SPECIAL REPORT: Cognac stays ahead of game

Far from being an outmoded after-diner tipple, Cognac’s traditional values are winning it new friends, according to Jerome Durand, president of the Bureau National Interprofessionnel du Cognac, Felicity Murray reports

Despite the current global economic climate, Cognac, so far, seems to be weathering the storm and Durand remains upbeat about its continued growth. “We are still at a very high level,” he says.  “Yes, volumes have been down but there has been a small but significant growth in value, representing a Euro 1.6 million increase in net turnover.”

The increase in both volumes and value continues to come from the emerging markets, China in particular. The Far East is the only region, according to BNIC figures, seeing a significant increase in imports. Volumes for the year to July 2008 were up 6.4 per cent overall to 41.1 million bottles and this is a high quality market favouring VSOPs, XOs and above. Exports to Singapore, the major distribution platform for the region, were up 13.9 per cent with China’s assignment representing the greatest increase of 9.9 per cent. “It was certainly a special year for us as it most probably has been for a lot of other luxury goods,” says Durand.

Australia and Russia are also among the strong new markets for Cognac while India remains on the backburner until the prohibitive importation tax issues have hopefully been resolved in the next few years. Recently, Russia’s interest in Cognac has been highlighted by the purchases of Cognac houses by Russian businessmen.

The growth in high quality Cognacs to China and Russia has however, been to the detriment of the lower qualities and bulk shipments to some of Cognac’s traditionally strong markets.

While Cognac houses have been focusing their marketing and export efforts into the high value emerging markets, exports to Europe have dropped 11.4 per cent. But it has been the Mexican market that has taken the biggest plunge – down a massive 31.7 per cent. The US, Canada and Mexico, the Americas, however, remains – but only just – the largest market overall for Cognac thanks to a slight (3.3 per cent) increase in shipments to Canada.

“The dollar in the US is very weak and as it is the biggest market for Cognac in volume terms, this is an issue which could effect the strategy of all the Cognac houses,” explains Francois Le Grelle, managing director, Hine Vintage Cognacs.

 “Our key-markets are in the developing countries like China and Vietnam where there are emerging rich social classes and market premiumisation,” says Solène Debant at Gautier, part of the Marie Brizard group of companies. “But this growing demand for old Cognacs – Napoleón, XO, Extra and ‘very old’ and ‘rare’ – has caused eau-de-vie prices to quadruple in the last couple of years and highlighted the sensitivity of aged cognac stock management.”

“Asia and China are still growing strongly but the question is for how long?” says Le Grelle. Although the global markets today are more balanced and there are only two trading currencies – the dollar and the Euro – the rapid rise and fall of the Japanese market in the early 90s has not been forgotten.

Chris Peddy, global general manager Cognac for Beam Global which stables Courvoisier, agrees that one of the biggest issues facing the sector is the probability that there will be a shortage in supply due to both the category’s growth and the increased demand for higher-end marques, particularly VSOP and XO, which require longer aging. “The issue of increased Cognac demand has global implications as the category is growing faster than the industry’s ability to supply it,” he says. “Growth is being experienced in the US as well as in Duty Free, but a significant uptick in the premium and super-premium marques is taking place in Russia, China and south east Asia.

“Stock is short for all marques, but the shortage gets more pronounced as the marques age. As the current growth pattern exceeds the industry and key producers’ historical expectations, the major cognac houses are all experiencing pressure on stocks. As a result, it is probable that the cognac category will be affected by a price increase, particularly on the VS marque and potentially VSOP as well.
 
“Currently, Courvoisier is not experiencing significant issues with stock supply, but the brand is closely monitoring the situation and will plan accordingly for next steps in 2009,” says Peddy

“Premiumisation is linked to the availability of the eau-de-vie – the temptation is to increase prices and work on the premium category,” says Le Grell. “Houses like Hine with longer stocks of eau-de-vie are in a more comfortable position than those with short stocks. This is a weak position to be in because if you need to increase prices you will upset your customers and they will disappear. This is exactly what is happening with the supermarkets in France –private labels suppliers are becoming difficult to find today.”

Hine, he says, will maintain its volumes by upgrading the quality: “We will focus on what Hine used to be rather than quantity – weather conditions and nature permitting. This year will not be good for vintages but it will be good for blending. Over 30 per cent of our needs are supplied by our own vineyards so we know what quality to expect.”

Durand says, while it is difficult to predict accurately, the BNIC is certain that in the middle to long-term there will be continued growth especially for aged and rare labels. While the large Cognac houses are desperately trying to secure their huge eau-de-vie requirements and find means of increasing prices without upsetting their customers, the smaller Cognac houses are in contrast working harder in niche markets. These “boutique” producers are targeting connoisseurs looking for limited editions and a point of difference – unique and fine Cognacs that can command justifiably higher prices.

Paul Giraud is one such family business with 35 ha in the Grand Champagne region that has been producing and ageing eau-de-vies for the larger houses since 1635. But it was only in 1970 when Paul Giraud took over from his father that the dream of owning his own label came to fruition. His annual sales of VSOP, Napoleon, Vielle Reserve, Trés Rare and Heritage total around 25,000 bottles of which 85 per cent are now exported to 20 countries including Japan, US, Germany and the Netherlands. Giraud, although not classified organic, has farmed according to these principles as closely as possible, hand-picking the grapes, for generation after generation. “The big companies get continuity through blends – I get it through tradition – by always making it the same way with no changes,” he says.

Cognac Léopold Gourmel, another small family business with just 25 ha believes it is the first Cognac house to be fully certified organic with an Ecocert approval on the full process from vineyard, wine making, and distillation to ageing and bottling. The first bottling of Léopold Gourmel’s new Bio Attitude Cognacs took place in June this year with a limited edition of 860 from the 2000 eau-de-vie and a second bottling of 4,000 from 2001 of which 900 are destined for Italy.

The biggest market for these Cognac houses is Scandinavia, especially Norway. This is true also for Bache-Gabrielsen, a forth generation Norwegian family business which has also introduced to its comprehensive range of Cognacs a Pure and Rustic label to appeal to the new consumer keen to know there are no additives, such as caramel, in their products.

One common denominator across all the Cognac houses is their acceptance of modernity – regardless of the age of the liquor or the house itself, they have embraced contemporary packaging design and produced some fabulous labels and modernistic decanter style bottles which without doubt enhance the value of the product inside.

This fresh, contemporary approach to an historic spirit, which, until recently, had a very old-fashioned image, marries well with the cocktail culture of today that is fueling the growth of Cognac, especially in the US markets. Over 70 per cent of the global consumers of Cognac take it as a long drink, on ice or with sparkling water. In China it is considered the greatest honour to offer a bottle of Cognac with a meal, often diluted with water and served like wine. The very old and rare Cognacs are tend to be sipped and savoured as an after-dinner drink.

Five years ago, Courvoisier introduced to the Asian market its super- premium Exclusif Cognac specially blended so its flavour would not be diluted when served in a cocktail. “In just four years Exclusif experienced exponential growth of 724 per cent in China, its largest market.” says Peddy, “In light of this phenomenal performance we launched it in the US in 2007 where we hope it will continue to reach a new audience and introduce more consumers to the cognac cocktail.”

This report was written by Felicity Murray and first published in Drinks International October 2008. 

1 October 2008 - Felicity Murray