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Derivatives are not suitable for all investors and involve the risk of losing more than the amount originally deposited and any profits you might have made. This is not a recommendation to offer to buy, sell or retain any specific investment or service. The opening ceremony for the Olympics last year was truly a spectacle. Lady Gaga performed. Athletes from around the world floated in on the scent.
A headless Marie Antoinette sang with a heavy metal band. But for the FT's Paris correspondent, Adrienne Claassa, who watched with some of our colleagues, there was one part of this pageantry that really stood out to her.
They had this really long sequence that featured Louis Vuitton trunks, like big person-sized almost trunks. And they had this dancing sequence that went on for at least a couple of minutes. Taking in the ceremony, you see dancers sashay and twirl around brown leather luggage in the middle of the street. For Adrienne, seeing this scene felt indicative of something that became much more noticeable as the games went on.
The Paris Olympics were, you know, very much supposed to be about Paris and the city. But in some ways, it felt like the LVMH Olympics. LVMH is Louis Vuitton, Moet Hennessy. It is the world's biggest luxury group. And it was one of the biggest sponsors of the Paris Olympics. And they were everywhere. Walking around Paris, LVMH's brands were entwined with this massive celebration.
To the average person, it probably looked like the good times were rolling for the company, including their wine and spirits division, Moet Hennessy. If you went to any of the bars, especially the VIP bars anywhere in the games, all of it was supplied by Moet Hennessy. Champagne, cognac, you name it, it was all coming from this business and from this group. But Adrienne tells me that seeing this wasn't the full story.
Behind the scenes, it was a much more somber moment for the luxury industry more generally, but also certain businesses within sort of the LVMH empire, notably Moet Hennessy, had actually been really struggling. At the time, Moet Hennessy was the worst performing arm of LVMH in terms of sales growth, a trend that continued after the Olympics ended.
So now Moe Hedese is in a situation where there's a lot of pressure to turn around this business. And the big question is, of course, you know, how did they get there? Partially it was the market, but what my reporting indicated was also there were some strategic mistakes that were made internally that essentially compounded the whole situation and made things worse. I'm Michaela Tendera from the Financial Times.
Today on Behind the Money, an inside look at the trouble at LVMH's Moet Hennessy and what it means for the future of one of Europe's largest companies. In the 1980s, renowned wine and spirits business Moet Hennessy joined with the luggage and handbag brand Louis Vuitton. Together, they formed the conglomerate LVMH. Moet Hennessy today includes a whole slew of notable brands.
So they own Moet, the champagne. They own Kennessy, the cognac. It's in the name. But they also own other champagne brands like Dom Perignon, like Veuve Clicquot, like Krug, which is extremely high end. And then other sort of hard alcohol brands like Belvedere Vodka.
Depending on the item, a bottle of something from Moet Hennessy can range in price from $50 or $60 to several thousand. So it's very important to the identity of Moet.
this luxury empire that is controlled by the family of billionaire Bernard Arnault, who's a big character in France and is also often cited as one of the world's richest men. But Moët Hennessy's importance to LVMH and Bernard Arnault is about more than just identity.
The important thing to know about LVMH is that it was built by Bernard Arnault through acquisitions. So he bought all of these companies and he brought them together and created, you know, one of the biggest companies in Europe now. What Adrian's talking about here are all these major luxury fashion and leather goods brands like Dior, Bulgari, Fendi, Loro Piana. The list goes on and on.
And he used a lot of the cash that was generated by the Moet Hennessy business to do acquisitions. So it was a very important part of the way that essentially this empire was built. So in short, Moet Hennessy served as the cash cow that fueled buying other companies. And this was possible for a few reasons. ♪
In fashion and luxury, we talk about something that's called fashion risk, which is, you know, if your brand is suddenly uncool, then all of a sudden your sales drop, which can happen in the alcohol industry, but it's a lot less volatile in some ways than it can be in fashion, which is very seasonable and very, very changeable.
