China is stepping up its efforts against corruption

China is stepping up its efforts against corruption

Pernod Ricard and Remy Cointreau's sales in China are at risk of getting “caught in the crossfire” over a wider crackdown on corruption, according to an analyst. 

A new anti-corruption programme has been launched in China since Xi Jinping took over as head of the Communist Party last November. The country's Central Military Commission has already issued a ban on liquor and luxury banquets at receptions for high-ranking officers and the clampdown is expected to be ramped up this year. 

In a note today (8 February), Deutsche Bank said that imported spirits are unlikely to be targeted specifically in a crackdown but they “will get caught in the crossfire of reduced entertainment and less gift-giving more generally”. “If there is an impact, not only will volume growth decelerate but mix will shift negative, pricing will struggle and there could be destocking too,” the note said.

It added: “Investors appear to be very relaxed about downside risks to the premium spirits market, which seems at odds with the power and determination of the Chinese Government. Whilst we are convinced that Cognac and Scotch are not being targeted specifically, we struggle to see how they can avoid being impacted.”

Deutsche downgraded both Remy and Pernod to a "sell".

According to Deutsche estimates, Remy is most exposed in China with the country accounting for around 40% of group sales. For Pernod, China makes up around 10% of group sales, Deutsche said.