Cognac: China Calls Time

High-end Cognacs are in for a rough ride in China – and producers are bracing themselves accordingly. Patience Gould reports

ONE WAY OR T'OTHER there’s a lot going on in the Cognac arena. There are acquisitions – Rémy acquired Larsen at the tail end of 2012 and then in June this year sold the Cognac house on to Altia while, after six months with the For Sale sign flapping outside its GHQ Hine has at last found new owners.

Amid all the to-ings and fro-ings France’s most famous eau de vie has, aside from 2009, weathered the global economic crisis quite well – shipments were up more than 3% last year reaching a record 168 million bottles and, significantly, value was a whopping 16-plus per cent a head thanks in part to a strong showing in Asia – where shipments were up by 7.5% in volume and almost 23% in value (BNIC). Indeed, the region now accounts for more than 50% of exports and, in value terms, China is Cognac’s number one port of call in the world.

But, and it’s a big ‘but’, change is in the air. For starters, China’s economic growth is slowing and the government has clamped down on political bribery and corruption which is making life tougher for Cognac in much the same way that Scotch got a battering when business entertaining effectively came to an end in Japan. Added to this, patterns of consumption are also changing. 

“Today volumes are still mainly VSOP and above, however a slowing down on the older qualities, that is XO and above, is noticeable.

“This is a result of shifting trends in China where the most prestigious Cognacs are facing the new government’s anti luxury/corruption policy. There is also a growing middle class in China who are looking for accessible yet status products and VS would certainly fit into this category.”

Currently it appears that the VS quality is largely consumed in the regions where there is not much ‘foreign alcohol’ available, so Cognac competes against local alcohols such as Baijiu.  “It is also interesting to see in Asia that consumption trends are going towards younger people, 25 to 35-year-olds, and also little by little towards a more feminine audience,” says Le Grelle.

Happily for Hine the company foresaw these problems arising in China and has accordingly adopted ‘a balanced strategy’ around the world, and for the past three years has not solely concentrated on Asia. Rightfully renowned for its vintages, Hine’s top export markets are, aside from China, Russia, the US, UK and France – and it’s Russia which is showing the best growth. 

“Thanks to the work done with our importer, we have succeeded in positioning Hine among the top Cognac brands in Russia,” says Le Grelle. “It is a market that is particularly interesting as it is mature and consumers are educated connoisseurs who are looking for exclusive, artisanal and high-quality products rather than global brands.”

Hine is, of course, celebrating and indeed has double cause to celebrate. The Cognac house, once the jewel in Trinidad & Tobago-based company CL Brands’ crown, has been acquired by the family-run French business EDV SAS, a move which coincides with the producer’s 250th anniversary. Not surprisingly there are smiles all round. “We are very happy at all levels,” says Le Grelle. “EDV’s principals share common values such as a family philosophy, the use of the finest raw materials and outstanding quality, a superior craftsmanship and attention to detail.”

 For Hine the next three years will be all to do with consolidating and building on its gains in its key markets. It’s a house which is a quality act embracing the traditional Cognac consumption as well as the cocktail circuit with its special  VSOP ‘brew’ H by Hine and it sees the mixing circuit as a way of reviving interest in the category. Originally developed with the UK market in mind this quality has gone on to find favour with mixologists all over the world.

“This new, high-quality cocktail wave is not necessarily linked to adding volume but more to rejuvenating the Cognac category in general and above all to be able to reach a young, yet well-informed public who are looking for high quality products that are artisanal with souls – hence a perfect fit for Hine,” says Le Grelle. “This trend has been well established in the US, the UK and in France and is now developing in Asia, in particular in Hong Kong.”

Cocktail habit

The cocktail habit, particularly in the US and the UK, has been noticed now by the big Cognac four – Hennessy, Martell, Remy and Courvoisier – and all have launched qualities for the mixing arena. 

Courvoisier was the first with its Exclusif, Hennessy in 2009 launched Black, while last year Rémy came out with its VSOP Mature Cask Finish and this year Pernod Ricard’s Martell has unveiled its Caractère initially Stateside. 

