Remy Martin in low spirits as crackdown drains brandy sales

France's second-biggest distiller Remy Martin can no longer count on the Chinese New Year, usually the best time of the year for a sales boost, for a bonanza this Spring Festival because of the government's crackdown on extravagant spending.

Sales of the Paris-based company were down in the first three quarters by more than 12 percent to 845.7 million euros ($1.15 billion) from 964.5 million euros over the same period in the previous year because of the "unfavorable situation" for spirits in China, the company said on Tuesday in a statement.

"The campaign to promote morality in China is expected to continue to adversely affect the consumption of ultra-premium products. No significant recovery can be expected because of the Chinese New Year," the statement said. The Chinese New Year, known as the Spring Festival, is a key point for giving expensive gifts and high-end liquor. It begins on Jan 31 this year.

A further significant slowdown in sales over the previous two quarters was recorded in the third quarter, primarily in the Chinese market, while the brand continued to deliver good results in the United States, Russia, Japan and Africa.

From January to September, the company's most profitable brand, Remy Martin brandy, declined 21 percent at 465.9 million euros. But its liquors and spirits improved sales by 3.2 percent to 188.5 million euros, a reflection of the healthy performance of the division's brands.

Chief Executive Officer Frederic Pflanz said in November that annual earnings could fall 20 percent or possibly more.

The liquor is not only the target of the government's mounting campaign against corruption and extravagance: High-end wines and Chinese white liquor are also on the list.

Alessio Vaccari, chief executive officer of Beijing Casalaccio International Trade Co Ltd, which imports high-end wines and olive oil from Italy, said his company, which used to have lots of orders from State-owned companies and local governments, is now suffering profit losses because of the government's campaign on luxury spending.

"The old glory days have long gone when people with a budget for purchasing didn't care about the prices and only wanted the best wines," he said. "Now, the wine market is tough, and we have to be very competitive in a sector that is already very segmented with lots of foreign brands."

Chinese liquor producer Sichuan Swellfun Co Ltd also reported on Monday that it expects a net loss of 124 million yuan ($20.5 million) to 160 million yuan last year, the first time it has suffered no profit in a decade.

The Sichuan-based company, controlled by Diageo Highland Holding BV with nearly 40 percent of its shares, suffered a heavy blow amid falling sales of high-end liquor, used for lavish Chinese banquets and gift-giving.

Diageo Highland is the world's largest spirit manufacturer in the United Kingdom.

The company said the sharp decline was mainly caused by the significant slide in sales income in the liquor industry, higher promotional spending and returned inventories.