What can the spirits and wine industries learn from Moet Hennessy? - Comment

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Following on from just-drinks' analysis of Moët Hennessy's performance over the last five years, spirits commentator Richard Woodard considers the takeaways for the wider spirits and wine industries.

The performance of the Cognac category, in which Hennessy is a major player, has shaped Moet Hennessys performance between 2013 and 2017

The performance of the Cognac category, in which Hennessy is a major player, has shaped Moet Hennessy's performance between 2013 and 2017

While the past five years have had their challenges for Moët Hennessy, it's fair to say that the company has weathered the difficult times more effectively than its two most obvious, Cognac-led rivals: Rémy Cointreau and Pernod Ricard's Martell Mumm Perrier-Jouët arm. Moët Hennessy is marked out by its laser focus on luxury, but the headline acts of Hennessy, Moët and Clicquot can sometimes overshadow the vital role played by the company's other brands – and its corporate story is more complex than is sometimes portrayed.

So, here's lesson number one…

  • Spread your risk (Part I)

The downturn in China had a major effect on Hennessy, but the impact on the brand came later - and lasted for less time - than was the case for Rémy Martin or Martell.

To a great extent, geography played a part here (see Part II below), but the breadth of the company's Cognac business in China was also important. In particular, the presence of

Hennessy Classivm gave the company some residual business in China when XO sales had fallen off a cliff

Hennessy Classivm – a VS-level product that had previously looked out of place in a VSOP-and-above market like China – helped delay the pain of the slump, and gave the company some residual business when XO sales had fallen off a cliff.

But, Moët Hennessy was never quite as reliant on Cognac as, most obviously, Rémy Cointreau. When Hennessy fell, Champagne sales were rising as Moët & Chandon volumes hit record levels, Veuve Clicquot grew in markets as diverse as the US, Eastern Europe and Australia, and high-end products like Krug and Dom Pérignon surfed the luxury Champagne boom in Japan and elsewhere.

Add in the multi-region Chandon sparkling wine business, single malts Glenmorangie and Ardbeg, Belvedere vodka and a number of blue-chip still wine estates, and you have a deceptively-diverse drinks business that's well-equipped to survive a bad spell for its most famous name.

  • Spread your risk (Part II)

The impact of the downturn in China's Cognac market was exacerbated by the gamble taken by the category's leading players, all of whom were betting that a market bubble would somehow acquire solid form. When it burst with the introduction of Government austerity measures, everyone suffered.

While that includes Hennessy, the brand experienced nothing like the same negative impact as Martell and Rémy Cointreau. All had to a greater or lesser extent diverted budgets, stocks and their attention to China, but Hennessy was prevented from going too far down this road by its huge presence in the US. Already dominant in the market, it was perfectly placed to push volumes Stateside when China imploded. While large volumes of VS can't make up for a slump in XO sales in profit terms, they do help to maintain revenues.

It's telling that, in 2015, when China was still on life support, Hennessy topped the IWSR's World Class Brands list – thanks to its double-digit sales increase in the US market.

  • Tailor your approach in emerging markets

Succeeding in the largest emerging markets - China, India and, to a lesser extent, Brazil - is about much more than simply selling aspirational Western brands to the locals. Longer-term success involves a more subtle, tailored and proactive approach.

You can't make Champagne or Cognac anywhere else, but it's a different story with wine. Here, the role of Moët Hennessy's Chandon sparkling wine operations is vital, with full vineyard and winemaking subsidiaries established in China and India in recent years.

In China, the venture has gone a stage further, establishing a remarkable vineyard at an altitude of 2,800m in Yunnan province, in the foothills of the Himalayas, and launching a fine wine, Ao Yun, with a price-tag to match (US$300 per bottle at launch).

The investment involved in establishing domestic luxury offshoots is a signal of Moët Hennessy's long-term approach

It's early days for both of these operations, but the investment involved in establishing domestic luxury offshoots is a signal of Moët Hennessy's long-term approach in markets that are only going to grow in significance in the future.