“This is a new blend that can be drunk neat or in cocktails as it is well adapted to mixability as a great base which enhances cocktails,” says directrice communication Elisabeth Ricard. “A specific cocktail platform has also been developed.”

The world leader in the XO category, Martell has posted strong growth in 2012/2013. 

By the end of PR’s fiscal year July 2013 sales growth was in the order of 15% and with volume ahead by 5% annual cases reached a record tally of 2 million. “Results were especially good in the Asian market (+16% organic growth). 

“Dynamic growth was also recorded in Mexico, Indonesia, Russia, and in travel retail, due in particular to the Noblige and Cordon Bleu labels, whose sales rose on all the brand’s key markets,” says Ricard.

Another first in the US was chalked up by the Suntory-owned Louis Royer when its Force 53˚ High Strength Cognac won a Best in Show Double Gold Award in this year’s San Francisco Spirits Competition. No doubt by way of celebration the producer staged its second High Proof Cognac Cocktail Competition under the banner Show Me the Proof!

Staged in New York, it celebrated Louis Royer’s Force 53 VSOP Cognac, one of the highest proof Cognacs on the US market, and a brand that has helped “to ignite” the overproof cocktail trend. “This year’s competition was particularly intense and I salute the winners for their ingenuity, finesse and genuine respect for Louis Royer ‘Force 53’ VSOP Cognac,” says Jérôme Royer, master selector, Louis Royer Cognac and a competition judge. “We are delighted that American bartenders have taken to Force 53 and are creating amazing cocktails with it that can be enjoyed year-round, as the competition clearly demonstrated.”

Marketing strategy

The Cognac house sees this competition as an important part of its marketing strategy and a way to communicate with both trade and consumer, and when it comes to communication Courvoisier is preparing to break new ground in Europe and beyond with its Here’s to Now multi-media campaign which is being rolled out initially in the UK where the brand is the number one. The campaign includes online and print advertising as well as integrated partnerships, and event sponsorships.

The aim of the push which, aside from Europe will also take in the Middle East and Africa, is to establish Courvoisier as a way of life and to get consumers to act spontaneously as print ads demonstrate with the copyline: “It might not be the right place, but it’s definitely the right time and what better time than now?”  

This is a tough call as, with its  luxury positioning, Cognac is traditionally associated as a “special occasion” drink in most markets – though happily this is not the case in Scandinavia, which is prime region for the producer Bache-Gabrielsen. 

  “Norwegians love Cognac and Cognac is part of their everyday life. Cognac is not a luxury product in Scandinavia, which is good as it is less subject to ups and downs,” says Herve Bache-Gabrielsen, general manager, sales and marketing. 

The company has the best of both worlds, as its limited-edition and vintage Cognac releases have had “very nice feedback” from its customers across Scandinavia. “These satisfy the demand from Cognac connoisseurs for more exclusive products.”

With Altia – the Finnish state-owned company – acquiring Larsen from Rémy Martin in June this year it will be interesting to see if competition increases across the region. But Bache-Gabrielsen is undaunted. “No doubt Altia has some ambitions for the Larsen brand in Scandinavia, but it will take some time to implement its operations,” he says. “They have a large volume of Cognac to source in order to be able to maintain the position of their brands, Renault, Larsen and Gronstedts, and some markets are quite price sensitive.”

 Outside Scandinavia Bache-Garbrielsen has “been able to maintain its turnover by a mix of activity” in emerging markets such as China and Russia. Asia now accounts for 18% of its turnover and there was “strong growth” in both China and Vietnam in 2012. This year to date the company has consolidated these gains but growth has been slower. However thanks to “a significant business deal” Bache-Gabrielsen is optimistic when it comes to the US. 

Clearly Cognac producers are bracing themselves for a significant downturn in China which will affect the higher qualities – a trend which is already evident. Having said that, this decline could well moderate prices when it comes to Cognac supply, which will enable companies such as Bache-Gabrielsen, to improve volumes over the next year. 

But producers who have put all their efforts into China’s egg basket will not have an easy ride – indeed some companies are predicting a significant fall-out.