Pernod Ricard and Carlsberg shared some concerning news on Thursday, indicating that they aren't seeing much improvement in consumer demand in China, the world's second-largest economy. This adds to a bleak forecast for 2025 as executives deal with rising global trade tensions.
Consumer spending in China has been weak, largely due to high youth unemployment and a real estate crisis, which has raised alarms for various sectors, including luxury goods, consumer products, and clothing manufacturers over the past year.
In the latter half of 2024, Beijing introduced several stimulus measures to revive the struggling property market, but executives are not optimistic about a significant rebound.
Carlsberg's CEO, Jacob Aarup-Andersen, noted that demand in their biggest market remained low last year, leading to decreased volumes, and he expects these challenges to persist.
"We don't expect a marked change in the (Chinese) economy. That's too early to say," he told analysts on a call.
The Danish brewer projected that the Chinese beer market contracted by about 4-5% in 2024, with particularly weak sales in restaurants, bars, and other venues across China and other Asian markets.
This ongoing downturn in China complicates matters for companies worldwide as they consider the potential effects of U.S. President Donald Trump's trade policies.
He has enacted a 10% tariff on Chinese imports, threatened 25% tariffs on goods from Mexico and Canada starting March 1, and has put Europe on alert, raising concerns that a trade war could drive up inflation and negatively impact the global economy.
Aarup-Andersen mentioned that wholesalers and retailers had stocked up in anticipation of the Chinese Lunar New Year holiday, which was a positive sign. The eight-day holiday wrapped up on Tuesday.
"Let's see how sell-out goes," he said referring to consumer sales.
However, Pernod Ricard indicated that early indicators suggested a very lackluster Chinese New Year and a notable decline in gifting.
The second-largest spirits producer in the West has moved up its half-year results, revealing significant sales drops of 25% in China and 7% in the U.S. They now anticipate a slight decline in sales for the year, a shift from their earlier expectations of modest growth.
Pernod's gloomy forecast is mainly due to the Chinese duties on cognac, which were implemented by Beijing in retaliation to EU tariffs on electric vehicle imports. Additionally, the ongoing political issues in South Korea have worsened the situation, impacting Asian travel and retail.
The company is also facing potential U.S. tariffs on imports from Mexico, Canada, and the EU, which could hit a range of products, including Irish and Canadian whiskies like Jameson, as well as tequila and agave brands like Codigo 1530.
Pernod mentioned that these intense geopolitical uncertainties have compelled them to reassess their projections.
CHOPPY CHINA
Cosmetics giant L'Oreal is set to announce its results later today.
Canada Goose Holdings pointed to unstable sales in the crucial luxury market of China as a reason for its disappointing quarterly revenue, with its U.S. shares dropping 3% in early trading.
Executives from various companies, spanning from chocolate to toothpaste, have shared a pessimistic view of the business climate in China during recent earnings calls.
John Idol, CEO of Capri Holdings, which owns Michael Kors, warned of a "significant" drop in China for the financial year, also mentioning their luxury brands Versace and Jimmy Choo.
"And I don't think we see recovery on the horizon just yet," he stated during a call on Wednesday.
Colgate-Palmolive's CEO, Noel Wallace, expressed that the short to medium-term outlook for China is expected to be "difficult," following a miss on quarterly sales estimates.
While companies remain hopeful about long-term growth in China due to its rising middle class, the ongoing downturn means Carlsberg will be reallocating its resources elsewhere.
"We cannot have significant sales and marketing resources going into restaurants, bar chains, karaoke chains in Asia where there are no customers," Aarup-Andersen said.