LVMH's wines and spirits business is under pressure, but Champagne has stronger long-term resilience than Cognac

Overview

This report is Morgan Stanley's industry research and pre-conference outlook on LVMH and its Moët Hennessy wines and spirits business. Using April data from the Champagne industry body CIVC, on-the-ground champagne fieldwork, and industry expert views, the report discusses the medium- to long-term changes in LVMH's drinks business in terms of consumer trends, regional demand, pricing, inventory, product mix, and capital efficiency.

Core views

The core view is that LVMH's drinks business will continue to face cyclical and structural pressure in the near term, especially because the recovery path for Cognac remains uncertain; however, Champagne has stronger long-term resilience than Cognac because its celebration use case, lower alcohol content, more diversified global demand, and shorter inventory cycle fit better with health-conscious trends and changing consumption occasions. At the same time, LVMH's overall dependence on the drinks business has clearly declined, while the share of higher-growth, higher-capital-return businesses such as fashion and leather goods has increased, making the group's structure better.

Analysis framework

The report develops three lines of analysis: first, it uses CIVC monthly Champagne sales and export data to observe industry demand; second, it compares the structural outlook for Champagne, Cognac, and rosé through expert interviews; third, it places Moët Hennessy back within the LVMH group structure and compares the relative importance of the drinks business in terms of sales, profit contribution, and other business segments.

Methodology notes

• Valuation methodsDCF

  discounted cash flow valuation

  The report says it uses DCF valuation for LVMH, arguing that this method better reflects margin potential and cash flow, and assuming a WACC of 8.8% and a long-term growth rate of 2.8%.

• industry_analysischannel and category fieldwork

  fieldwork and category comparison

  The report uses Champagne fieldwork, industry expert views, and CIVC data to compare Champagne, Cognac, and rosé in demand, pricing, inventory cycle, consumption scenarios, and capital efficiency.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LVMH.PA

  research subject

  Strengths

  The group has a strong luxury brand portfolio, with high profit contribution from fashion and leather goods; it also owns leading brands in both Champagne and Cognac, with a high share in the Champagne export market.

  Weaknesses

  Moët Hennessy's drinks business has declined for several consecutive years, and its 2026 margin may be at a more than 30-year low; the Cognac business faces concentrated demand and an uncertain recovery path.

  Comparison

  Compared with Cognac, Champagne is seen by experts as having a brighter, more resilient structural outlook; compared with the drinks business, fashion and leather goods have higher growth, higher capital returns, and lower cyclicality.

  Risks

  Slower consumption in China, shrinking demand in Western markets, a broader cooling in spirits consumption, Champagne prices becoming too high and pricing out middle-income consumers, and inventory and cash flow pressure in Cognac.

• Moët Hennessy

  LVMH wines and spirits division

  Strengths

  It has industry-leading brands and a high-end market position in Champagne and Cognac.

  Weaknesses

  The business is being affected by lower alcohol consumption, younger consumers becoming more health-conscious, fewer nightlife occasions, and weak demand in Cognac.

  Comparison

  Its contribution to group profit has fallen from around 36% in 1997 to about 5.5% in 2025, so its relative importance has declined materially.

  Risks

  Margins continue to fall, pricing discipline weakens, and Cognac demand recovers more slowly than expected.

• Champagne

  key category

  Strengths

  It has celebration appeal, strong brand recognition, lower alcohol content, broad use cases, an inventory cycle of about three years, and more diversified global demand.

  Weaknesses

  Supply is constrained by a fixed appellation area, so volume growth is limited, and recent price increases may squeeze out middle-income consumers.

  Comparison

  Its long-term outlook is better than Cognac's, but it still faces pressure from consumer confidence and competition from sparkling wine substitutes.

  Risks

  Prosecco and other lower-priced substitutes take share, domestic demand in France remains weak, and the ability to attract younger consumers declines.

• Cognac

  key category

  Strengths

  Hennessy remains the world's leading Cognac brand.

  Weaknesses

  Demand is highly concentrated in the U.S. and China, while U.S. consumers are shifting toward tequila and China faces competition from domestic spirits.

  Comparison

  Compared with Champagne, Cognac has a roughly 20-year aging cycle, heavier inventory and cash flow constraints, and higher volatility.

