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Reforged China Cognac market poised for fresh growth - analyst

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Anti-extravagance measures have changed China's Cognac market irrevocably, an analyst has said.

Cognac sales in China have suffered in the past two years

Cognac sales in China have suffered in the past two years

Future growth in the category will come from mid-range VSOP and VSOP+ brands instead of high-end spirits, Bernstein's Trevor Stirling said today. Meanwhile, main consumers will be younger Chinese drinking in bars, night clubs and mainstream karaoke bars.

Cognac producers were hit hard by a change in China's leadership in 2012 and a subsequent crackdown down on expensive dinners and gifts for government officials. Sales of high-end Cognac fell and companies such as Remy Cointreau, which had a high exposure to the then-fast-growing Chinese Cognac market, diverted stocks to other regions such as the US.

However, Stirling said the Cognac market in China is now "very close to bottoming". According to the analyst, there has been no new broad-scale anti-extravagance measures at the start of this year and "there were signs that the market was beginning to stabilise, consistent to the return to double-digit volume growth of Cognac shipments".

According to Stirling, short-term mix and margins will fall but there will be high-single-digit/low-double-digit growth in China over the next five years.

The analyst also said the US Cognac market has grown in importance for Remy and Pernod Ricard and accounts for 40% and 17% of group sales respectively. In comparison, China accounts for 38% of Remy's group sales.

Stirling is not the first to highlight a fundamental change in China's Cognac market. In November, a Remy Cointreau executive said that gifting in the country was dead.

Pernod has taken steps to appeal to younger Chinese Cognac consumers with a ramp-up of its Noblige brand.


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