China Spirits Market Research — March 30, 2026 #

Research compiled for RI.PA (Pernod Ricard) tranche 2 decision. All data sourced from web searches on 2026-03-30.

1. China Spirits Import Data (2025 vs 2024) #

Brandy/Cognac Imports — Collapse #

• Volume: Down 38.57% YoY in 2025
• Value: Down 41.64% YoY — import value fell by more than US$500 million in a single year
• Cognac exports to China fell 9.6% in volume and 23.8% in value already in 2024; 2025 accelerated the decline dramatically
• Cognac is the only spirits category forecast to decline by both value and volume in Euromonitor's 2025-2026 forecasts

Whisky Imports — Surging #

• Volume: Up 22.79% YoY in 2025
• Import volume rose by 6.65 million liters (~9 million additional 750ml bottles)
• Whisky has overtaken brandy as China's largest imported spirits category — a structural shift
• China whisky market valued at $2.3B (2022), projected to triple by 2027

Overall Spirits Market #

• China spirits volume expected to decline -2.0% in 2026
• Physical goods retail growth stabilized at 3.6%, but consumer spending is shifting toward services/experiences (+12%)

Implication for RI.PA: Martell cognac faces a structural category headwind in China, not just a cyclical one. Whisky is the growth category. Pernod does own whisky brands (The Glenlivet, Jameson, Chivas Regal) but Martell cognac has historically been their China anchor.

2. Pernod Ricard China — H1 FY26 (Six months ended Dec 31, 2025) #

Headline Numbers #

China Specifically #

• China net sales: Down 28% organic (worsened from -27% in Q1 — no sequential improvement)
• China now represents ~7% of total group sales (down from historical ~10-12%)
• Martell cognac: Down 17% organic in H1; excluding China, Martell grew ~20% — the China problem is entirely Martell's China problem
• Drivers: regulatory tightening on premium on-trade channels, macroeconomic weakness, subdued consumer confidence, elevated inventory levels

Other Regions #

• India: +4%, Japan: +6%, Turkey: +27%
• Americas: -12% organic (US: -15% due to inventory reductions)
• Europe: -3%

Company Guidance #

• Reaffirmed FY26 as a "transition year"
• Expects H2 normalization from favorable Lunar New Year timing, but Jefferies cautioned H2 forecasts "look optimistic"
• Medium-term targets (FY27-29): 3-6% annual organic sales growth with margin expansion
• EUR 1B efficiency program running through FY29
• Strategic investment guidance trimmed to EUR 750M (from EUR 900M ceiling)
• Structural costs reduced by 10%

Q3 FY26 Trading Update #

• Not yet released — scheduled for April 16, 2026
• This is the next critical data point for the tranche 2 decision

Stock Price #

• EUR 59.94 as of March 26 (day of Brown-Forman M&A news)
• 52-week range: EUR 58.60 - EUR 107.45
• Current price is -18.2% below our entry at EUR 73.24
• Below book value (P/B ~0.97x)

Analyst Targets #

• Consensus: EUR 94-97 (wide range; reflects uncertainty)
• High: EUR 127-156; Low: EUR 67-85
• BofA downgraded to Neutral (PT EUR 94 from 109)
• Morgan Stanley downgraded to Underweight (PT EUR 85 from 90)
• Jefferies maintains Buy (PT EUR 110, ~83% upside)
• 9 Buy, 8 Hold, 3 Sell

3. Competitor Signals #

LVMH / Hennessy (FY2025, reported Jan 2026) #

• Wine & Spirits division: Revenue EUR 5,358M, down 5% organic (from EUR 5,862M in 2024)
• Hennessy cognac "held back by weaker local demand, mainly due to customs duties in China and the US"
• Q3/Q4 improvement trends observed — "positive developments in Chinese clientele" but cognac specifically remained weak
• No specific China revenue breakdown provided
• 2026 outlook: cautious, "environment remains uncertain"

