(News Bulletin 247) – Spirits groups are struggling on the Paris Stock Exchange after Beijing’s decision to conduct an anti-dumping investigation into liquor products from the European Union.

The spirits sector was clearly the compartment to avoid in 2023. This compartment suffered from a sudden normalization of demand, particularly in the United States, with high stocks.

And the start of the year is not looking much better for Rémy Cointeau and Pernod Ricard who have to deal with a new threat which this time comes from China, an important market for these companies. Beijing has in fact decided to conduct an anti-dumping investigation into liquor products such as brandy from the European Union, reports Bloomberg. According to a press release from the Chinese Ministry of Commerce, this investigation follows a complaint from a national liquor association.

Pernod Ricard, Rémy Cointreau, and to a lesser extent LVMH, are therefore the collateral victims of the intensification of this commercial contest between Beijing and Brussels. On the stock market, they suffered the blow after this decision. Rémy Cointreau, known for its Rémy Martin cognac, plunged 10.60%. Pernod Ricard for its part lost 5.9% while LVMH, which markets Hennessy cognac, fell by 2% on Friday around 10:45 a.m.

Beijing’s response to EU measures

Beijing’s investigation will focus on brandy-based products – such as cognac – from the European Union, of less than 200 liters, without specifying the companies concerned.

The Chinese authorities are therefore puffing out their chests after the European Union’s decision to open an investigation into Chinese subsidies granted to electric vehicles. Brussels also launched an anti-dumping investigation into biodiesel from China in December. “China is showing Europe what retaliation could look like if it imposes tariffs on Chinese electric vehicles,” Noah Barkin, senior advisor at Rhodium Group, was quoted as saying by Bloomberg.

“This measure would hit wine-producing countries like France hardest – and that’s probably no coincidence. Emmanuel Macron’s government has been the biggest supporter of the EU’s anti-subsidy investigation into imports of vehicles from China”, adds the specialist.

China is an important market for French alcohol makers. Between January and November 2023, the country imported $1.57 billion worth of spirits made from distilled grape wine, with 99% of the products coming from France, according to Chinese customs data compiled by Bloomberg.

Additional pressure for Pernod Ricard

Regarding Pernod Ricard, the title is also under pressure after a note from Stifel. The financial intermediary, still to “keep” on the file, has however significantly reduced its target price to 170 euros compared to 185 euros previously, ahead of the publication of Pernod Ricard’s half-year results on February 15.

Stifel believes that the European spirits sector continues “to lack short-term catalysts” and that sales momentum for Pernod Ricard “is likely to run out of steam in the second quarter.”

“The general environment for the spirits sector remains gloomy and our turnover revisions are more focused on Europe and Asia than on North America, where the market has already been weak for some time” , adds the financial institution.

It therefore expects sales to decline organically by 4.4% in the second quarter as well as a contraction of 0.5% in the organic current operating margin in the first half of 2023-2024 (ended at the end of December).