IWSR: Cognac suffers as Tequila booms

Volumes of Cognac in the US declined by double digits in the first half of 2023 as it faced increased competition from agave spirits.

The Cognac sector saw its volume drop by 16% in the first six months of this year, versus the same period in 2022, data from IWSR Drinks Market Analysis showed.

Cognac volumes in the US rose at a compound annual growth rate (CAGR) of 12% from 2014 to 2019, followed by further growth during the pandemic, before plunging by 20% in 2022. Globally, the sector saw a 10% decline last year.

The category is seeing ‘sharp’ declines in the US, which accounts for more than 40% of global Cognac sales, the IWSR noted.

The analyst attributed the drop partly to supply chain issues stemming from the pandemic, with retailers and distributors having high levels of inventory. The decline is also down to a return to normal drinking habits.

But the IWSR has also highlighted agave-based spirits as potentially affecting Cognac sales, with drinkers ‘reining in their appetite for this high-status, high-priced category’ in favour of ‘cost-effective’ drinking options.

The IWSR said the two categories are competing for the same consumers, namely middle-income ‘core’ drinkers and higher-income urban Millennials.

“Our consumer research shows that Cognac drinkers are two times more likely to drink Tequila than alcohol drinkers in general,” said Richard Halstead, chief operating officer of insights and custom analytics, IWSR. “And both categories generally find themselves in competition at similar consumption opportunities – social, uptempo occasions.

“It’s also important to note that Cognac’s audience is relatively small – less than one-third the size of Tequila in the US, with 8% recalled consumption versus 27% – and has more lower- and middle-income drinkers, but fewer high-income drinkers versus Tequila: 43% of Tequila drinkers say they have an annual income of US$100,000-plus, compared to 27% of Cognac drinkers.”

In the past six months, more than one-fifth of Cognac drinkers said they consumed Tequila on their last drinking occasion.

As such, the IWSR believes that this core group of Cognac drinkers will drink the grape-based spirit less often and buy it in smaller quantities, as well as switching to other premium spirits such as Tequila and vodka, and cocktails.

“Tequila has a number of inherent advantages over Cognac in terms of its scale, diversity and versatility,” explained Jose Luis Hermoso, research director, IWSR. “Tequila boasts a wide variety of styles and price points versus the relatively narrow – and expensive – range of products available in Cognac.

“Tequila also has more versatility in terms of consumption occasions, including shots, cocktails and – increasingly, in the upper price tiers – as a sipping spirit. The category has an inbuilt advantage in that it is used in highly popular cocktails, such as the Margarita, the Paloma and Ranch Water.”

IWSR data found that 50% of Cognac drinkers said they consumed a Margarita in the past six months.

Marten Lodewijks, consulting director – US at IWSR, also noted that Tequila benefits from being “more gender neutral” in its appeal in the US, while Cognac is mainly consumed by men.

Cyclical decline

The category’s decline has also been seen by the owners of the world’s biggest Cognac brands this year.

Rémy Cointreau’s Cognac division plummeted by 30.1% from April to September 2023 due to a ‘steep decline’ in North America, while Moët Hennessy’s spirits sales fell by 14% in the first nine months of this year after Hennessy struggled in the States.

Meanwhile, Martell Cognac’s performance in the US contributed to a 3% decline for Pernod Ricard’s ‘strategic international brands’ in the three months to 30 September 2023.

The IWSR said Cognac’s decrease is likely cyclical as opposed to structural, with data from the past 30 years showing that the category suffers during times of economic hardship.

As such, Lodewijks said brand owners should work to broaden the appeal of Cognac in the US.

“Looking at historical evidence in our research, it seems that Cognac used to have a broader base of consumers, including more people at a higher income level,” he noted.

Furthermore, the sector should look to widen how it is consumed to “counteract Tequila’s inherent advantage as a base for hugely popular cocktails”, Lodewijks added.

According to figures from the Bureau National Interprofessionnel du Cognac (BNIC), global Cognac volumes dropped by 4.8% in 2022 to 212.5 million bottles.