Remy Cointreau (FY25/26, reporting through Jan 2026) #

• Cognac division: Sales down 4.3% in first 9 months, but Q3 recovered +3.2% — first positive quarter
• Asia Pacific: Down low double digits YTD, with China in double-digit decline
• Excluding Lunar New Year timing: China performance "almost stable" — helped by return of cognac to duty-free channel and strong e-commerce (Double Eleven)
• Guidance lifted (Jul 2025) after China minimum price commitment deal: impact reduced to EUR 10M (from EUR 40M)
• Now targeting mid-to-high single-digit decline in adjusted operating profit (was mid-to-high teens decline)
• China + US = 70% of their cognac business

Key signal: Remy's Q3 cognac recovery (+3.2%) and guidance lift are the most positive data points in the sector. If Pernod's Q3 FY26 (Apr 16) shows similar stabilization, that changes the picture.

Diageo (H1 FY26, six months ended Dec 31, 2025) #

• Greater China sales: Down 42.3% (volume down 50.4%)
• Chinese white spirits (Shui Jing Fang baijiu): Down 56%
• Group net sales: Down 4% to US$10.5B
• Excluding Chinese white spirits, group organic sales would have been +2%
• Revised FY26 guidance to -2 to -3% organic sales decline (was flat to slight growth)
• Diageo's China exposure is primarily baijiu (Shui Jing Fang), not cognac — different channel and customer

Key signal: Diageo's -42% in China is worse than Pernod's -28%, but it's a different product (baijiu hit hardest by anti-corruption crackdown). However, confirms the China spirits market is weak across all segments.

4. Chinese Consumer Spending & Macro #

January-February 2026 Data (NBS, released March 16) #

Consumer Trends #

• Physical goods: Retail growth stabilized at 3.6%
• Services/experiences: Surging +12% — structural shift in spending toward experiences over goods
• Spring Festival spending rebounded on extended holiday + government stimulus (vouchers, trade-in programs)
• Wearable device sales: +130%
• Officials pledged domestic demand as "strategic anchor" for 2026

GDP Outlook #

• Goldman Sachs reduced China GDP forecast to 4.7% (from higher) due to elevated energy costs from Iran conflict
• Government target for 2026 not specified in search results but likely ~5%

Key Risk #

• CNBC (Mar 16): "Imminent energy crisis caused by the US-Israel war in Iran would present challenges" — geopolitical overhang on consumer confidence

Implication for RI.PA: Macro is stabilizing but not rebounding. Consumer spending is growing but tilting toward services/tech, not luxury goods/spirits. Premium spirits are on the wrong side of this trend.

5. Baijiu vs Imported Spirits #

Market Structure #

• Baijiu dominates with >90% market share of China spirits (~$160B annual revenue)
• Total baijiu market estimated at $164.1B in 2026, growing at ~4% CAGR
• Imported spirits (all categories): ~$5-7B — a small fraction of the total market
• Ultra-premium baijiu is the fastest-growing category (4.3% CAGR)

Kweichow Moutai #

• Stock price: CNY 1,417 (Mar 27, 2026)
• TTM earnings: $25.26B
• 21 analysts: Strong Buy, avg PT CNY 1,852 (+31% upside)
• Next earnings: April 17, 2026
• Status: Undisputed premium segment leader. Even the anti-corruption crackdown affects mid-tier baijiu more than Moutai (which is consumed by ultra-wealthy, not just government officials)

Anti-Corruption Impact on Baijiu #

• ZJLD (mid-tier baijiu): Revenue plunged 48% in 2025, H2 revenue -60%, core brand sales -72%
• Net cash outflow of CNY 886M, slipped into loss in H2 2025
• Crackdown targeted "big banquets by SOEs and government bodies where expensive baijiu is consumed"
• Analysts estimate official purchases = <5% of baijiu market, but the signaling effect suppresses corporate entertainment spending too
• 42% of companies surveyed said decreased luxury spending on corporate entertainment was a direct result of new government policies

