In October of last year, reports emerged that Shawn Carter, known professionally as Jay-Z, was suing Bacardi for full financial clarity on how much D’Ussé, the cognac brand that the two parties co-own, has made.
The disagreement stemmed from Carter’s demand for a buyout from Bacardi over concerns that a company subsidiary was mismanaging the brand by failing to prepare for a predicted surge in demand.
After being offered half a billion for his share and having his $1.5bn counteroffer for Bacardi’s stake rejected, the rapper took things to court. In a separate lawsuit, Carter also accused Bacardi of intentionally mismanaging the brand to lower its value, which Carter placed at $3bn, driving down the buyout price.
The lawsuit resulted in the two factions reaching an agreement where Bacardi would take over the majority shareholding of the brand while Carter will continue to retain a “significant ownership stake” through his company SC Liquor. While the terms of the deal haven’t been made public, Bacardi now owns more than 75% of the brand that launched in 2012, and Carter could be as much as $750m richer.
It’s a deal that vaguely mirrors the Diageo purchase of Casamigos – a relative newcomer to an established category, founded by a high-profile public figure, bought by a global drinks giant, even the amount of money purportedly changing hands is the same. In 2021, Casamigos sold 2.2 million cases, according to the Drinks International Millionaires’ Club, firmly cementing the brand among the category’s volume giants. It’s a story Bacardi must have followed closely.
The deal is the most publicised development in a category that is experiencing a lot of movement outside of the traditional big four houses of Hennessy, Rémy Martin, Martell and Courvoisier.
In the UK, Hine struck a new distribution partnership with Berry Bros. & Rudd, and just last month, Camus Cognac joined the Speciality Brands portfolio. Cognac Hardy recently announced a deal that will see the brand imported and distributed in the US through Spiribam.
“The lion’s share of the business is dominated by four or five brands, and the business is also well diversified by a variety of occasions and how the consumer enjoys the product,” says Ben Jones, managing director of Spiribam North America. “This means for us there is a lot of opportunity to see the category – as well as an influential brand – flourish.
“[Entering the category with Hardy] was an easy decision to make because we felt it was not too far of a reach from how we go to market with the rest of our rum portfolio.”
But despite this flurry of activity, the category experienced a decline in 2022. The cognac trade body, BNIC, reported a 4.8% decrease in volume compared with the previous year, in no small part the result of the extended Covid closures in China, the category’s second-largest volume market and most valuable market according to the IWSR. Now with China reopened, cognac could be set to blow.
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“China’s continued battle with Covid-19, and the ensuing stop-start nature of shutdowns in the on-premise, has delayed the return of pre-pandemic volume levels in that market,” says Jon Potter, managing director for Maison Courvoisier. “Additionally, the economic downturn felt in Western Europe and the US dampened consumer spending.
“The global cognac market is unquestionably dominated by the US, Global Travel Retail and China. Growth in the future will come from continued recovery and growth in East Asia, centred in but not limited to China, as well as welcoming new consumers into the category in more developed markets.
Uphill battle
In the US, cognac has benefited from general premiumisation trends but does face competition as other categories do the same. Against the backdrop of the macro-issues facing the industry, 2023 may not be an open goal.
“I believe cognac has a tougher uphill battle in the near future due to losing some market share to tequila,” says Jones. “The supply chain shortages during the pandemic exacerbated this problem. There is more indication that the category can mature further with established brands, but introducing something new without any heritage behind it I believe is a daunting task that would need an enormous marketing plan.
“The spirits drinker is already drinking better quality and drinking less. This premiumisation trend is in cognac’s favour. However, the category should not take itself too seriously or be too stuffy. There are great stories to be told and fine brandies to be enjoyed. The simpler the strategy I feel the better. The category already has enough allure to welcome many new consumers alike.”
Even with the volume decrease and against a backdrop of logistical and economic turmoil, BNIC chairman Christophe Veral declared 2022 as “the third best year ever recorded in the history of cognac, after the record years of 2021 and 2019”, so clearly something is working for the sector.
In the 21st century, and before the arrival of D’Ussé, cognac has found its greatest brand ambassadors in rap music. Hennessy has become one of the genre’s most prevailing cultural touchstones. In the UK, Stormzy’s 2017 single Vossi Bop features multiple references to Courvoisier. It proved a viral sensation, debuting at number one and amassing 12.7 million streams in its first week – at the time the most ever achieved by a rapper. Outside of rap, in her comeback single Break My Soul, Beyoncé references “tryin’ to smoke with the yak in your mouth”. It’s a truth self-evident – the music world loves cognac.
In 2006, when Louis Roederer managing director Frédéric Rouzaud was asked by The Economist if he thought the association with hip-hop harmed the Cristal brand he replied: “That’s a good question, but what can we do? We can’t forbid people from buying it. I’m sure Dom Pérignon or Krug would be delighted to have their business.”
Shawn Carter was a key player here too. He responded by replacing the cuvée in his upscale 40/40 Club with Dom Pérignon and Krug and commented that he found Rouzaud’s “comments as racist and will no longer support any of his products through any of my various brands”.
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Key partnerships
In contrast cognac brands, particularly Hennessy, have embraced the connection with pop culture and are enjoying a bridge with younger and diverse demographics that other categories are left scratching their heads for.
Partnerships have been key to this. Hennessy recently announced a collaboration with Fendi artistic director Kim Jones featuring a pair of collectable cognac-coloured trainers. The release joins a diverse portfolio that includes bottlings with painter Yan Pei-Ming, fashion brand Berluti, jeweller Lorenz Baumer, artist Refik Anadol, dancers Les Twins, and the NBA.
“For Maison Courvoisier, our focus is on inclusivity and premium expressions,” says Potter.
“Our aim is to make Courvoisier accessible to all consumers. We think we can open consumers’ minds by showcasing cognac in new occasions. Consumers, and the industry, can sometimes have a myopic view about how and when to drink cognac.”
It’s an interesting dual-citizenship that cognac holds. It’s a drink for the club, never mind if that’s a nightclub or private member, but that mobility is a luxury afforded only to the handful of mainstream brands that have managed to find a mainstream audience.
“Consumer-centric communication is also key,” says Eric Forget, cellarmaster at Hine. “Demystifying and taking cognac a bit off its pedestal by making it more accessible and easier to understand, as a product of terroir from the vineyards, certainly also helps to make ‘new’ consumers consider cognac.
“Most cognac houses have understood this and we all work together in a collegial way in making the communication around cognac more acce
ssible for consumers.”
Given its pedigree, D’Ussé seems destined for crossover appeal, but elsewhere messaging is a more difficult line to tread.
“Prominent brands have been successful with specific demographics of consumers, while I also believe there is a new generation of spirit enthusiasts to discover cognac is relevant around the world,” says Spiribam’s Jones. “Hardy has generations of loyal Eastern European clients as well as being relevant to the Asian community. All the pieces exist for the brand to continue to flourish as we expand the distribution.”
Cognac is facing challenges, but that’s true of all spirits categories. What we do have is a category divided in two and with a sea of possibilities ahead. For the big four, this is a year to build on the success of late and take full advantage of the reopening of markets that hold limitless potential. If everything goes to plan, it could be a real statement year for the category. For the brands outside of the major players, it’s going to be interesting to see who can use the category’s momentum to reach new heights. Deals are being struck and strategies hatched, and in D’Ussé there is a high-profile disruptor poised to give cognac a good shake. It’ll be worth paying close attention to where everyone ends up.
