A WISE MAN ONCE SAID: Many small ripples make a great wave. Granted, the exact source of this proverb is unknown (apparently Google doesn’t know everything) but it neatly, if fictitiously, describes trends in the Cognac category. Asia is now Cognac’s largest region by volume and value – so what ripples develop there, for good or for bad, send tidal waves up the Charente.
Until recently it had been plain sailing – China wanted Cognac, Cognac wanted China. Houses and financial reports are certainly familiar with the buying sprees around Chinese New Year and Mid-Autumn Festival. (Indeed, from the outside, this trend seems almost as serendipitous as the phenomena of American rappers brand-checking Cognac in the 90s, in doing so creating Cognac’s biggest volume market.)
But now we are starting to see a few cracks appear in Cognac’s good-news story, with year-to-date volumes down 1.8% in China, Asia’s Cognac HQ. First came a clampdown on gifting at governmental banquets. “Banqueting and gifting is a major form of sales in China,” says Claire Richards, Courvoisier’s global senior marketing manager. “If they start to get really tight on that I think it would hurt Cognac.”
According to many houses, it’s already happening. Cyril Godet of Cognac Godet says the practice of giving away product to opinion leaders has long been commonplace, especially in Russia and China. “There are a million ways to do it. The officials in many countries are the target because it flows down to the people, who think ‘if the Mayor is drinking that Cognac, I will drink it too’.” He added the clampdown would have a “big impact in the long term”.
2013’s second hiccup also sprang from the mouth of Chinese power. “A new regulation was brought in by the Chinese government looking at how much plasticiser was used in products, which slowed down the shipment data in the last quarter. Some houses spoke about it in their financial results,” says Richards “When bottles are filled, [it’s about] how much of the plastic piping is still present in the liquid or bottle after that process. We didn’t have any problems with our products but every company had to go through a test to gain the documentation.”
A slightly later than normal Chinese New Year might also have had an impact on 2012-2013 Q4 comparisons, says Caroline Sarrot Lecarpentier, international press and public relations manager at Rémy Martin.
But does this point to a sustained slowdown? “It was the key selling period when all this happened so that’s going to create a small blip in sales,” says Richards. “If those sorts of trends continue we could start to see a slowdown in China, but I don’t think they are.” Sales in China may be down year to date, but this time last year Cognac was growing in China like ivy. Unfavourable year-on-year comparisons really don’t cover it. Indeed, many argue that, even with volume decline, the impact of these seemingly trivial trends prove China’s influence on the category is too great.