Like a glass of icy water knocked into the lap of an unsuspecting diner it’s come as an abrupt, sobering shock to an industry grown accustomed to years of ever-rising sales.
Chinese president Xi Jinping’s austerity campaign’s very successful crackdown on the luxury gift-giving and lavish lifestyles of government and military officials has dealt the major Cognac houses a hefty blow since its inception in late 2012.
Their recent financial results don’t make for happy reading. For instance, Rémy Martin, which has come to rely on China for a third of its business in recent years, reported in January that its third-quarter results for the financial year 2013/14 were down by a hefty 19% as a result of the anti-gifting measures in China. As for Pernod Ricard it revealed that net sales of Martell had dropped 8% over the first half of fiscal 2013/14 again as a result of the situation.
Hennessy, another of the big four, hasn’t escaped the effects of the austerity campaign either. LVMH announced in April this year that organic revenues in its wine and spirits division had dropped 3% in the first quarter of 2014 due to the “performance of Cognac in China” and “current de-stocking by retailers”.
Downturn reports
Other Cognac houses also report a downturn in sales to the Chinese. However, the majority of these smaller players remain committed to China for the long term, and several even note a welcome uptake in other parts of Asia. “Sales [in Asia] have seen a slowdown, especially for high-end Cognacs in China,” confirms François Le Grelle, managing director of Hine Cognac.
“However, this doesn’t prevent us from continuing to believe that this market is important and promising from a long-term perspective,” he adds. “On the other hand, south east Asia doesn’t seem to be following this trend and is rather buoyant.
“There is a growing middle class in many of these countries,” he adds. “Things are moving very rapidly and it’s therefore pretty difficult to predict anything with a long-term perspective, but there is a growing interest in quality spirits (not only for Cognac) in Singapore, Vietnam and even the Philippines.”
“We’ve definitely witnessed a significant slowdown in China,” admits Claire Bruere, the recently appointed Asia Pacific export manager of Cognac Ferrand. “Cognac Ferrand is very diversified worldwide. Our key markets are still Europe and the US: more traditional, fine-wine drinker, single-malt-lover-type markets. For this reason we aren’t super-exposed in China.”
However, despite the current situation Bruere insists Cognac Ferrand is committed to developing its Asian presence. “Asian markets are not easy and are expensive to access,” she explains. “I think that if you are not ready to invest for the long term, Asia is not for you. It takes 20 years to make a good Cognac – we are looking at Asia and China in particular with the same viewpoint. Quality takes time as for a Grande Champagne Cognac.”
