Eyes on the prize

20 June, 2014

“We suffered in the China domestic [market in 2013] in the deluxe category and in Korean duty free where it’s the Chinese who mostly buy,” notes Frederic Beerens, export manager Asia for Cognac Frapin. “We were affected like everyone else, but VSOP sales have been stable. Other markets performed well with increases in Taiwan, Malaysia and Singapore.” 

The key challenge for the Cognac houses now is whether to adapt to this new altered commercial environment or hold out for a return to the good old days. 

Have the halcyon days of lavish entertaining and gift-giving by the Chinese elite gone forever? Should discounting be resisted and can consumption of less expensive VS and VSOP qualities by the growing numbers of ordinary middle-class Chinese be encouraged? 

“Our strategy today is based on a consolidation phase,” says Hine’s Le Grelle. “We prefer to maintain the pricing compared to the volumes by accompanying this with educational events where tastings of our products are organised in order to improve the knowledge of our brand. “By doing it this way it seems possible to obtain or generate a certain amount of customer loyalty. This implies VSOP, as well as the higher qualities, including the vintages, which are part of our savoir-faire and our DNA.” 

“We are trying to maintain and strengthen our oldest quality sales by our commercial actions and on-site presence,” says Michel Dobbe, chairman of family-owned Dobbe Cognac. “We don’t believe in the end of XO [sales] in China in the short term. But we think and hope the middle class will come to VS and VSOP consumption. “We can foresee there is a huge market and try to encourage our distributors to propose a new way of Cognac consumption in long drinks or cocktails.” 

One of the sizeable obstacles for smaller players without large marketing budgets trying to foster this new type of independent on-trade and off-trade consumption in China is having to break down traditional attitudes to consuming the spirit. Says Cognac Frapin’s Beerens: “You should understand that all these gifts of Cognac are consumed outside. They are brought to restaurants and clubs. Asians don’t drink at home. 

“If you walk up to a bar in a five-star hotel or restaurant in Asia and you wait until someone orders a Cognac you’d better bring a mattress. It can take a long time! “Japan is the exception but unfortunately young people there don’t drink Cognac. “Basically, Asians still prefer to drink in groups with friends in clubs and lounges or around the table. On holiday they are every F&B manager’s worst nightmare. They don’t drink except for maybe hot water.” 

The outlook for Cognac in China and other Asian markets certainly isn’t without its challenges then. However, as we’ve seen, producers remain optimistic about the region’s long-term potential. The level of new product innovation targeted at Chinese consumers also remains encouragingly high, especially within the duty free channel (see p55). 

Cyclical business

Amid all the handwringing about the current situation in China and its effects on the Cognac business it’s worth remembering what a cyclical business it has always been. 

This famous French spirit has had more than its fair share of ups and downs over the years. Back in the late 1990s Cognac houses actually suspended purchases of new eaux-de-vie as sales at home and in the Far East plummeted. Furious vineyard owners took to the streets of Cognac barricading the roads with burning tyres. 

Yet amazingly, within a decade sales had reached record levels as Cognac became an unlikely status symbol for the US rap stars and the swelling ranks of the Chinese nouveau riche. 

The current doldrums being experienced in Asia is nothing like as severe as the financial crisis of the late 1990s. 

Despite Cognac exports to the Far East declining 10% in volume to 56 million bottles last year, the Bureau National Interprofessionel du Cognac (BNIC) still described the region as “the most important export market for Cognac in terms of volume and value”.  

Many in the business are convinced not only that the Chinese market will correct itself sooner rather than later, but that other emerging markets in the region will come to the fore.





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