Remy Cointreau’s first quarter sales dipped 9% due to an anti-corruption crackdown in China. Diageo, LVMH, and Prada have suffered similar problems.
Source: Remy Cointreau sales fall on China corruption crackdown – Business Insider
A surprising number of luxury brands depended on bribery in China to generate their revenues
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Rémy Cointreau, the French high-end spirits group behind Rémy Martin cognac and Mount Gay rum, put out some disappointing numbers on Tuesday.
Sales dived by 9% in first quarter of its financial year, largely due to one big problem: A crackdown on corruption in China, which has led to plummeting sales in China for luxury brands and premium spirit makers.
Western whiskeys and luxury handbags had become a currency of influence in the world’s biggest Communist republic. But for the past two years, China’s President Xi Jinping has been cracking down on corruption in Chinese government and business, and a big part of that has been stopping the bribery of officials.
- This time last year Diageo, which makes Smirnoff and Johnnie Walker, took a £264 million ($411.5 million) sales hit in China, blaming the crackdown for a collapse in its version of Chinese white spirit baijiu.
- Earlier this year Prada blamed the crackdown for its first fall in profits in four years, which dropped by a whopping 28%.
- Luxury group LVMH, which owns Hennessy cognac, revealed a fall in spirit sales in the first quarter because of China.
- The luxury car market has taken a hit.
- And exports of Swiss watches to China have also collapsed.
Shock waves from the anti-corruption crackdown are even being felt in the funeral business — Bloomberg reported last year that funeral arrangers were suffering a slowdown in business because government officials had stopped lavish spending on burials.
In fact, Rémy Cointreau’s figures aren’t that bad when you look at them in context. In April last year the company was forced to reduce full-year profit forecasts by 40% because of the collapse in Chinese sales.
Like most of the companies caught up in the anti-corruption crackdown, Rémy Cointreau is now taking evasive action to account for the slump. At the start of the year it launched a new “Strategic plan” to focus on ultra-premium brands pitched at billionaires to make up for slumping Chinese sales.
The refocusing has at least helped Rémy Cointreau grow revenue by 3.9% to €223.3 million (£155.4 million, $242.2 million) even if sales are falling.