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China’s Thirst for European Cognac and Baby Formula Is Easing

China’s Thirst for European Cognac and Baby Formula Is Easing

(Bloomberg) -- Three of Europe’s biggest consumer-goods companies signaled a slowdown in China, whose consumers have driven global demand for everything from Cognac to shampoo.

French distiller Pernod Ricard SA said growth in China slowed to 6% in the latest three months, less than one-quarter of the year-earlier rate. Nestle SA said sales in the country were flat for the first nine months, while Unilever said business there “slowed a little” in the latest period.

Pernod Ricard shares fell as much as 3.3% in Paris, with Nestle down as much as 1.6% and Unilever little changed.

The latest updates add to questions over foreign brands’ prospects in the world’s most dynamic consumer market. China has indicated that growth this year could be the slowest on record as the country grapples with challenges ranging from the trade war with the U.S. to an outbreak of African Swine Fever. Foreign brand owners from the National Basketball Association to Christian Dior SE are wrestling with repercussions from offending political sensitivities in China, where tensions are running high as anti-Beijing protests rage in Hong Kong.

Although China hoped that domestic consumers would take up the slack and reduce the nation’s dependence on exports, signs are pointing to a pullback in spending as confidence wanes. Sales of big-ticket items such as autos and home appliances have slowed, and companies including Haier Electronics Group Co. and Henkel AG, which makes cosmetics and adhesives, have noted weaker demand in smaller purchases.

Mid-Tier Squeeze

“Weakness in China is an issue for all consumer companies amid a squeeze on mid-tier products and traditional retail channels,” said Jon Cox, an analyst at Kepler Cheuvreux.

Pernod Ricard said that some bars and restaurants that stock its liquor in China have seen softer demand, though it’s too early to tell whether weakness in the country is more widespread. The real gauge will be sales of spirits during the Chinese New Year in late January, Chief Executive Officer Alexandre Ricard said on a call.

A lot is riding on the outcome. In the third quarter, Unilever’s sales fell by 0.1% in developed markets, where consumers have been turning away from big brands and favoring smaller labels with more artisanal cachet.

For the luxury industry, including premium drinks and high-end fashions and handbags, China has been the primary engine of growth. Here signals have been mixed, with Louis Vuitton and Dom Perignon owner LVMH last week reporting unabated growth despite a slump in Hong Kong.

Nestle reported “softness” in China for categories like infant formula, which slowed to low single-digit growth. Chinese births have slumped after a short boom a few years ago on the relaxation of the one-child policy.

‘Softer Year’

“In China overall, we’re seeing a bit of a softer year here when it comes to consumer products, and that includes food and beverage,” the Swiss company’s chief executive officer, Mark Schneider, told reporters on a call.

Unilever cited increased competition for its hair-care business in China, but said it’s still getting a boost from the Omo laundry detergent brand there.

Overall sales at the country’s top 100 retailers, including e-commerce giants such as Alibaba, have been shrinking, according to data from Capital Economics. And even during China’s Golden Week holiday earlier this month, the annual bump in domestic tourism was smaller than a year earlier.

--With assistance from Rachel Chang.

To contact the reporters on this story: Eric Pfanner in London at epfanner1@bloomberg.net;Thomas Buckley in London at tbuckley25@bloomberg.net;Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

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