Structural Shift: Whisky Replacing Cognac #

• Whisky has overtaken brandy as China's #1 imported spirits category by volume (2025)
• Young urban Chinese consumers are driving whisky growth; cognac is perceived as older/more traditional
• This is a demographic shift, not just cyclical — harder to reverse

Implication for RI.PA: Pernod's whisky portfolio (Chivas, Glenlivet, Jameson) could offset some Martell decline, but Martell is ~35% of Pernod's China revenue historically. The cognac-to-whisky rotation is a multi-year headwind for Martell specifically.

6. EU-China Trade Tensions (Cognac/Brandy Tariffs) #

Timeline #

• Oct 2024: China imposed provisional anti-dumping deposits on EU brandy
• Jul 4, 2025: China finalized anti-dumping duties on EU brandy: 27.7% to 34.9%, in place for 5 years

Cognac Exemption via Minimum Price Commitments #

• 34 companies exempted, including Hennessy, Martell, and Remy Martin
• Exemption requires selling at or above agreed minimum prices in China
• Minimum prices: CNY 46/liter for VS to CNY 613/liter for premium XXO
• All security deposits from Oct 2024 to be returned (timing unspecified)
• BNIC called the deal "less unfavourable" than anti-dumping duties — but still worse than pre-investigation conditions
• Remy Cointreau's tariff impact reduced from EUR 40M to EUR 10M after the deal

Net Effect on Pernod #

• Martell is exempted from the 32% tariff through the minimum price commitment
• However, the minimum price floor restricts Pernod's ability to discount/promote in China
• Creates a price floor that may limit volume recovery during a demand downturn
• The broader tariff environment (including US tariffs on EU spirits) creates a dual squeeze

EU WTO Challenge #

• European Commission filed a WTO challenge against China's anti-dumping duties
• WTO disputes typically take 2-4 years to resolve — no near-term resolution expected

Implication for RI.PA: The tariff exemption is net positive vs the alternative (32% duty), but the minimum price commitment constrains Martell's ability to compete on price during weak demand. And US tariffs remain a separate headwind (15% now, 200% threatened).

7. Brown-Forman M&A (Breaking News, Mar 26, 2026) #

What Happened #

• Bloomberg reported (Mar 26) that Pernod Ricard is in talks to acquire/merge with Brown-Forman (Jack Daniel's maker)
• Both companies confirmed discussions; no deal terms agreed
• BF.B market cap: ~$12.3B; RI.PA market cap: ~EUR 15.9B ($18.3B)
• Described as potentially a "merger of equals"

Market Reaction #

• Brown-Forman: +21% intraday, closed +9.58%
• Pernod Ricard: -5.7% — market views this as value-destructive for the acquirer

Strategic Logic (Bull Case) #

• Would create a global spirits leader with enhanced scale
• Brown-Forman's US-centric portfolio (Jack Daniel's, Woodford Reserve) would reduce Pernod's China dependence
• Diversification into American whiskey — a growing category globally

Risks (Bear Case) #

• Layering a $12B+ acquisition onto an already-leveraged balance sheet (net debt/EBITDA 3.8x)
• Integration risk during a period of organic sales decline
• Could push net debt/EBITDA well above 5.0x (our EXIT trigger)
• Brown family controls 51% voting power — any deal needs their blessing
• Execution risk: Pernod is simultaneously running a EUR 1B cost-cutting program

This is the single biggest near-term variable for RI.PA. Deal outcome materially changes the risk/reward.

