CHINA: Cognac market still fertile despite slowdown - analyst
Hennessy has reinforced its position at the world's top Cognac brand, Bernstein said
China's Cognac market is slowing down but there is still plenty of room for growth, an analyst has said.
Cognac shipments to the country are increasing in the mid-to-high-single digit range compared to double-digit growth in past years, according to Sanford Bernstein. In a detailed note, released on Wednesday (21 November), the analyst predicted that high-growth market segments will be the main driver for global Cognac growth, while sales in the US are on course to outpace the country's other alcohol sectors.
“We see no sign of affluent Chinese consumers losing their taste for prestige Cognac, and we still see plenty of room for geographic expansion,” Bernstein said, adding that, while the Hennessy brand, which is 34%-owned by Diageo, has reinforced its leading global position, its market share in China is falling. “(Hennessy's) top-line trends are not as strong as its two closest rivals because of its higher relative exposure to lower-growth, and lower-value, VS Cognac in the US,” it said.
Global number two Martell, owned by Pernod Ricard, will benefit most from China's continued thirst for Cognac, although its reliance on sales there leaves it open to risks, Bernstein said. Rémy Cointreau's Remy Martin is the world's number three Cognac brand, with Beam Inc's Courvoisier fourth.
The analyst also said that strong growth in the US could add another string to the Cognac industry's bow, although US growth is more volume-driven than the highly premium Chinese market.
Bernstein said it expects 6% to 7% growth in global Cognac volumes over the next 12 months and 13% to 15% organic sales growth.
In September, analyst Kepler predicted that Q3 and Q4 Cognac sales in China are likely to face a "temporary slowdown".
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