This article was initially published in the May issue of Global Drinks Intel magazine. For details on how to subscribe. click here.
While mature Cognac markets posted modest declines in sales last year, the category’s developing markets recorded significant gains.
In 2022, according to the Bureau National Interprofessionnel du Cognac [BNIC]. Cognac exports dipped by nearly 5% to 212.5m bottles last year – but don’t reach for the panic button just yet. This performance still ranked as the third-best in Cognac’s long history, following two exceptional years in 2021 and 2020.
The US and China, the category's two largest export markets, both recorded volume drops last year. China’s zero-Covid-19 policy resulted in an almost 13% slide in shipments, while in the US, where Cognac faced several headwinds including supply issues, inflation, logistical disruptions and varying levels of demand, volumes dipped 3.2% to 111.3m bottles. With a 5.9% slide, Europe underperformed too, primarily due to boycotts of the Russian market by brand owners after the invasion of Ukraine.
In sharp contrast, three developing markets - South Africa, Kenya and Vietnam - enjoyed a jump in shipments of almost 21% combined in 2022. “In South Africa, Cognac's growth is being driven by the upper middle class,” explains a spokesperson from IWSR Drinks Market Analysis. “It's seen as a status symbol in South Africa, which is also driving its popularity in the on-trade, especially the VS and VSOP segments.
“In recent times, Cognac has attained a unisex status in South Africa. Cognac’s development in the market will continue to be driven by brand owner investment and marketing campaigns. Its popularity is also now spreading to other African countries, such as Kenya and Nigeria, where consumers look to South Africa as a pioneer of lifestyle trends and choices.”
Home-front challenges
In Cognac's home market, BNIC’s 2022 figures show a 2.8% decrease in volumes, but not every producer was disappointed. Hine Cognac's commercial & heritage director, Per Even Allaire, reports that on-premise sales in France now exceed pre-pandemic levels. “We have found there is a genuine renewed interest from consumers for Cognac,” he says. “In France, especially, we’ve noticed this and our positive results are, to a large extent, due to increased sales in the on-trade.”
However, as the challenges of Covid-19 recede, producers are battling increased costs along with supply chain difficulties. “We are faced not only with increases from our suppliers but also supply disruptions,” confirms Jean-Sébastien Robicquet, CEO of Maison Villevert, the owner of Grosperrin Cognac and the artisanal La Guilde du Cognac range. “It's necessary to arbitrate; there's a compromise between absorption and repercussion. We have indeed increased our prices very reasonably and certainly not by all of our cost increases.”
The US - A blip or a worrying trend?
Returning to the dip in the US last year, the IWSR spokesperson is not unduly concerned. “The 2022 volume decrease was affected by a high-volume basis for prior-year comparison and normalising consumption patterns. Looking at 2019 as the base year prior to the pandemic, last year's volumes for Cognac are still 17% larger.
“The 2022 decline is not indicative of a long-term trend and is relative to a transitionary period as the segment cycles through significant volume gains during the pandemic,” they add. “Slight to moderate growth is expected into the future.”
However, the international brand ambassador for Hardy Cognac, Bénédicte Hardy, believes there is cause for concern for the category in the US. In February, the brand joined the portfolio of rum specialist Spiribam USA to grow its business stateside. Spiribam USA will carry Hardy Cognac’s full line with a focus on the brand’s VSOP, VSOP Organic, XO Rare and the top-of-the-range 1863 Legend expressions.
“Covid disrupted the logistics and distribution of top brands for months,” says Hardy. “The out-of-stock situation created frustration in the trade and with consumers. It opened a gate for regular Cognac drinkers to turn to other spirits, like tequila, which were readily available. Some of those who switched to tequila or mezcal will not come back to Cognac or brandy. The numbers show it very clearly. If you add inflation, which is affecting lots of our consumers when it comes to the VS category - the largest in the US, in volume terms - you have the recipe for decline.”
Campari Group’s Bisquit & Dubouché is also targeting the US, but head of marketing Julka Villa admits this “complex” and “exciting” market will take time to crack. “Bisquit & Dubouché is a key component of Campari Group’s Rare portfolio, a division launched in 2021 that aims to accelerate the growth of a range of super-premium-and-above brands,” Villa explains. “It’s active in four key states for the super-premium spirits business - California, Texas, Florida and Colorado, and, soon, New York.
Reopening of China prompts houses to look beyond Hainan
Over in global travel retail, Asia-Pacific lagged behind other regions last year, due to lingering Covid-19 restrictions. However, the domestic duty-free island of Hainan, China’s most southerly province, proved a regional outlier - and a magnet for investment by Cognac brand owners.
Last June, Martell opened a 140sqm AI-powered outlet at the Haikou Mova Mall, which featured a robotic bartender, digitalised merchandising units and product personalisation. The Mova Mall boutique, which Pernod Ricard's global travel retail unit opened in partnership with Dufry-Alibaba, is Martell’s second boutique on the island. The group's GTR VP of marketing, Liya Zhang, says the stores deliver “first-in-class” brand engagement. “We believe the retail experience is an ever-evolving innovation and standalone boutiques represent the best labs for us to bring them to life,” she says.
Family-owned Camus Cognac also opened a store in Hainan last year, at the Haikou Mission Hills shopping complex. The 621sqm store is the largest standalone outlet the Cognac house has ever opened. “China is one of our top priorities in terms of fulfilling the growing demand for luxury products," says Camus global brand director Anna Kim. "The success of the Camus Gallery boutique in Hainan is a reflection of our ability to connect with discerning consumers in this market.
“Since the opening of the boutique, and leading up to Chinese New Year, we saw high demand for our ultra-premium Camus Cognacs, including the new XO, Extra and Cuvée.”
With Chinese mainland travellers now able to venture overseas freely for the first time in three years, now that Covid restrictions have ended, Cognac houses are broadening their approach to GTR and targeting other key locations outside of Hainan. Rémy Cointreau GTR has introduced Louis XIII 'The Drop', a collection of 1cl bottles of Louis XIII that can be worn as fashion accessories, at selected GTR locations this year, while Hennessy has opened a new shop-in-shop at Paris Charles de Gaulle Airport’s newly renovated Terminal 1.
As international travel continues to recover, the GTR channel, already the third-largest market for Cognac in 2021, according to the IWSR, looks set to climb to ever-greater heights.
This article was initially published in the May issue of Global Drinks Intel magazine. For details on how to subscribe. click here.
