Pernod Ricard, Treasury hit by China slowdown

  • Thursday 24 October 2013

China's richest have continued to get richer in 2013, but several wine and spirits companies have warned that consumer demand for premium drinks is more sluggish than expected.

Wines on sale in China

Treasury Wine Estates
’ chairman, Paul Rayner, used the group’s annual general meeting this week to warn that demand for its wines in China is ‘softening, as a result of the leadership change and well-documented government austerity measures’.

Asia provided light relief for Treasury during its last financial year. While the board calculated the cost of destroying excess wine in the US, it sent extra supplies of Penfolds Luxury & Icon wines to China, Hong Kong and Japan.

Rayner’s comments come as the latest wealth report from Forbes magazine lists 168 US dollar billionaires in its 2013 China Rich List, up by almost 50% on 2012.

Yet, his concerns echo those voiced by other drinks companies in the past week, suggesting the Chinese government’s measures to curb officials’ spending power and cool down the national economy are damaging consumer demand more than anticipated.

In China itself, Yantai Changyu Pioneer Wine Co blamed a 26% drop in nine-month, year-to-date net profits on lower sales due to government policy changes, Reuters reported.

Pernod Ricard said China contributed significantly to a 5% drop in global net sales in the three months to the end of September, versus the same period of the previous year. Sales fell to EUR2bn (US$2.76bn).

Remy Cointreau also reported worse-than-expected half-year sales, which prompted analysts at Sanford Bernstein to note that, for Cognac at least, ‘there is little to no visibility regarding a potential recovery in China in the short-term’.

However, confidence remains relatively strong among fine wine merchants close to the situation.

‘In our view, the current picture for Chinese growth seems absolutely fine,’ Philip Staveley, director at APM Fine Wine Investment, told decanter.com. ‘The irreversible trend towards consumerism and the cultural attraction of luxury goods to wealthy people will keep the fine wine market happy for many years to come.’

‘A combination of factors, including the current administration's disapproval of ostentatious displays of wealth, has resulted in the froth being blown off the top of the market. This is a healthy development.’

Richard Sutton, managing director of Armit Wines in Hong Kong, said he agrees that the basics of supply and demand will keep fine wines strong in Asia, including China, over the medium-to-long-term. He said new investors are still coming in to the region's wine sector.

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