Analysis - Chinese hangover continues for Remy Cointreau
China is by far the largest market for Remy Cointreau's Remy Martin Cognac brand
Remy Cointreau risks Chinese consumers gravitating towards other Western spirits rather than returning to Cognac when stock levels return, an analyst has warned.
Earlier today (17 October), Remy Cointreau, whose portfolio is dominated by the Remy Martin Cognac brand, reported a slide in first-half sales, as the second quarter performed worse than Q1. Sales of Remy Martin fell by 8.3% organically in Q2, and the firm highlighted the drag on the brand from the introduction late last year of anti-extravagance measures in China by the country's authorities.
In a note published after the results release, Nomura suggested that there is "no light yet at the end of the tunnel" for Remy Cointreau.
"Destocking in China is taking longer than expected, and this is delaying any turnaround in company reporting," the analyst said.
"Once stock levels stabilise in China, there are still some important questions for the company: Will Chinese consumers come back to Cognac again, or will they gravitate more to other western-style spirits? If not, can other markets like the US compensate? Does the company need to widen its spirits portfolio?"
“However," the analyst said at the time, "it has ruled out a further Scotch deal for now (after buying Bruichladdich last year), and has fairly narrow criteria for future acquisitions (must be high value), which may make it difficult to achieve.”
Bernstein echoed Nomura's concerns about Remy Cointreau in China today. "As expected," Bernstein said, "Rémy Cointreau was hit by a stock overhang in China and continued consumer weakness from the Chinese anti-conspicuous consumption policy. However, this impact was worse than expected."
In its results announcement today, Remy Cointreau admitted that its Chinese hangover still has some distance left to run. "In the third quarter," the firm said, "Rémy Martin is expected to remain adversely affected by certain measures taken in China and by the level of retail inventories.
"Nevertheless, the group remains confident in the brand’s exceptional fundamentals in Asia, and in its long-term development in China."
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