How is the future shaping up for Cognac and Brandy? - Research in Focus

The latest joint report from just-drinks and The IWSR looks at the Cognac and brandy category

Although global brandy sales have been generally flat over the past five years, this disguises the continued momentum for Cognac consumption and a premiumisation trend that permeates the entire category.

According to the Global Cognac & Brandy Insights 2018 report from just-drinks and The IWSR, the Cognac category has recovered from the impact of austerity measures in China, posting renewed gains in the market as it begins to normalise. Furthermore, this resurgence in key areas such as Guangdong and Fujian is spreading beyond Greater China, with Chinese communities, visitors and tourists boosting consumption across Asia and Australasia.

While this recovery is welcome news for the Cognaçais, it is overshadowed by the remarkable performance of Cognac in North America, where consumption reached record highs in 2016. Published in early-February, the report says this momentum came as "innovation and a growing interest in brown spirits saw new drinkers join the category's core African-American and Asian consumer base".

What is more, this North American influence is increasingly driving growth in the Caribbean and Africa, thanks to Cognac's close association with "the glamorous lifestyle promoted by the hip-hop community".

Because of these positive trends and influences in North America and Asia - along with recovery in another key market, Russia - Cognac volumes are forecast to continue their recent growth, reaching more than 17m cases by 2021.

The US and China are expected to lead the charge, supported by Russia and a number of other medium-weight and emerging markets, including South Africa, Canada, Indonesia, Nigeria and India.

Growth is also expected to continue at a more moderate rate in the UK and in Global Travel Retail, but more challenging conditions are expected in many European markets, with France risking falling out of the global top ten altogether by 2021.

Prospects also look bright for premium-plus Cognac sales, but tightening supplies could hamper growth, as could the increasingly-important role played by VS qualities in markets such as China.

In this context, the Cognac houses will be faced with some "tough decisions" in terms of balancing supply and demand, the report warns: "Do they continue to prioritise markets such as the US, which is chiefly a VS market, or Travel Retail with its inherently-unfavourable margin structure, over more profitable markets such as China?

"Price increases will be one likely way of managing the situation and bringing demand into line with supply."

Meanwhile, Cognac producers are becoming increasingly - some would say belatedly - innovative in their approaches to NPD and marketing, aping rival categories such as American whiskey and single malt Scotch in an effort to tap into current consumer trends.

While this opportunism is reaping rewards for products such as Hennessy Master Blender's Selection No 1, Martell Blue Swift and Martell VS Single Distillery, there are concerns that Cognac brand owners should not take this too far and sacrifice the category's own distinct identity.

Marketing, meanwhile, is increasingly adopting a holistic approach, especially at the top of the market, with luxury players such as Rémy Martin linking everything from the liquid to the packaging, marketing message and consumer experiences linked to the product.

Elsewhere, non-Cognac brandy volumes are dominated by low-priced emerging markets, particularly India, the Philippines and Russia, which together account for well over 100m cases of annual sales. However, over the five years from 2012 to 2016, India and the Philippines shed nearly 8m cases between them, with India particularly hard-hit as consumers migrate over to local whisky. In the Philippines, beer, gin and kulafu have all stolen market share.

Trends have been more positive in South Africa and Russia, where economic gloom has encouraged consumers to trade down to brandy, but there have been signs of premiumisation as well.

Global sales of premium-plus brandy fell between 2011 and 2016, but this is skewed by the declines in Mexico, the leading premium-and-above market. Gains have been made in Russia, GTR, the US, Germany and Italy.

The emergence of high-quality local brandies - whether through the 'craft' movement in the US, or premium pisco and singani in Peru, Chile and Bolivia - is also encouraging this premiumisation trend. More of the same is expected in the years to 2021: a declining market for non-Cognac brandy overall, but disproportionately so in India and the Philippines. Better trends are forecast in Russia, the US, Ukraine and smaller markets including Chile, Kenya and Bolivia.

However, the prospects are gloomier for some traditional brandy-consuming countries, including Brazil, Germany, South Africa and Italy, the report notes.

For full details of just-drinks and The IWSR's Global Cognac & brandy insights - market forecasts, product innovation and consumer trends, click here