The Cognac region was at its autumnal best: Indian summer sunshine, the dark green vine leaves contrasting with the bleached chalk soils of the pristine Grande Champagne vineyards, a bumper crop of grapes safely gathered in. And yet there was an unmistakably gloomy atmosphere around the place, which seemed out of kilter with a category that remained – to all appearances – on a post-pandemic tear of growth.
This was October 2023 – only 18 months ago, and yet an age away in terms of the health of the Cognac category. What the Cognacais already knew, and the rest of us were later to find out, was that their world was beginning to turn. Warehouses groaning with stock in the US; China failing to pick up as expected following the easing of Covid-19 restrictions.
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In 2021, at the peak of the post-pandemic surge, 223.2 million bottles of Cognac were shipped around the world, according to industry group BNIC figures. The number in 2022 – 212.5m bottles – was billed as a return to normality, being only 4m bottles shy of the pre-pandemic total of 216.5m bottles, recorded in 2019.
Then came 2023: shipments totalling 165.3m bottles. That’s a drop of 26% versus 2021, and 24% compared to 2019. Hardly surprising, then, that I encountered so much angst during that October visit to the region. Nonetheless, the BNIC sought to reassure, citing temporary overstocking issues and predicting a return to pre-Covid shipment levels from 2024 onwards.
Instead, however, 2024 saw Cognac treading water, with shipments barely rising to 166m bottles. Worse still, value dipped by more than 10% to fall below €3bn (in 2022, it stood at €3.9bn).
That discrepancy between the volume and value trends is easily explained. While shipments of younger, typically VS Cognacs rose by 13.7% last year, VSOP shipments dropped by 8.6% and XO by 26.4%. (There’s one reason for this slump – China – but we’ll get to that in a moment.)
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By GlobalDataThis depressing dynamic has played out in the recent results announcements from the Cognac industry’s biggest players. Moët Hennessy’s first quarter Cognac and spirits revenues down 17% to €736m, thanks to “soft demand” in China and the US: Rémy Cointreau’s 2024/25 Cognac sales plummeting 21.9% to €611.8m.
Rémy’s figures are particularly dispiriting for a business that, even after recent declines, relies on Cognac for 62% of its revenue pool. The grim news coming out of China was leavened somewhat by a sharp recovery in the US, with the company tactically focusing on its entry-level VSOP product in a market that has long been a driver of volume rather than value.
Rémy has endured two years of constantly declining revenues, something which may or may not have been a factor in the announcement that Eric Vallat was stepping down as CEO, with board chair Marie-Amelie de Leusse taking on the role on an interim basis while a replacement is found.
We’re told that Vallat will be pursuing “a new professional project” from this summer, which is almost as vague as the traditional tropes employed in these announcements, such as “personal reasons” or “pursuing their career elsewhere”. The lack of succession planning suggests that one party or the other had concluded that enough was enough.
It’s fair to say that most of Cognac’s recent travails have been beyond the industry’s control. Covid-19, the artificial demand bubble that followed it, the delayed economic consequences of the pandemic – and now tariffs and trade wars.
But these problems are accentuated by the category’s over-reliance on two regions – the NAFTA and Far East regions – or rather two countries: the US and China. Even after the difficulties of the past couple of years, NAFTA accounted for 43% of global Cognac shipments in 2024, with the Far East at 29% (and Europe at 19%).
The promising evolution of South Africa – now an 8m-bottle market – offers a tantalising glimpse of what might have been, had Cognac’s four leading brands worked harder to develop new markets during the good years, as a hedge against times like these.
Events in the US are deeply worrying, not just because of the delayed possibility of 20% tariffs (although a 10% tariff still applies in the meantime), but also because of the sheer uncertainty of dealing with the economic whims of the Trump administration.
But the situation in China is more serious still. Following the Ministry of Commerce’s (Mofcom) provisional decision to impose additional duties of 38.1% on Cognac (and Armagnac, and other EU brandies), its anti-dumping investigation has been extended until at least 5 July.
This news prompted a joint response from the BNIC, Armagnac body the BNIA and FEVS (Fédération des Exportateurs de Vins et Spiritueux de France), following the visit of Jean-Noël Barrot, France’s Minister of Foreign Affairs, to China on 27-28 March.
You can feel the caution running through the text, as the bodies cautiously welcome the extension of the probe, as well as hints that the stockpiles of Cognac sitting in Chinese ports might be permitted to be sold in duty free (the channel has been technically suspended in China since the announcement of the provisional tariffs, with a major impact on trade).
But then comes the kicker: “However, in substance, these developments do not alter the situation for Cognac exporters, who have been subjected to provisional taxes in China since last October. For Cognac alone, these taxes have effectively excluded them from their second-largest market, resulting in a 72% drop in shipments, particularly for the month of February alone.”
Because of the nature of the Cognac industry, dominated as it is by four huge brands – Hennessy, Martell, Rémy Martin and Courvoisier – it’s easy to simply view the consequences of the situation in China (and the US) through a corporate prism. Organic revenue declines, profit margins slashed.
What the BNIC/BNIA/FEVS joint press release hints at, however, is the deeper impact on an entire region. Urging all parties to resolve the China anti-dumping dispute, it continues: “This additional period [until 5 July] must be used to find a diplomatic solution to remove our industry from this economic dispute, to which it is entirely unrelated, and which currently threatens to plunge it into a devastating and historic economic and social crisis.”
Hyperbole? I’m not so sure. Beyond the glitzy bottles of Louis XIII and Richard Hennessy, the Cognac region is a complex, interdependent ecosystem that encompasses brand owners, distillers, winegrowers and more. For all the luxury, it’s still an agricultural industry.
There may be four dominant brands in Cognac, but there are also 4,360 winegrowers and distillers, 130 professional distillers, 14,500 direct jobs and 72,500 people whose livelihoods depend on people continuing to knock back Sidecars and sip glasses of XO. If the current slump isn’t arrested, and arrested soon, there’ll be a lot more than company share prices at stake.
