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Will China bite again to tarnish Chapoulaud-Floquet's Remy Cointreau legacy? - just-drinks thinks

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Is Valérie Chapoulaud-Floquet, who announced yesterday she will leave her post as CEO of Remy Cointreau at the end of the year, a contender for the spirits industry's luckiest leader? Or, has the former cosmetics industry executive, who oversaw a remarkable turnaround in the group's fortunes, set the blueprint for how a modern premium spirits company should be run?

Remy Cointreaus CEO, Valérie Chapoulaud-Floquet, joined the company five years ago

Remy Cointreau's CEO, Valérie Chapoulaud-Floquet, joined the company five years ago

As Chapoulaud-Floquet prepares her exit, the immediate consensus is the latter. In a client note today, Bernstein analyst Trevor Stirling said the Frenchwoman's tenure has been "incredibly successful in terms of shareholder returns". Stirling also points to a repositioning of Remy at the high-end of the spirits market, with the proportion of unit sales over the US$50 mark up ten percentage points compared to when she arrived, five years ago.

There is also the impact of Chapoulaud-Floquet's experience in the luxury goods sector, and her intention to treat Remy as not merely a spirits company but a major player in the lucrative luxury market. The CEO saw her competitors as being less Diageo and Pernod Ricard, more Hermes and Dior.

And, it's worked. As an analyst, Stirling naturally homes in on shareholder returns. But Remy's top line also soared under Chapoulaud-Floquet. In the group's most recent full-year results, released in April, Remy posted record high sales, with an 8% increase on the year before. The rise was on top of a 7% jump the year before.

However, it cannot be denied that good fortune shone on Chapoulaud-Floquet brief five-year tenure, to compound her undoubted hard work. The CEO took over at a difficult time for Remy as anti-extravagance measures in China hammered both sales and profits. The subsequent recovery for Remy had much to do with the concurrent revivial of the Chinese Cognac market, and Remy's outsized exposure to it.

Because, let's not forget, criticism of Remy among the analyst community at the time of the China crash included the charge that the group's portfolio was too heavily weighted to the Remy Martin Cognac brand, and to Asia. When the market in China nose-dived, so did Remy's results.

Has Remy spread its risk since those difficult days? In results in April, the company said Cognac accounted for almost 70% of total sales in the final quarter, proving that the House of Remy Martin is still the dominant force in the portfolio, despite solid growth in the past few years for Remy's other brands such as Bruichladdich. What's more, a Barclays analysis estimated at the time that Remy's Louis XIII Cognac, which sells for upwards of US$2,400 a bottle, is responsible for up to 35% of the company's China sales.

That's a lot of eggs in a dearth of baskets. For example, a repeat of the Chinese Government's anti-corruption measures that triggered Remy's initial misfortunes in the country, would likely hit Remy hard.

Granted, there are mitigating factors in Chapoulaud-Floquet's favour. China's Cognac scene has changed in the past few years. The opaque, unpredictable market of before the anti-corruption measures has morphed into a more familiar retail scene, and Remy has undoubtedly repositioned to make the most of it. Meanwhile, the group has focussed more on Cognac sales in the growing US market to hedge risk. 

One more China crisis and Chapoulaud-Floquet's currently secure legacy of growth could be in danger.

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