Adrian says that sales of wine and spirits don't really experience the cycles that the fashion world does. And when they do go through volatility, it tends to happen at different times. Plus, these kinds of businesses also tend to have high margins. So for a long time, these two parts of LVMH, the alcohol and the fashion, complemented each other really well.
And then about five years ago, both sides of the business experienced a significant boost. So during the pandemic, somewhat counterintuitively, after markets completely shut down in sort of early 2020, there was actually a huge boom in luxury goods, including in the alcohol industry. And that was because
Essentially, people were sat at home with extra savings, with furlough checks, and they were shopping and they were shopping online and they were shopping to buy premium booze, essentially to mix cocktails at home. And so that led to absolutely explosive growth for Moet Hennessy. Now, it was always clear that at some point, these double digit levels of growth from the COVID era weren't going to go on forever.
And when that was becoming a reality was around the time that Adrienne started her job as the FT's Paris correspondent in 2023. And in this job, she became responsible for covering all kinds of luxury businesses that are based in Europe. Not only LVMH, but also Kering, Richemont and Hermes.
Yeah, so that was kind of the tail end of the luxury boom. And it was sort of a moment where I start the job and people are already asking the question, OK, how long can this keep going if this kind of explosive growth can be sustainable? And then within a few quarters, it becomes quite clear that it will not continue at that level at all. The slowdown in luxury comes at a time when another problem is bubbling up to the surface for the alcohol industry.
There are a couple different things happening at the same time, as is often the case in life. I mean, there is one sort of long-term demographic shift, and this is not new. This has been going on for decades, which is basically that people are increasingly drinking less. So this is gathering pace, and the entire industry is having to adapt to that. These factors combined—people consuming less alcohol, people buying fewer luxury goods—
There's also a drop in spending among consumers in China since COVID. So for a company like Moet Hennessy, it seems rough times are on the horizon. And then at some point, I started to receive information from various sources that indicated to me that
Yes, they were contending with the sort of same pressures and trends that the entire industry was contending with. But also there appeared to be some internal problems that were really compounding the impact on performance there. And what did you learn?
Basically through sort of, you know, conversations with many different sources who know about this business and also sort of internal documents that I was able to examine about Moe Hennessy's performance because LVMH does not disclose all of this stuff publicly.
It became apparent that the business had deteriorated a lot and had gone from being sort of a cash generator, which it had been for decades in 2019, to essentially burning through $1.5 billion last year. And that was setting off alarm bells across the business. Just months before their big moment at the Paris Olympics...
Moe Hennessy execs were scrambling behind the scenes. So basically, in some of the sort of internal documents I was able to look at, you know, there were sort of presentations that had been made to sort of, you know, a wide variety of senior staff as they were looking at these numbers going into 2024, 2025, and trying to put together a budget for the business. And there were big caps lock warnings saying things like, you know, need to save cash, cash is now a problem.
Adrienne tells me this marked a dramatic change in how LVMH had operated for years. I think that the things that really struck me, though, was the sort of switch from being a cash generator that had essentially been a motor used to build this business empire, switching to being a part of the business that was burning through cash and that would need to have contributions from other parts of the business, essentially, to keep the budgets balanced. It's a huge shift.
So rather than supporting the rest of the business, the other parts of LVMH would have to step in and support Moet Hennessy. But the more Adrienne reported, the more she learned these problems weren't only tied to the broad luxury slowdown or trends in alcohol consumption. She found a much clearer picture, and she pinpointed three strategic mistakes that, when combined, turned into something that's been tough for LVMH to swallow.
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Adrian says the three key missteps of Moet Hennessy can be traced back to decisions made under the company's former leader. The former CEO was a man named Philippe Schaus, who has been at LVMH for a very long time. I think he'd been there for over two decades. So under him, there were sort of three things that were done that my sources believed were not beneficial to the business. The first was...
