Gains

Pernod Ricard has implemented operational efficiency initiatives totaling €900 million since fiscal year 2022/2023, contributing to improved operating margin. The company plans to continue these efforts, targeting approximately €1 billion in additional savings between 2025/2026 and 2028/2029.

2. Reallocation of Marketing Investments

In response to unfavorable market conditions, particularly in China, the company adjusted its advertising and promotional expenses, maintaining them at around 14% of revenue. This agile approach allows for resource allocation to the most promising markets and segments.

3. Geographic and Strategic Diversification

Pernod Ricard is intensifying efforts in high-growth markets such as India, where sales rose by 6% in the first half of 2024/2025, driven by strong demand and increased premiumization. Additionally, the company is exploring new growth avenues by investing in emerging segments and adapting its brand portfolio to evolving consumer preferences.

4. Proactive Risk Management Related to Tariffs

To mitigate the potential impact of tariff increases, particularly in the United States, Pernod Ricard is considering adjustments to its supply chain and pricing strategies. While these measures cannot completely eliminate negative effects, they aim to significantly reduce their impact.

Conclusion

Facing an unfavorable environment marked by macroeconomic and geopolitical challenges, Pernod Ricard is deploying a series of strategic measures to stabilize its business and prepare for sustainable long-term growth. The company’s focus on operational efficiency, market diversification, and proactive risk management demonstrates its resilience in the face of current market turbulence.

Additionally, recent stock market trends reflect investor concerns. Over the past few months, Pernod Ricard’s share price has underperformed due to declining revenue forecasts and uncertainties surrounding trade tariffs, particularly in China. This downward pressure on the stock suggests that investors remain cautious about the group’s ability to reverse its current sales trajectory. However, if Pernod Ricard successfully executes its efficiency plans and leverages emerging market growth, the stock may see a potential rebound in the coming quarters.