Loss of interest in China ‘worst thing’ for Cognac

Loss of interest in China at the first sign of trouble would be the “worst thing” for Cognac brands, François Le Grelle, managing director of Hine, has warned.

Loss of interest in the Chinese market could be disastrous for Cognac brands

The slump in volumes experienced by many major Cognac brands over the past year follows the Chinese government’s crackdown on extravagant gift giving and corruption.

However, according to Francois Le Grelle, Hine MD, in the increasingly wealthy parts of north and west China, where consumers may not be rich enough to buy VSOP or XO regularly, there is a chance for Cognac to compete directly with local spirits.

Hine – which was bought by French family concern EDV SAS last year – is eager to make some “prudent” investments in China while it is still relatively quiet.

“It’s the best period to do so with more and more people afraid of the market,” argued Le Grelle, who sees Cognac’s success over the past four or five years in China as a seeding period for the category in China.

“I think we took advantage of an opportunity to do some business and make some cash,” he said.

“If this cash is used for the future then, then nothing is wrong. If it’s considered as an immediate profit and nothing else, then some people could be in trouble.”

Global decline

Figures from the Bureau National Interprofessionel du Cognac (BNIC) reported a global decline in 2013, with volumes falling 4% to 161.4m bottles and value increasing 0.2% to a record €2.4 billion.

The combined markets of Singapore, China and Hong Kong fell by 6 million bottles to 52.5m, a marginally higher volume than the US.

In spite of this, Alexandre Gabriel, president of Cognac Ferrand claims it is “no reason for alarm” and that the category will grow stronger given time.

“I am not worried,” Gabriel expressed.“We are comparing 2013 and a slight decrease of sales to a record previous year,” Gabriel explained. “It is a normal thing that you have periods of strong growth and periods of pause.

“It is a normal cycle and no reason for alarm.”

For a more comprehensive overview of Cognac category see the May issue of The Spirits Business magazine.