  • Never stop investing

When times are tough, it's tempting to pull the plug on major projects and wait until sales and profits pick up again. It's a trend we've seen even in established categories like Scotch whisky, with the industry's biggest players, Diageo and Pernod, reining in their expansion plans when export sales started to slide.

It helps to have a high-margin business model - which Moët Hennessy clearly has - but the company has continued to invest behind the long-term potential of its brands.

Only months after announcing a slide in sales and profits during 2014, the company was breaking ground on Hennessy's new Pont Neuf bottling and shipping operation; it also began construction work on an ambitiously high-tech second winery for Moët at Mont-Aigu. Early in 2016, the Chandon winery in India was opened, while investments continued in a similar vein in winemaking in China, including the development of Ao Yun.

And, early in 2018, the company announced a doubling of distillation capacity for its Islay single malt Scotch distillery, Ardbeg, plus another expansion in production for Highland single malt Glenmorangie.

  • Bolt-on acquisitions work

While Cognac and Champagne hog the Moët Hennessy headlines, the company has spent years painstakingly assembling an increasingly diverse wine and spirits portfolio.

Only in rum has there been a serious misfire

This spans vodka, Scotch and Tequila in spirits, while the wine operations feature nine countries, from Bordeaux and Burgundy to Australia, New Zealand, Argentina and Spain. Only in rum - the company's 10 Cane brand lasted only ten years before being discontinued in 2015 - has there been a serious misfire.

Over this five-year period, the acquisitions and new ventures have been value-enhancing bolt-ons, rather than transformative; the much-prized Clos des Lambrays vineyard in Burgundy, acquired in 2014, and the joint venture for the Volcan de Mi Tierra Tequila brand, signed in 2016.

There has been a new foray into American whiskey with the purchase of Washington state-based craft brand Woodinville in July 2017, and a further acquisition in California with Napa's Colgin Cellars in November of the same year.

The big buys have come from the larger LVMH group, including the acquisition of Christian Dior in April 2017. The scale of that purchase rekindled speculation that Diageo might try to acquire Moët Hennessy - it currently holds a one-third stake in the business - but company sources were swift to dismiss the speculation.

  • Keep innovating

A strong association with strictly-regulated categories like Champagne and Cognac can bring with it a reputation for being conservative and reactive, rather than having a proactive and dynamic NPD programme.

But, tactical innovation is a key part of the Moët Hennessy DNA, from the early days of this five-year period when Hennessy's market-specific Classivm expression helped to shore up the brand as austerity measures began to bite in China.

Hennessy has also tried to cash in on the American whiskey revival in the US with the distinctly Bourbon-esque (in packaging and marketing terms) Hennessy Master Blender's Selection, a relatively short run of two editions that concluded with the second iteration, unveiled in October 2017.

Champagne too has featured on the innovation front, from Veuve Clicquot's Extra Brut Extra Old spin-off to the same brand's "mixable" Rich cuvée. Meanwhile, Moët has moved into prestige territory with MCIII and – at the other end of the Champagne market – targeted the over-ice consumption occasion with Ice Impérial Rosé.

Some of the company's major recent investments have also spawned innovations, including the setting up of sparkling wine subsidiaries and vineyards in India and China, and the establishment of the high-end Ao Yun table wine venture in the latter's Yunnan province.

Judicious innovation is also about choosing the right opportunities; Belvedere, for instance, was never a major participant in the US flavoured vodka boom, and as such was impacted less by the segment's slump - preferring instead to pursue provenance-rich innovations such as its Single Estate Rye vodka.

And, innovation can take many forms beyond NPD; the recent past has seen Moët Hennessy move into such varied areas as online retailing (through Clos19), Champagne vending machines at the UK's Henley Festival, the on-demand delivery of Dom Pérignon via Thirstie in Miami and New York, and partnering with Amazon's Alexa in the US on Champagne education.

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