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Analysis - Remy Cointreau and the road ahead in China

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Despite being the weakest-positioned player to weather the international spirits storm in China, it is reassuring to hear that Remy Cointreau maintains an upbeat outlook on its longer-term prospects in the country - even if 2014 has given the company nothing but trouble.

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Late last week, the French firm warned that it expects its profits for the 12 months to the end of March to dive by between 35% and 40% on the corresponding period a year earlier. The warning came as Remy Cointreau posted a 13.5% drop in sales for its fiscal year, with destocking efforts in China primarily being blamed for the numbers.

Of course, Remy is not alone in dealing with the fallout from government measures to restrict conspicuous consumption among officials in the country. But, unlike Diageo, Moet Hennessy and Pernod Ricard, the company does not have a geographically-diverse footprint to fall back on. Not only that, Remy over-indexes the Chinese sales channels that have been worst hit by the measures.

As analysts at UBS flagged in a note to clients on Thursday: “We estimate that 25% to 35% of Remy's China sales are impacted by anti-extravagance and, as such, Remy is at the sharp end of the initiatives relative to its international peers, due to its large exposure to ultra-premium Cognac.

“Therefore,” the note continues, “we expect Remy will lag its peers in terms of recovery in China, as it is relatively underweight VSOP. Furthermore, unlike Pernod and Hennessy, it is not yet responding to a potential 'normalisation' of the Chinese Cognac market, with the launch of lower-priced offerings (such as VS+ selling for US$35 to $40 per bottle).”

And yet, Remy appears to be steadfastly focusing on the positives on the horizon.

“Remy remains confident about the mid- to long-term growth prospects of the Chinese market,” says UBS. The analysts flagged that: 10m-plus consumers are able to buy Cognac every year; current consumption is circa one bottle per 'millionaire household'; Tier 3 and Tier 4 (cities) potential remain intact and under-penetrated by Remy and private consumption is still low overall. 

These pointers have been around for quite some time, though. So, while a road-map to navigate the international spirits landscape in China is finally starting to take shape, Remy must be hoping its vehicle is still on the road once the corner is reached.


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