Chapter 3

Pricing Power

Pernod Ricard's moat shows up where it should: gross margin held near 60% through a two-year sales decline, evidence that the group is not cutting shelf prices to defend volume [1]. What has broken is the premiumisation engine that drove the boom: group price/mix swung from +9% in FY2023 to negative in FY2025 [2]. Whether that reversal is discounting or geographic mix is the hinge of the EBITDA recovery the cash case (Cash and the Dividend) assumes.

The engine that drove the boom

Premiumisation is not a slogan here; it is an industry trend the group has ridden for a decade. Premium-and-above spirits have grown roughly 6.8% a year for ten years, and 8.5% a year in the super-premium tier — faster than the category as a whole [3]. Pernod's model is to price its brands into that mix and let the average bottle carry more value each year; management calls maximising pricing power "a priority in our premiumisation strategy" [4].

FY2023 was the proof. Organic price/mix reached +9%, of which +8% was pure pricing, and the group still grew volume +1% [5]. Raising list prices by high single digits without shedding volume is the signature of genuine pricing power. It carried the recurring operating margin to a record 28.3% that year [6].

Source: FY2023 Sales & Results, highlights [7].

Where the gross margin held

Through the reset that followed, the product-level moat did what a moat should: it held. Gross margin was 60.5% in FY2022, 59.7% in FY2023, 60.1% in FY2024 and 59.5% in FY2025 — a band roughly one point wide across a period in which net sales fell from their peak [8]. A company discounting to keep volume on the shelf would show that stress in gross margin first. Pernod does not.

Source: FY2025 Sales & Results, Profit from Recurring Operations bridge [9]; FY2022 URD [10].

The compression the reset did cause sits one line lower. Recurring operating margin fell from 28.3% to 26.9% — about 140 basis points — because advertising and structure costs did not fall as fast as sales [11]. That is operating deleverage on lower volume, not a lost pricing battle. The distinction matters: deleverage reverses if volume returns; a broken price line does not.

The price/mix reversal

The part of the moat that did break is the growth algorithm. On the Strategic International Brands — the thirteen names that carry roughly half the group's volume — price/mix contribution ran +4pts in FY2021, +3pts in FY2022 and a remarkable +11pts in FY2023, then decelerated to +2pts in FY2024 and turned to −5pts in FY2025 [12]. The premiumisation flywheel — more value per bottle, every year — stopped and reversed.

Source: Pernod Ricard Sales & Results releases FY2020–FY2025, Strategic International Brands tables [13]; [14].

A negative price/mix number is the fact both a bull and a bear point to. It carries two very different meanings, and separating them is the whole question.

Discounting or mix

The bull reading is that the negative number is mix, not price — the arithmetic of a changing geographic and portfolio blend rather than lower prices on the same bottle. Three pieces of evidence support it. First, gross margin held near 60%, which a genuine round of discounting would not allow [15]. Second, the group's highest-price-per-case brand collapsed: Martell cognac fell −20% in FY2025, and China — where that cognac is sold at premium prices — was down 21% on weak consumer sentiment [16] [17]. When the priciest bottles fall fastest, the average bottle gets cheaper even if no single price is cut. Third, management frames the whole episode as "the normalisation of the spirits market" after the inflation-era surge, not as a loss of brand pricing power [18].

The bear reading is that the moat is genuinely thinning, and there is evidence for that too. In H1 FY2025 the group attributed a softer gross margin partly to increased promotions alongside adverse mix — promotional spending is discounting by another name [19]. And by H1 FY2026 the negative price/mix was broad, not confined to cognac and China: Absolut −3pts, Jameson −5pts, Ballantine's −5pts, Martell −9pts [20]. Same-brand negative price/mix across the core portfolio is harder to wave off as geography.

Source: H1 FY2026 Sales & Results, Strategic International Brands table [21].

The gross margin the moat had protected finally moved in H1 FY2026, falling from 61.1% to 59.3% [22]. But the composition matters: the company attributes roughly a third of the organic decline to new US and China tariffs — a policy cost bolted onto the cost line, not a demand verdict — with the price-and-mix effect itself a smaller piece and the rest weaker fixed-cost absorption on low volume [23]. Tariffs are real and may persist, but they are a different risk from consumers refusing the price.

The read

The weight of the evidence is that Pernod's list-price power is intact and its premiumisation growth rate is impaired. The gross margin is the tell: three years of near-60% gross margin through a falling top line is not the fingerprint of a brand losing its ability to charge [24]. What the group has lost, for now, is the annual +3-to-+11-point price/mix tailwind that made the boom, dragged down by the collapse of its highest-value pockets — Chinese cognac above all — and layered with a genuine step-up in promotional intensity across the core brands.

The strongest fact against this read is that same-brand price/mix went negative across Absolut, Jameson and Ballantine's in H1 FY2026 — weakness that geography alone does not explain, and a signal that some real discounting has entered the core [25]. What would change the read: sustained gross-margin erosion below the ~59% floor for reasons other than tariffs, or price/mix that stays negative once China cognac and the US destock lap out of the comparison. Those two lines — group gross margin ex-tariffs, and Strategic International Brands price/mix — are where the cyclical-versus-structural question will actually be settled.