A real emphasis on increasing prices and continuing to increase prices, even when some clients and retailers were starting to feel that it was too high and it was too much and it was not reflective of what was reasonable for the product. Adrienne told me that her sources said that the prices across the portfolio had risen by well over a third on average since 2019.
So that was one thing. The second was he went on a big M&A acquisition push. Now, part of this made a lot of sense because when he took over the Moet Hennessy business, it was extremely dependent on cognac and on champagne. They knew cognac was probably going to fall out of style. So they needed to sort of diversify to sort of balance out the impact of that product having a bit of a dip.
So he went out and with his team bought about 2 billion euros worth of different businesses. And that...
had quite mixed results. Some of the stuff that they bought, such as rosé wine estates like Minuti, those have been very successful. But then there was a whole bunch of other stuff that complexified things, ate up a lot of cash, hasn't performed the way those businesses were expected to when they were buying them, and just essentially were a drain on the business. So we've got unpopular price hikes, plus a hit and miss acquisition spree.
But the final blunder was Shouse's launch of a so-called direct-to-consumer initiative. So direct-to-consumer is a jargony way of basically saying selling directly to the shopper, which if you think about how you normally buy alcohol, if you're someone who purchases alcohol,
alcohol is you don't go to a branded store most of the time and buy a bottle of champagne or whiskey. You go to a liquor store that's run by a retailer who buys a selection of stuff from a whole bunch of different brands from a distributor. Right. There isn't a Moet store that I would go to to buy my bottle of champagne, typically. Most of the time, not. But what was changing was that Moet Hennessy was
And Shouse thought it would be a good idea to do more direct sales because then you can control the product more. You can probably retain more margin, right? Because you're not paying as many middlemen. And you can also sort of, you know, put your brands to the fore. So there was a push to do this and make, you know, their product directly available to shoppers, both online and in physical stores. So for instance, opening Hennessy branded cognac boutiques in China during that time. Now,
At that time, you know, cognac was super popular in China. But the problem was none of those stores, according to my sources, were ever really making money. During the boom years, it doesn't really matter, right? It's marketing, essentially. So that was loss-making to the tune of, you know, several million plus per year, it seems, in recent years. So by early 2025, these decisions left Moet Hennessy struggling in an already tough environment.
Adrienne, so how do they handle all this? Does the company do anything?
There is then a management shakeup that takes place where, you know, Philippe Chausse and some of the senior people that were around him leave their positions and leave LVMH the group. And two people very close to Bernard Arnault are brought in with a mandate essentially to turn things around. Adrienne tells me that the choice of new leadership indicated to her that Moet and LVMH were taking problems seriously.
Things needed to change. And those people are his son, Alexandre Arnault, who's, you know, in his 30s and is coming back from a stint as a senior executive at Tiffany, the jeweler in New York, which is also owned by LVMH, and the trusted CFO of the entire group, a guy named Jean-Jacques Guigny, who has been at the group for...
Okay, so new leadership is in place now. But what are their plans?
Well, first, I mean, their plans are they're going to have to cut a whole bunch of headcounts. So that was one of the first things that became apparent quite quickly. They're conducting a review of all of the acquisitions that were made, especially recently within the group.
The internal leaked materials that I've been able to look at indicate that they think that they're going to be able to keep most of these different companies and brands and stuff like that. But, you know, their marketing budgets are being cut. Travel budgets are being cut. I mean, it's very clear that this it's not been the boom years for a few years now, but I think they're really turning the screws now in terms of trying to cut costs further.
and turn the business around. Now, what about how they address some of the macro issues, like people consuming less alcohol? Do you know much about those sorts of plans?
Yeah, so actually, Moet Hennessy last year invested in a non-alcoholic beverage producer for the first time. It's a non-alcoholic wine producer called French Bloom. It's a minority stake, so they're obviously testing the water. But it shows that they are aware that this is, A, a growing trend, but B, also that there is this demographic shift and they need to look at sort of solutions to address that.
