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Wednesday 17 September 2014

Mixed fortunes: Cognac’s rise slows

25th January, 2013 by db_staff - This article is over multiple pages: 1 2

While Cognac’s meteoric rise in Asia appears to be slowing down, it is also undergoing a reinvention in the region’s bars, while edging towards new frontiers in Africa, writes Richard Woodard

Cognac&CigarsWHISPER IT, but could the Cognac boom be coming to an end? August and October figures from the Bureau National Interprofessionnel du Cognac (BNIC) show export shipments were either flat or down on last year. The Cognac market, which has been on fire for the past few years, could finally be cooling off.

It might be no bad thing. The Far East’s insatiable thirst for aged Cognac is squeezing supply and inflating the cost of older eaux-de-vie. Grande Champagne spirit with a decade or more in barrel was changing hands for just over €4,200 per hectolitre of pure alcohol in December 2011 (BNIC figures) – by October 2012, that figure had risen to nearly €5,700.

Such price increases are “causing serious difficulties” for many houses, says Hine MD François La Grelle – a point echoed by Philippe Jouhaud, sales and marketing director at Bacardi-owned Château de Cognac, owner of Baron Otard. “When you have a good part of your growth coming from China and old Cognacs, it’s very difficult to cope with that,” says Jouhaud. “Clearly in the region there are some shortages.”

AGE CONSENT

A bad time, you might think, to increase the minimum required age for XO, one of the main drivers of value in China and elsewhere. And yet, come 2016, it will be forbidden under BNIC rules to sell XO with fewer than 10 years in the cellar (the previous minimum was six).

Feature findings
• Cognac’s export shipments were equal or less than last year in two of the last three months.
• The strong growth trend of Cognac in Asia has led to supply issues and inflated prices.
• The planned change to the minimum age for XO from six to 10 years in 2016 was agreed before the Asian boom, and some question whether it should still go ahead.
• The nature of Cognac consumption is changing in China and elsewhere – for instance, it is increasingly being drunk with mixers or ice.
• Some producers fear that price instability is having a negative impact on the traditional markets in Europe and the US.
• Brand managers have divided opinions on the potential of markets in South America and Africa.
• Rehabilitating and improving existing vineyards may be a more economically sustainable way of addressing supply issues.

The rule change was agreed in 2005, before luxury Cognac in China took off, but could the BNIC change its mind? Bertrand Laclie, owner of Maison René Laclie, hopes so. “It has to be abandoned,” he says. “It is completely unrealistic if you look at the market today.”

Others are not so sure, although all can see the cold logic of the move. “If today this regulation was revised, this would certainly – at least momentarily – give a little more oxygen back to some of the smaller suppliers, who would see this as an opportunity to be able to obtain eaux-de-vie for which they have an urgent need, at a more reasonable price,” says Hine’s La Grelle.

Any U-turn at this late stage risks looking ruthlessly cynical, but the fact that it is even being debated is indicative of the transformative power of the Asian Cognac boom of recent years. That boom is evolving, both within China and in Asia at large. Vietnam, from a small base, is beginning to resemble a “mini- China”, with its big population and love of VSOP and XO. South Korea is showing signs of recovery after a tricky recent past, and Burma’s rehabilitation on the global stage – most evident in President Obama’s recent visit to the country – is already catching the eye of several Cognac houses.

MIXED BLESSING

But the game in Asia remains one played predominantly in Greater China – and there are signs here that the rules are changing. Geographically, first: Cognac is increasingly breaking out of its stronghold in the south and east of the country, spreading to fast-growing cities in the interior, and to the north and north-west.

And in terms of trends: banquets, corporate entertainment and gifting remain hugely important, but Hennessy VSOP is now increasingly consumed in clubs, mixed with ice, soda, tonic or ginger ale, served in jugs or sold by the bottle.

Meanwhile, Camus president Cyril Camus highlights an increasing interest in the taste (rather than purely the glamour) of Cognac, and in the differences between individual brands – alongside a fast- developing bar culture. “Cognac has a place in that scenario, and that’s where we have positioned our brand,” he says. “Tapping into this, we created our own lounge in downtown Beijing’s business district. It’s all about the product there, as opposed to music or entertainment. Other brands position themselves as a banquet or nightclub brand. We’re taking a different route.”

louisChina is famously all about VSOP Cognac and above, but official figures show a small but growing proportion of VS being sold in the shape of products like Hennessy Classium. Jouhaud is concerned that this might be counter- productive to Cognac’s luxury positioning, but to Courvoisier senior marketing manager Claire Richards, this is part of the evolution of the market – particularly the drive into bar consumption, mixed drinks and cocktails. “And there is only a defined amount of liquid to go around,” she points out. Supply concerns again. And if this is beginning to affect China, what impact is it having on the rest of Cognac’s world? When sales are surging in Beijing, Shanghai and Guangzhou, why would you bother with cash-strapped eurozone consumers?

“We are holding our position in Western Europe, which for us means Germany, Belgium and the Nordics,” counters Jouhaud. “There is no way that we will forget about these markets. They remain very important and [the boom in Asia] doesn’t mean that we should totally divert and neglect the markets in Western Europe.”

For some, holding onto historic market positions despite slowly declining sales is a function of fear – the dread that China might “do a Japan” and collapse as that market did 20 years ago.

Jouhaud doesn’t think that will happen – “the fundamentals in China are very solid” – but finds another reason for Cognac to maintain a high profile in the West: “The Chinese are travelling, so the product needs to be visible in the key on-trade accounts in cities like Paris and London.”

REGARDING EUROPE

Others simply cannot compete with the big four in markets such as China and Vietnam, meaning they can ill-afford to turn their backs on the West. And yet, if you believe a few dissenting voices in the region, that’s exactly what is happening as more and more houses scrabble for the riches in Asia’s El Dorado.

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