Cocktail of Trouble for Liquor Makers Diageo, Rémy Cointreau and LVMH
China Sales Still on the Slide with U.S., European Markets Patchy
A cocktail of troubles has set back sales growth at Europe’s biggest liquor makers, with sales still on the slide in China and growth patchy in the U.S. and Europe. Executives warned there may be no quick recovery.
Diageo DGE.LN -0.23% PLC, the world’s largest liquor maker, and Rémy Cointreau SA, RCO.FR -1.68% a major cognac supplier, reported declines in revenue in the three months to end-September on Thursday. Luxury goods group LVMH MC.FR -1.40% Moët Hennessy Louis Vuitton reported a slide in its sales of wines and spirits on Tuesday.
Further falls in demand in China—reflecting the impact of Beijing’s anticorruption crackdown which has curbed the habit of offering champagne, cognac, and whiskey as business gifts—remain a problem.
“[Chinese] consumers are in a wait-and-see mode,” said Rémy Cointreau Chief Financial Officer Luca Marotta. “Confidence is still fragile,” Mr. Marotta said, speaking to investment analysts.
France’s Rémy Cointreau, whose third-quarter revenue fell 13%, depends for the bulk of its revenue and profit on its flagship Rémy Martin cognac and has been among the hardest hit by the slump in Chinese demand.
At U.K.-based Diageo, slight growth in its North American business was too feeble to offset the 7.4% fall in organic sales—a measure that strips out the impact of acquisitions—at its Asian-Pacific business, with sales in mainland China down 20%. Sales declined 1.4% in Europe.
The maker of Johnnie Walker whiskey and Smirnoff vodka said overall sales fell 1.5% in its fiscal first quarter compared with a rise of 3% in the year-earlier period. The company doesn’t provide full revenue figures.
As growth slowed to a standstill in North America, Diageo said its high-end brands, such as Johnnie Walker Blue Label and Tanqueray gin, continued to sell strongly but sales of “mainstream” brands remained under pressure.
“In North America, consumer demand for mainstream brands is still constrained by weak consumer confidence in average income households,” said Chief Executive Ivan Menezes.
Consumer confidence fell in Russia and Eastern Europe as a result of uncertainty arising from events in Ukraine, Diageo said.
LVMH said on Tuesday that revenue at its wine and spirits unit, which includes champagne and cognac brands, fell 8.1%, due to a drop in cognac sales in China, where wholesalers continued to sell down stock without ordering fresh supplies. LVMH said destocking is likely to continue throughout the end of the year in China.
Drinks makers will again put all their hopes on the Lunar Year celebrations early next year to bring back the sales boost to China they have been hoping for, said Rémy Cointreau’s Mr. Marotta.
Rémy Cointreau, which also noted the “complex macroeconomic environment in western Europe,” said third-quarter revenue fell to €257 million ($330 million) from €294.4 million.
French rival Pernod-Ricard SA, whose sales in China have also been under pressure, is scheduled to report sales next week.