  Risks

  Persistent weakness in U.S. and Chinese demand, structural shifts in consumer preferences, and a longer inventory adjustment cycle.

• Rosé

  potential growth category

  Strengths

  It has lower production costs, a shorter aging cycle, better cash flow efficiency, and can borrow Champagne's lifestyle and occasion-based marketing.

  Weaknesses

  It is highly seasonal, with about 80% of sales concentrated in summer.

  Comparison

  Compared with Champagne, rosé has higher capital efficiency and is more effective at reaching younger consumers, but its brand moat and seasonal balance are weaker.

  Risks

  Seasonality, brand competition, and execution risk in premiumization.

Key data

• Moët Hennessy 2025 sales€5.36bnChampagne and Wines accounted for 58%, while Cognac and Spirits accounted for 42%.
• Moët Hennessy expected 2026 margin18%Morgan Stanley estimates this could be a more than 30-year low; the 1997-2019 average margin was 31%.
• Moët Hennessy's 2026 group operating profit contribution5.5%This is a significant decline from more than 40% in the late 1990s.
• April champagne industry salesflat YoYMarch was up 7% YoY, February up 5.7%, and January down 6.5%.
• April champagne export sales+4% yoyDomestic sales in France were down 6% YoY; year to date, exports were up 4% and domestic sales in France were down 3%.
• Champagne exports as a share of industry sales64%A record high; because overseas prices are about 50% higher, exports contribute roughly three quarters of industry revenue.
• LVMH champagne export shareabout 35% volume share, about 50% value shareMorgan Stanley estimates this is supported by the high overseas sales mix of premium brands such as Dom Pérignon and Ruinart.
• Share of U.S. adults who drink alcohol54%Gallup data shows this is near a 90-year low.
• Impact of GLP-1 on spirits consumptionnet 33% of respondents reduced consumptionAmong those cutting back, average spirits consumption fell 63% and wine consumption fell 60%.
• Champagne industry output constraintabout 300m bottlesThe appellation area is fixed at about 30,000 hectares, so volume growth has been limited over the past 10 years.
• Champagne industry 2025 sales€5.2bnSales growth from 2015-2025 was driven mainly by pricing and mix.
• LVMH spirits business growth in 2023-20252023 -7%, 2024 -11%, 2025 -5%This shows three consecutive years of decline in Wines & Spirits.

Impact & implications

For investment implications, Moët Hennessy may weigh on margins in the short term, but because LVMH's profits increasingly come from fashion and leather goods, the impact of the drinks business on group-level volatility has declined materially versus the past. Over the medium to long term, brand building, premiumization, and global penetration in Champagne and rosé remain opportunities; Cognac, meanwhile, must contend with demand uncertainty in its two key markets, the U.S. and China, as well as inventory and cash flow pressure and shifts in consumer preferences.

Risks

• Slower luxury consumption in China remains one of the biggest downside risks for LVMH and peers.
• If demand in Western markets continues to contract, Champagne, Cognac, and other premium alcohol consumption will be pressured.
• Lower drinking rates among younger consumers, rising health awareness, and increased GLP-1 usage could create structural demand pressure.
• A shrinking nightlife scene could continue to hurt Champagne magnums and special cuvées.
• Champagne's price increases over the past few years may have priced out middle-income consumers and pushed them toward lower-priced sparkling wines such as Prosecco.
• Cognac demand is concentrated in the U.S. and China and is more exposed to consumer preference shifts, competition, and macro pressure.
• Vertical integration, especially downstream integration, could create operating deleveraging risk.

What to watch

• Future monthly CIVC Champagne sales, export share, and changes in domestic demand in France.
• LVMH's 2Q26 Wines & Spirits performance, especially the reversal effect of pre-recognition and pricing timing in 1Q26.
• Whether luxury consumption in China recovers and whether it exceeds market expectations.
• U.S. alcohol consumption, younger consumers' drinking habits, and GLP-1-related consumption changes.
• The pace of demand, inventory, and pricing recovery for Cognac in the U.S. and China.
• Whether Champagne brands maintain pricing discipline and bring affordability back into the historical range over the next 2-3 years.
• LVMH's rosé portfolio, including the growth and premiumization execution of Whispering Angel, Château Galoupet, and Château Minuty.