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Cognac market to return to ‘sustained growth’

The Cognac industry is set to “resume its path of sustained growth” following two years of turmoil, analysts at Rabobank have predicted.

Cognac decline
Analysts at Rabobank are optimistic that the Cognac industry will resume “sustained growth”

According to Rabobank’s Spirits Quarterly Q3 2015, while Cognac has been one of the “most challenged of all Western spirits segments” since 2013, with rapidly declining exports, the category now has a “renewed sense of optimism” spurred by a return to growth in the first few months of 2015.

Total exports rose 0.4% year-on-year in April 2015, totaling 159.1 milion bottles, with large producers reporting improved sales over Chinese New Year.

The category has been simultaneously hit by China’s widely reported clampdown on extravagant spending and gifting and also geopolitical tensions in Russia as a result of its conflict with the Ukraine.

However, Rabobank analysts claim: “As we view the Cognac segment, we believe that the optimism about the future of the segment is justified for a variety of reasons.”

While total exports to Asia plummeted 12.2% in 2014/15, demand is now growing for Cognac in the VS price segments.

Analysts claim that there is reason for producers to be even more optimistic than before the slowdown of the market, when demand for expensive, luxury expressions was soaring, as today’s market is a “more rational environment” to build growth.

Optimistic future

“In spite of the skew towards lower price points, we believe that the current environment provides even more room for optimism than in the years of torrid demand for XO Cognac,” the report read.

“Today’s demand is a truer reflection of real consumer demand, and it suggests that we are now in a more rational environment for long-term sustainable brand-building. Also, Cognac is seeing positive trends in other emerging Asian markets, such as Vietnam and Malaysia.”

Furthermore, Rabobank notes that the US is a “key factor” in its underlying optimism for Cognac, as producer’s focus on the market in light of difficulties in China will “pay long-term dividends”.

Exports to the US were the main driver of growth in 2014, rising by 14.8%. Some 62.8 million bottles were exported to the region in 2014/15, accounting for 40% of total Cognac export volumes.

“Barring any unexpected shocks to the economy, we are highly optimistic about Cognac’s future in the US market,” said Rabobank. “Demand for premium spirits continues to rise, and Cognac has high acceptance and gained strong momentum among key trendsetting demographics in the market.”

Analysts predict that as the US brandy segment returns to growth, Cognac will benefit as a result, particularly in light of the success of Constellation Brands’ Paul Masson Grande Amber Peach.

Earlier this year, the Federation of Wine and Spirits Exporters (FEVS) revealed that vodka had overtaken Cognac as the most exported French spirit by volume.

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