Trends in global trade can hit even the strongest brands harder than expected.
It's surprising to see such a steep decline, especially with China's regulations shaking the market.
In the third financial quarter, Pernod Ricard SA $RI.SW, a leading player in the global spirits market, reported a sales decline that surpassed even the most pessimistic expectations from analysts. The drop is primarily attributed to the ban on duty-free trade for cognac in China and weakened demand in Europe due to the late Easter holiday this year.
Martell, a key brand within Pernod Ricard's cognac segment, announced a 3% decrease in organic cognac sales. This performance fell below forecasts and raised concerns across the market.
The following factors contributed to this outcome:
The introduction of a duty-free trade ban in China as of December last year, enacted under anti-dumping measures, severely limited sales avenues;
A general economic downturn in mainland China led to reduced consumer spending;
Trade tariffs imposed by Beijing on European brandies raised product prices, diminishing their competitiveness;
Price reductions in key European markets, particularly Germany and Spain, also negatively impacted sales figures.
The main factors that are exerting a long-term influence on Pernod Ricard’s financial results include:
Regulatory Restrictions in China. The Chinese authorities implemented a ban on duty-free alcohol trade, constraining the distribution channels significantly, especially for premium brands like Martell.
Economic Instability. The overall economic slowdown in mainland China directly affects consumers' ability to purchase luxury alcoholic beverages, resulting in a noticeable drop in demand.
Trade Barriers. Increased tariffs on European brandy raised the price point for consumers in China, making these products less attractive.
Shift in Consumer Preferences in Europe. The late celebration of Easter in the current financial quarter impacted traditional peaks in demand, particularly in markets like Germany and Spain.
Following the release of the quarterly report, Pernod Ricard SA’s stock fell by 1.6% in the initial minutes of trading on Thursday, reflecting worse-than-expected financial results. A notable decline in stock prices has been observed throughout 2025 — by the close of trading on Wednesday, the stock had dropped approximately 15%.
Short-term and Long-term Outlook Factors
Declining sales under external pressure highlight the need for revisiting marketing and pricing strategies;
The company must consider geopolitical risks associated with the Chinese market and seek new avenues for sales channel diversification;
Potential changes in tax and customs policies could exert additional pressure on profitability and stock prices.
The duty-free trade ban in China significantly curtailed access for Pernod Ricard brands to high-revenue consumer segments. Changes in holiday timing and shifting consumer patterns in European markets temporarily lowered sales volumes in the season. Investors and analysts expect the company to take proactive measures to recover sales, including the adaptation of product lines and focus on emerging markets.
