Pernod Ricard’s half-year results for fiscal 2026 delivered the clearest signal yet of strain on the old growth model: organic net sales declined 5.9%. Reported sales fell 14.9% to €5,253 million, hit by adverse foreign exchange and perimeter effects.
When the two markets that once powered global spirits growth – America and China – lose traction simultaneously, the result is more than a cyclical dip. The United States (17% weight) declined 15%, China (7% weight) fell 28%. Together, these historically high-margin engines dragged the group down. Strip them out, and the rest of the world is merely holding the line, with growth in Japan (+6%), South Africa (+7%), Nigeria (+15%), and the Nordics (+7%). Management calls FY26 a “transition year,” pointing to H2-skewed improvement – Q2 already showed GTR rebound and India acceleration. Yet the deeper question remains: is this temporary inventory and macro noise, or a permanent reordering of power in the industry?
Ten years ago, these two markets did not just drive growth – they defined valuation multiples. Investors paid premiums for reliable volume expansion and pricing power tied to U.S. on-premise strength and China’s gifting culture. Today, that model is faltering. U.S. softness stems from subdued spirits demand and lingering inventory adjustments; China faces tightened regulations, macro weakness, and cautious trade sentiment. While sell-out gaps narrow in the U.S. and China duty-free resumed Martell sales in Q2, the synchronous pressure on two anchors signals a geographic redistribution of power. Emerging markets offer buffers – India +4% (+8% ex-Imperial Blue), broad Africa and Middle East gains – but scale and margin replacement remain unproven.
The cracks appear clearest in luxury defensiveness. Cognac, long seen as cycle-resistant with built-in pricing power, is losing that shield. Martell suffered strong decline, almost entirely due to China weakness. Perrier-Jouët, by contrast, grew 25%, driven by double-digit gains in Japan. Industry peer Rémy Cointreau reported Q3 Cognac +3.2% globally, but China remains challenging – almost stable ex-calendar effects. The mechanisms that once amplified pricing power – gifting structures, on-trade high-end channels, macro immunity – are no longer structurally reliable. This is not execution failure at one house; it is a category-wide erosion of power premium that once insulated super-premium spirits from broader demand uncertainty.
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Pricing power itself is shifting from structural tailwind to contested variable. Strategic International Brands volumes dropped 7%, with price/mix near flat or negative (Malibu -12% volumes, Havana Club -16%). The old model – volume secondary, price/mix the real engine – no longer holds. Premiumization demands market-by-market, occasion-by-occasion defense as consumers compress occasions or trade down. Yet amid the dismantling of old levers, a new power model begins to take shape: ready-to-drink (RTD) grew 12% in H1 (33% three-year CAGR). Convenience and affordable formats recruit new drinkers, reshaping growth around accessibility rather than height of premium. RTD’s scale and profitability cannot yet fully offset SIB losses, but it represents an active power migration toward everyday, frequent consumption scenes.
The industry now grapples with a shared dilemma: brand heat versus cash defense. Structure costs fell 10% under the Fit for Future model; A&P spend sat at 13% of sales (set to rise to ~16% in H2). Strategic investments normalized to ~€750 million for FY26. Portfolio reshaping delivered ~€1.5 billion in proceeds (Imperial Blue disposal accretive to margins). Free cash flow rose 9.5% to €482 million, cash conversion reached 61% (target ≥80%), and net debt improved. These moves defend margins and leverage in a volatile environment, but they carry trade-offs. Prolonged A&P restraint risks eroding desirability and innovation edge – especially if rivals increase spend to capture share.
Emerging markets serve as the ultimate stress test. India accelerated in Q2 (+4% overall, +8% ex-Imperial Blue), fueled by Jameson, Ballantine’s, Absolut, Royal Stag, Blenders Pride, and Xclamat!on launch. Yet the question is not growth alone, but simultaneous scale and margin. Regulatory volatility, complex taxes, and low-profit mainstream brands cap profitability. New markets currently hedge rather than replace the old power centers.
Pernod Ricard’s H1 FY26 marks the clearest early evidence of the post-dual-engine era. Power disperses geographically, shifts from pricing premiums to demand uncertainty, and pivots from brand-asset priority to cash resilience. Old centers erode; new ones – RTD, select emerging pockets – form. Management’s transition narrative holds short-term credibility, but the real divide lies ahead: who redefines power brands and essential occasions amid decentralization, weakened category defenses, and scene migration. Through one company’s numbers, the industry’s next rulebook is being drafted.
