Tariffs Take a Steep Toll on Cognac and Champagne Consumption Worldwide, LVMH Says

(Photo: Donald Traill/Invision for Hennessy/AP Images)

On Monday, French luxury giant LVMH posted a 9% sales decline in its wine-and-spirits division due to “weaker demand” in the U.S. and China. The company is responsible for household names like Hennessy cognac, Krug and Moët & Chandon champagne, all of which have found themselves front and center in the ongoing tariff wars.

LVMH’s finance chief, Cecile Cabanis, commented that President Trump’s tariffs have created a challenging environment in which the “parameters are changing every hour.” Profits from the company’s fashion and leather goods division reportedly fell 5%, while its overall revenue fell 3% to $23 billion.

Following the announcement, LVMH’s stock price tumbled far enough for Hermès to overtake it as the world’s most valuable luxury company.

Cognac has proven an especially challenging asset within the French conglomerate’s portfolio. Following a long-winded battle over electric car subsidies at the end of last year, Chinese authorities imposed a nearly 40% tariff on European brandy imports that crippled distillers across France. The move precipitated a 12% wine and spirits slump for LVMH; other companies reported losses as high as 26%. Those Chinese brandy tariffs have yet to be lifted, placing the world’s second-largest cognac consumer at a none-too-promising crossroads.

Matters have recently been made worse by trade tensions with the U.S. Last month, a tit-for-tat over steel, aluminum and American whiskey paved the way for Donald Trump to threaten a 200% tariff on champagne and other E.U.-origin alcohol products. LVMH would have been positioned to take billions, if not tens of billions of dollars in losses.

“If this Tariff is not removed immediately, the U.S. will shortly place a 200% Tariff on all WINES, CHAMPAGNES, & ALCOHOLIC PRODUCTS COMING OUT OF FRANCE AND OTHER E.U. REPRESENTED COUNTRIES,” Trump wrote on Truth Social. “This will be great for the Wine and Champagne businesses in the U.S.”

Trump’s tariff threat has since been called off. Though LVMH did report below-average alcohol sales in the U.S. last quarter, the company didn’t indicate whether the tariff drama had a direct impact on consumption.

LVMH has hinted that it might shift some of its manufacturing capacity to the U.S. in light of ongoing trade uncertainty. Though the approach may work for its fashion and cosmetics divisions, wine and spirits won’t be able to make the jump.

The vast majority of LVMH’s alcohol catalog comprises brands with a protected designation of origin. Champagnes like Moët & Chandon, Dom Pérignon and Krug can only be produced in France; scotch whisky brands like Ardberg and The Glenmorangie must be distilled in Scotland. The company’s flagship tequila, Volcan de Mi Tierra, is exclusive to Mexico. One of LVMH’s only American-made alcohol products is Beyonce’s SirDavis Rye Whisky, which doesn’t have a location restriction and is distilled in Indiana and bottled in Texas.

Nonetheless, LVMH has made attempts to move spirits production abroad — at least partially. Following Beijing’s European brandy tariff at the end of last year, the company briefly floated a plan to distill Hennessy in France and bottle it locally in China, thus avoiding import fees.

The plan, described internally as a “test,” was none too popular with employees, hundreds of whom flooded the streets in protest. The scheme was called off within a matter of days.

The conundrum pokes at the heart of high-end spirits firms worldwide. Products with a protected designation of origin tend to demand a more “luxury” and “prestigious” aura, an aura that companies like LVMH have spent decades cultivating. With tariffs flying left and right, the future of these historically and geographically significant drinks now exists in limbo.