Exclusive: Pernod Ricard launches restructuring plan as spirits sales slide

Pernod Ricard is initiating a restructuring plan, dubbed "Tomorrow 2", to streamline operations by consolidating brands into two divisions, "Gold" and "Crystal", in response to declining spirits sales in key markets like China and the U.S. The restructuring, which includes bundling administrative tasks, is expected to result in job losses and voluntary departures, with implementation planned for late 2025; this follows Pernod's previous announcement of job cuts in China and a plan to cut 1 billion euros in costs by fiscal year 2029, mirroring similar cost-cutting measures and workforce reductions by competitors like LVMH, Diageo and Remy Cointreau amid a broader industry slowdown.

Analysis

Pernod Ricard is implementing a significant restructuring plan, "Tomorrow 2," in response to a notable downturn in spirits sales, particularly impacted by reduced consumer spending in key markets like China and the United States due to inflation and economic uncertainties, as well as adverse international trade tariffs, including steep anti-dumping duties on its Martell cognac in China. This initiative involves consolidating its diverse brand portfolio into two main divisions, "Gold" (encompassing champagne, Martell, and Jameson) and "Crystal" (including Havana Club, Absolut, and French aperitifs), and bundling administrative tasks to simplify operations, which CEO Alexandre Ricard indicated will lead to employee departures with implementation targeted for the last quarter of 2025. This strategic overhaul complements previously announced measures, such as job cuts in China and a target to achieve 1 billion euros in cost savings by its 2029 financial year. The challenges faced by Pernod Ricard, evidenced by a 3% decline in third-quarter sales reported in April and an approximate 50% drop in its share price since the beginning of 2023, mirror a broader industry trend where the post-COVID sales boom has reversed, prompting competitors like LVMH, Diageo, Remy Cointreau, and Brown-Forman to also undertake workforce reductions, cost-cutting programs, and revise ambitious sales targets. The overall sentiment surrounding this development, as indicated by signals, is strongly negative for the company and the news.

Key Decisions for Investors

• Investors should closely monitor the execution of Pernod Ricard's "Tomorrow 2" restructuring and its 1 billion euro cost-cutting program for tangible improvements in operational efficiency and profitability, given the reported 3% Q3 sales decline and strongly negative sentiment.
• The approximate 50% share price decline since early 2023 warrants careful consideration; investors should assess if this adequately prices in current headwinds or if the restructuring offers a credible path to recovery, particularly focusing on sales stabilization in China and the U.S.
• It is crucial to benchmark Pernod Ricard's strategic responses, including brand consolidation and administrative streamlining, against those of competitors like Diageo and LVMH, who are also navigating widespread industry challenges such as tariff impacts and shifting consumer demand.