Pernod Ricard's Restructuring: Can Strategic Reorganization Revive Slumping Spirits Sales?

Pernod Ricard, the French spirits giant behind brands like Martell Cognac and Absolut Vodka, is undergoing a dramatic overhaul. The company's “Tomorrow 2” restructuring plan—grouping its portfolio into Gold (premium brands) and Crystal (mass-market and aperitif brands)—aims to cut costs, streamline operations, and counter declining sales. But with global spirits demand weakening and macroeconomic headwinds intensifying, the question remains: Is this restructuring a lifeline or a sign of deeper structural challenges?

The Restructuring Playbook: Gold vs. Crystal

Pernod Ricard's divisional split reflects a strategic pivot to prioritize profitability over scale. The Gold division, including premium brands like Mumm Champagne and Jameson Whiskey, targets affluent consumers in high-growth markets. The Crystal division, encompassing Absolut and French aperitifs, focuses on volume-driven sales. This bifurcation aims to reduce operational redundancies and sharpen brand management.

The restructuring also entails job cuts, particularly in administrative roles, as the company consolidates functions across divisions. While the exact number of layoffs remains undisclosed, the move aligns with industry-wide austerity: LVMH's Moët Hennessy cut 13% of its workforce, Brown-Forman shed 12%, and Diageo is targeting £500 million in savings. These moves suggest that cost discipline is now a survival tactic for spirits firms.

Investors have punished Pernod Ricard's shares, which have fallen ~50% since early 2023, outperforming neither Diageo nor Brown-Forman. The decline underscores skepticism about its ability to navigate declining sales and rising costs.

Headwinds: China's Downturn and Tariff Risks

Pernod Ricard's struggles are not just structural—they are geographically concentrated. In China, sales of its flagship Cognac brand, Martell, plummeted 22% year-to-date in 2025 due to anti-dumping duties and shifting consumer preferences. The U.S. market also faces softness, with spending on premium spirits lagging.

Adding to these woes, potential tariffs on Cognac exports threaten to further erode margins. The company's €1 billion cost-savings target by 2029—meant to offset these pressures—depends on execution. If savings materialize, operating margins could stabilize. But if sales continue to slide, the restructuring may prove insufficient.

Brand Portfolio: Strength in Premiums, Weakness in Volumes

Pernod Ricard's premium brands—Jameson, Absolut, and Mumm—remain growth engines. Jameson, for instance, has thrived as Irish whiskey gains popularity, while Absolut's versatility in cocktails keeps it relevant. However, Crystal division brands like Havana Club and French aperitifs face stiffer competition and price sensitivity.

The key risk is over-reliance on premium categories. If China's luxury market remains depressed or U.S. consumers shift toward lower-priced alternatives, the Gold division's growth could stall. Meanwhile, Crystal's volume plays may struggle without cost efficiencies.

Investment Implications: Wait for Clarity, but Watch the Earnings

The restructuring's success hinges on two metrics: margin expansion and sales stabilization. Investors should closely monitor Pernod Ricard's Q4 FY25 results (due August 27, 2025) for clues. A rebound in China's sales or a significant reduction in administrative costs could reassure markets.

However, the stock's valuation (trading at ~15x forward EV/EBITDA vs. Diageo's 18x) reflects skepticism. Bulls might argue it's a bargain if restructuring delivers, while bears see it as a warning of prolonged underperformance.

Actionable Insight:
- Hold or Buy if FY25 results show margin improvements and China sales stabilize.
- Avoid if the company misses targets or tariffs escalate.
- Watch peers: If Diageo or Brown-Forman report weaker-than-expected results, it could signal broader sector malaise, further pressuring Pernod Ricard.

Conclusion: A High-Stakes Gamble

Pernod Ricard's restructuring is both a response to market realities and a gamble on its premium brands' staying power. The moves could position the company to rebound—if executed flawlessly—but they also highlight the fragility of a sector facing trade wars, shifting consumption, and cost inflation. Investors must weigh whether the stock's current discount compensates for execution risks. The August earnings report will be the first test of whether this restructuring is a lifeline or a last resort.

Final Note: Monitor Pernod Ricard's FY25 results on August 27 and China's spirits market recovery closely. For conservative investors, consider pairing exposure with long-dated puts to hedge downside risk.