Pernod Ricard Forecasts Slower China Growth on Weak Economy

Pernod Ricard SA, France’s biggest distiller, forecast weaker growth in China as slower economic growth weighs on demand and the government’s austerity campaign affects spending on entertainment.

The maker of Martell Cognac and G.H. Mumm champagne expects “high single-digit” growth in China in the financial year ending next month, Pierre Coppere, head of Pernod’s Asian unit, told investors in Beijing today, less than the prior year’s 24 percent gain. In the medium-term, the company forecasts a “high single digit, low double-digit” increase, he said.

Distillers including Paris-based Pernod and Remy Cointreau SA are counting on emerging markets to drive sales as a credit crisis crimps consumer spending in Europe. Pernod posted third-quarter revenue that missed estimates on April 25 as consumers in developing markets kept spending in check.

A tougher economic climate in China and President Xi Jinping’s crackdown on extravagant gift-giving and banquets by government officials have weighed on sales in the nation, Gilles Bogaert, Pernod’s chief financial officer, told investors last month. To rekindle growth in its second-largest market, the company is targeting new consumers such as female drinkers and trying to convert beer drinkers to its liquors.

“We can’t say we are immune to the fluctuation in the economy for sure,” Chief Executive Officer Pierre Pringuet said in an interview in Beijing today. “There is a slowdown in China because there is a slowdown in most parts of the world, particularly in Europe.”

‘Soft Landing’

Pernod shares were little changed at 95.40 euros as of 1:15 p.m. in Paris trading, missing out on a broader market advance.

Growing domestic demand in China will limit the impact of a slowing economy, Pringuet said today. The nation will likely experience a “soft landing” and rebound quickly, he said.

The world’s second-largest economy grew 7.7 percent, more slowly than expected, in the first quarter. Economists at Royal Bank of Scotland Group Plc and Goldman Sachs Group Inc. are among those that have cut estimates for China since April 19.

Growth in the Asian cognac market has decelerated in 2013, Philippe Guettat, head of the company’s Martell Mumm Perrier-Jouet business, said today. The market is likely to grow at a low single-digit pace this year by volume, with the slowdown being more evident in premium brands, Guettat predicted. In China, where the brand is expanding its presence in northern and western regions, net sales growth will be in the mid-teens, he said.

Marketing Programs

Pernod is expanding its marketing programs in China to target high net-worth individuals through invitation-only lifestyle clubs and a VIP customer relationship team.

The distiller is also considering options such as a China-only spirit for the market in future, Thierry Billot, managing director of its brands unit, said in an interview today.

“There seems to be some expectation for something else other than baijiu for the young generation,” Billot said, declining to provide more details. “Part of it could be fed by international brands, and part of it could be fed by new Chinese products.”

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