And just to say, you know, others in the industry are doing this a lot. If you look at Pernod Ricard and other sort of, you know, drinks makers, they're also investing in building out a non-alcoholic options portfolio. The problem with it is, I don't know how many of these sort of non-alcoholic wines listeners will have tried before. I'm sure there are a few very good ones out there, but a lot of them are not great yet. Um,
in terms of taste and in terms of the sophistication of palate that they offer, and also in terms of price point. They tend to be cheaper than most wines and champagnes and other sort of premium drinks, which is the category Mo Hennessy is in, would be. The other thing to mention is that
You know, the premium category is a little less vulnerable to the kind of demographic shift that we've been talking about because the stuff that's really getting hit the hardest is the really low end sort of table wine. So they are somewhat insulated from these trends by that. But yes, generally, you know, we're all over time drinking less.
Yeah. Now, changing gears a bit, you know, the U.S. and the EU have been locked into a tariff dispute of late. How might that impact LVMH and Moe Hennessy? I mean, look, trade disruptions and geopolitical tension are not good for LVMH.
Most businesses, especially not for export industries, which is what a lot of luxury and wine and spirits business is built on. It's a bit of a complicated one because luxury goods in general are a little more insulated from the impacts of tariffs than a lot of other sort of basic consumer goods.
A big part of this is because these are products that are being bought by people who have more disposable income and therefore don't feel the pressure from bad economic circumstances quite as quickly as people who are struggling to get by. So that's one factor. You also do have an element of being able to pass off some of the impact of potential tariffs because we still haven't landed on the final tariff regime through price increases.
The issue with that is, first of all, it's harder to raise prices more when you've already been raising prices a lot. The other sort of vulnerability that all of these industries have is that
The way that the luxury industry and also sort of, you know, high-end European drinks makers are able to sort of command the kind of cachet that they have is to be able to say that, you know, these products are made in Europe, have a very specific origin, have a very specific supply chain. They are special. So that means that you can't all of a sudden just shift all your production and say, you know, we're going to be made in the USA. We're going to be made in Kansas. Right.
That being said, Bernard Arnault has sort of intimated that the group would look at expanding its sort of very limited but already existing network of workshops in the U.S. This might have been sort of more a gesture towards Donald Trump than an actual industrial program. So that could offset a bit of impact and also be a good negotiating point for the company. But fundamentally, you know,
Trade disruptions, you know, anxiety about the state of the economy does not make people want to go out and buy champagne and handbags. It makes them want to put money in a savings account and worry about the future. And that overall is not going to be good for the luxury industry. Right. Exactly. So what happens, just thinking now back more to the internal changes happening at Moet Hennessy,
What happens to LVMH if Moet Hennessy can't turn things around, if they can't become again this cash generating part of the business? I mean, I don't think anybody knows. I think that it's unlikely that that will be the outcome. I think it's more of a question of how long it will take and how painful that transition will be.
in terms of having to, you know, cut back and whittle down. Yeah. What will you be watching for then in that case of this question of how long it takes?
I mean, Bernard Arnault, in sort of comments that he made sort of earlier this year, basically set Guioni and his son Alexandre a timeline of sort of saying something to the effect of, you know, let's see where they can get to in the next two years. I'm confident in them. You know, they'll be able to get things in hand. It's very hard to make a call at this point because things are so uncertain globally. But
But I would imagine given the current state of the world, of the global economy, of pressures on China, of uncertainty emanating from the U.S., you know, this is probably going to be a longer, tougher process than previously anticipated. Behind the Money is hosted by me, Michaela Tendera. It's produced by me, Safia Ahmed, and Katya Kumkova. Our intern is Michaela Sia. Sound design and mixing by Simon Panayi.
Special thanks to Sam Chambers. Original music is by Hannes Brown. Topher Forges is the FT's acting co-head of audio. Thanks for listening. See you next week. So business is doing really well and we want to open our next store, but I'm not sure where. And should we do a nine to six or maybe a ten to seven? And maybe we should also think about... Stop guessing and put some data behind your decisions with TomTom.
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