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EU brandy tariff could ‘diminish’ market share
Duties on imports of EU brandy could “drastically” decrease the competitiveness of the category in China, GlobalData has predicted.
On 8 October, the Chinese Ministry of Commerce (MOFCOM) said it would impose provisional anti-dumping duties against imports of European brandy from Friday 11 October.
Data and analytics company GlobalData said the move would lead to a potential decline in sales volume for brandy from the European Union.
Bokkala Parthasaradhi Reddy, lead consumer analyst at GlobalData, said: “The higher prices resulting from the tariffs may deter Chinese consumers from purchasing EU brandy, which could result in a shift towards domestic or other non-EU brands that are more competitively priced.
“This shift could diminish the market share of EU brands in one of their key growth markets, as consumers may opt for alternatives that offer better value for money due to the increased costs associated with imported brandy. This will be detrimental to the global spirits business, and the Chinese market, in particular.”
Reddy said the tariffs could also result in a “long-term shift in consumer sentiment towards EU brandy”, adding: “If consumers perceive EU brandy as a luxury that is now out of reach due to high tariffs, they may become less inclined to purchase it, even if prices stabilise in the future.
“This shift in perception could have lasting effects on brand loyalty and market dynamics, as consumers may turn to other spirits that remain affordable.”
It could also be a challenge for companies to absorb the costs, leading to price increases for consumers or “reduced profit margins”, according to Elyn Gao, business development director, GlobalData China.
Gao also noted that the “psychological impact of tariffs and trade conflicts can dampen consumer sentiment”, pointing to the decline in housing prices in China as an example, as it impacted consumer confidence, leading to reduced spending.
Reddy warned that the tariffs could have a “significant” effect on leaders in the category such as French firms Rémy Cointreau, LVMH (owner of Hennessy), and Pernod Ricard, which produces Martell Cognac.
Reddy says that Pernod Ricard will not be as badly hit by the duties as its competitors because the company “expects the import duties to be lower for its products due to its cooperation with Chinese authorities”.
Reddy added: “This situation is part of a larger pattern of trade disputes between China and Western countries, as seen in the previous tensions with Australia over wine imports, where similar accusations of dumping led to temporary tariffs of over 100%.
“In response to these challenges, EU brandy producers may need to reassess their strategies in the Chinese market. This could involve exploring cost-reduction measures, enhancing marketing efforts to emphasise the quality and heritage of EU brandy, or even considering partnerships with local distributors to navigate the new pricing landscape more effectively.”
Reddy also warned that companies may look to diversify their geographical presence to reduce their reliance on the Chinese market, particularly if tariffs remain in place.
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