8. Synthesis: Red-Amber-Green Assessment for Tranche 2 #

RED (Headwinds Intensifying or Unresolved) #

1. China cognac demand: -28% organic in H1, brandy imports -38.6% by volume, -41.6% by value. No evidence of trough yet.
2. Structural category shift: Whisky has overtaken cognac as China's #1 imported spirit. Demographic-driven, not cyclical.
3. Anti-corruption crackdown: Ongoing since Q2 2025. 42% of companies cutting luxury entertainment spending. Suppresses premium spirits channels.
4. Brown-Forman M&A overhang: Unresolved. If confirmed, requires full RE-SCORE. Market views it as value-destructive.
5. US tariff escalation: 200% threat on EU spirits still live. Existing 15% tariff already a EUR 80M/yr headwind.

AMBER (Mixed Signals) #

1. Remy Q3 cognac recovery: +3.2% in Q3 (first positive quarter). If Pernod's Apr 16 Q3 update shows similar, this moves to GREEN.
2. China macro stabilizing: Jan-Feb retail sales +2.8% (beat), industrial production +6.3% (beat). But services growing, not goods.
3. Cognac tariff exemption: Minimum price commitment avoids 32% duty, but constrains pricing flexibility.
4. Consumer spending shift: Goods flat, services +12%. Premium spirits are on the wrong side of this rotation.

GREEN (Thesis Anchors Intact) #

1. Valuation: P/B 0.97x, forward P/E 9.9x, dividend yield 7.8%. Break-even growth rate only 1.3%.
2. Remy guidance lift: Reduced China tariff impact from EUR 40M to EUR 10M. Sector peer sees improvement.
3. Pernod FCF improving: +9.5% in H1, cost-cutting program on track.
4. Spring Festival spending rebound: Chinese government actively stimulating consumption.

Key Dates #

9. Bottom Line for Tranche 2 Decision #

The original GO conditions for tranche 2 remain unmet:

Recommendation: CONTINUE HOLD on tranche 2. Wait for:

1. Brown-Forman M&A resolution (days to weeks)
2. Q3 FY26 trading update (Apr 16) — the single most important data point
3. If Q3 shows China stabilization (less negative than -28%) AND no BF.B deal, tranche 2 becomes actionable

Downside scenario: If China doesn't stabilize in Q3, BF.B deal is confirmed with heavy debt, AND 200% US tariff materializes — consider whether the thesis is broken and EXIT is warranted.

Sources #

• Brandy Slumps While Whisky Rises in China's Spirits Imports — Vino Joy News
• Pernod Ricard Sales Slump Deepens in China — Vino Joy News
• Pernod Ricard holds FY26 outlook as China drop deepens — Investing.com
• China and US hinder Pernod H1 sales — The Spirits Business
• H1 FY26 Sales and Results — Pernod Ricard
• LVMH: Cognac issue remains — The Spirits Business
• LVMH 2025 Annual Results — LVMH
• Remy Cointreau sales recover in Q3 — The Spirits Business
• Remy Cointreau lifts guidance after China deal — France24
• Chinese spirits plunge 56% in Diageo H1 — The Spirits Business
• Diageo 2026 Interim Results — Diageo
• China's economy starts 2026 strongly — SCMP
• Holiday spending drives China's economic momentum — CNBC
• China's Spring Festival Spending Rebounds — Caixin
• China NBS Press Release — Jan-Feb 2026 Data
• China's Latest Anti-Corruption Crackdown Dampens ZJLD — Benzinga
• China's crackdown on banquets and booze — SCMP
• No booze, no bouquets: China tightens frugal code — China Daily
• China hits Europe's brandy exports with duties — Euronews
• China penalises EU brandy as Cognac gets exemption — The Spirits Business
• China Waives Tariffs for 34 Brandy Firms — Vino Joy News
• EU challenges Chinese tariffs on brandy at WTO — Just Drinks
• Baijiu Market 2026 Forecast — OhBev
• China spirits market — Daxue Consulting
• Cognac Market 2025 Forecast — Cognac Expert
• Brown-Forman Confirms Discussions with Pernod Ricard — Brown-Forman
• Pernod Ricard confirms discussions with Brown-Forman — Pernod Ricard
• Pernod Ricard and Brown-Forman merger talks — Beverage Daily