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Cognac makers ‘fail’ to build brands in China

Cognac producers looking to China have their work cut out rekindling love for the category – but their luck may soon turn.

Despite the impact of China’s austerity measures on Cognac, the category is beginning to boast a more positive outlook

China celebrated the dawn of a new year, the Year of the Ram, in February as the nation marked the start of the Chinese New Year. The 16-day-long celebration is one teeming with superstitions including a widespread belief among Chinese people that your actions at the start of the year will affect your luck in the coming months. When it comes to China, it’s no secret Cognac producers could do with a lucky year.

Chinese New Year was once a time of giving and receiving expensive spirits bottles, including Cognac. Yet, although the annual event witnessed a spike in volume sales, the full story for Cognac is one filled with misfortune of late. The onslaught of President Xi Jinping’s crackdown on extravagant gift-giving in 2013 hit the category hard.

The figures from that year show global export volumes declined 4% to 161.4 million bottles, and continued to fall another 3.6% in 2014 to 155.6m, according to the Bureau National Interprofessionel du Cognac (BNIC).

Sensitive situation

However, such figures are but a drop in the ocean when we turn our focus solely on the Far East. Exports to the region plummeted 17.4% in volume and 21.6% in value in 2014 as a result of the anti-corruption campaign. The BNIC claims the global statistics “indicate signs of recovery” as volume figures from August to December 2014 matched those seen during the same period in 2013. But make no mistake; Cognac houses are under no illusion that the road to recovery will be a smooth ride.

Cognac Tiffon has all but abandoned the market entirely for the time being having seen its sales slow down drastically from around 100,000 cases in 2012 to just a few thousand last year.

Plus, the fact that one of the four biggest Cognac houses, Rémy Martin, declined to talk to The Spirits Business about the situation in China perhaps speaks louder than any interview could have done about how sensitive the situation remains – and they were not alone in refraining from discussions. In the firm’s latest financial results for its 2014/15 fiscal year, though, Rémy Martin reported organic sales fell 1.9% – lower than the expected 2.2% drop – which was attributed to a “sales rebound over the second half of the year in all major regions and, in particular, in Greater China”.

Catastrophic impact

Those who were willing to divulge their experiences were honest about how severely impacted their brands have been following the austerity measures, with Antoine Braastad, head of sales for Braastad Cognac, admitting “2014 was catastrophic for us”.

So what are Cognac houses doing to facilitate a return to growth in China? The answer resonating from the majority of brands is that in order for the category to move forwards, first it must go back and re-lay solid foundations.

“In order to rebuild our brand we have to start slowly and proficiently,” explains François Le Grelle, CEO of Hine. “It will require a lot from the brand; we will have to adapt our sales strategy and we will spend more and more time training our team on how to educate people to ensure they understand exactly what Hine is. Over the next two or three years, we will have to re-establish our roots; we have to avoid being seen as a commodity with a short-term profile; something that will disappear.”

Le Grelle certainly isn’t alone in his way of thinking – for the majority, education is going to be key to recovery. Most Chinese Cognac consumers have not yet computed that price is not necessarily a direct representation of quality. “I think the most important thing to know about China is everybody was drinking Cognac because it’s expensive and French – nobody really built a brand name over there,” says Mathieu Gouze, sales manager Western Europe, Maison Ferrand. “We must work now to educate people on our product, explaining how and why they should use it. It’s going to be a long-term process to build the brand and ensure we stay in the market.”

Lack of planning

Still, the problem is much bigger than a matter of consumer understanding. The Cognac houses failed to plan their entry to the market efficiently and as such, their short-term views found them unprepared for the sudden shift in circumstances. “Much of the problem with the Chinese market is the total lack of understanding and planning that many of the small businesses were conducting before throwing themselves into the inferno,” laments David Baker, managing director of Brandyclassics and Hermitage Cognacs. “The majority totally fail to understand the basics of selling and fall back on the fundamentals of price rather than benefits.”

The temptation to discount Cognac in order to increase volume sales is certainly there, but speaking with brands it is evident many are reluctant to explore this route, as it would “raise questions over what defines a luxury brand”. The approach must be one with a long-term vision if the category is to have any chance of survival. Expressions of VS and VSOP Cognac will be a main focus for houses such as Braastad and Ferrand in 2015 – a far cry from the glory days when the likes of XO and extremely rare editions bolstered the category in terms of both volume and value.

Source: The Spirits Business