Even as premiumization and experimentation with new brands have driven the Cognac category forward in recent years, some worrisome signs have appeared for Cognac this year. That said, volume in 2021 more than doubled what it was a decade earlier, and new brands and expressions are still generating enthusiasm for the luxury French spirit. Susan Gibbons, senior marketing director for Courvoisier, points out the category’s 10%-plus growth rate just in the last three years, which is “largely due the rise of at home consumption, increased media spends, and consumer premiumization trends increasing demand across the category.”
Hine Cognac, a VSOP-only brand, has also seen significant growth in recent years. “Over the past three years, we’ve doubled our business, but it’s a small business,” says Brian Radics, CMO for Hotaling & Co., which imports Hine. “Now that growth has slowed, so we’re in single-digit growth in 2022.” He says premiumization across the entire Cognac category drove some consumers to higher-end marques like Hine, which in turn drove growth, especially during the pandemic when consumers were exploring and indulging at home.
Through 2021, growth has been extraordinary for the small but highly lucrative Cognac category. Total Cognac depletions gained 4.5% in 2021, reaching 8.83 million cases, the highest level on record, according to Impact Databank. That comes after a combined 12.6% average annual increase recorded from 2015-2020. Uncertain Future Marketers are keen to hold on to the consumer enthusiasm that has benefitted both brand values and volumes in recent years, but some report that the “pandemic bump” might not be carried forward. Couple that with looming inflation in the United States, which typically bodes poorly for luxury products, and a slowdown could be a reality. “Just like many industries, Cognac has faced headwinds in the last year due to inflation; though we remain optimistic with category resilience when it comes to consumers seeking premium brands and experiences,” Courvoisier’s Gibbons notes. Hine’s Radics describes the situation more bluntly. “Cognac is stalling out,” he says. “Cognac spiked during Covid-19 and is kind of regressing back to its pre-Covid business momentum. That, of course, is impacting us.”
Marketers are keen to hold on to the consumer enthusiasm that has benefitted both brand values and volumes in recent years, but some report that the “pandemic bump” might not be carried forward. Couple that with looming inflation in the United States, which typically bodes poorly for luxury products, and a slowdown could be a reality. “Just like many industries, Cognac has faced headwinds in the last year due to inflation; though we remain optimistic with category resilience when it comes to consumers seeking premium brands and experiences,” Courvoisier’s Gibbons notes. Hine’s Radics describes the situation more bluntly. “Cognac is stalling out,” he says. “Cognac spiked during Covid-19 and is kind of regressing back to its pre-Covid business momentum. That, of course, is impacting us.”
Cognac has also been hit with significant supply chain challenges that have plagued the category since the start of the pandemic. While things are far better than they were a year or two ago, the supply chain is not yet back to normal, marketers say. “Cognac, like other categories, has been subject to the global supply chain impacts, but consumers still continue to engage with brands they have a connection with,” says Charlotte Raux, senior brand manager for Martell at Pernod Ricard USA.
At Happy Harry’s Bottle Shops in North Dakota, the worst of the supply chain challenges hit Courvoisier, according to CEO Dustin Mitzel. “While Hennessy VS ($48 a 750-ml.), D’Ussé VSOP ($52), and Rémy Martin VSOP ($53) are the top performing Cognac’s for us, Courvoisier VS ($40) has been out of stock so much the last few years that we really do not know what the long-term effect will be for that brand in our market.” Lack of availability of Hennessy slowed sales at the Texas-based Pinkie’s chain of retail stores. Owner Austin Keith says demand is there for the leading brand but tight brand allocations have meant the ability to sell was limited. This year is a bit better, he says. He had the same problem with D’Ussé. “I couldn’t get it because there was none to be had,” Keith says. Supply chain woes have also hit the just-recovering on-premise. At The Beehive in Boston, beverage manager A.J. Merritt says that while Hennessy VS, VSOP, and XO; Rémy Martin; and Courvoisier are the brands most easily recognized and requested by guests, availability has been patchy.
Big Brand Concentration
Supply chain challenges notwithstanding, D’Ussé was getting into the hands of many retailers and restaurateurs across the country. The No.-3 brand in the U.S. in 2021, D’Ussé has the highest growth rate among the leading six Cognac brands, jumping 59.1% to 871,000 cases in 2021, according to Impact Databank.
D’Ussé, a brand currently owned jointly by Bacardi and music mogul Jay-Z, is one of the category’s big success stories. Launched in the mid-2010s and with the help of its celebrity backing, the brand catapulted into a leading spot among brands that have built businesses over decades in the U.S. market. D’Ussé registered just 58,000 case depletions in 2015, but by 2020 the brand had grown to 548,000 cases. Last year it added more than 300,000 additional cases, according to Impact Databank.
While the brand is undeniably hot, the partnership between Bacardi and Jay-Z has hit the rocks. SCLiquor LLC, a company backed by Jay-Z, recently filed a lawsuit claiming that Empire Investments, Inc., a wholly owned subsidiary of Bacardi Ltd., is intentionally mismanaging the joint venture in order to drive down its value ahead of a previously agreed purchase of the brand.
The lawsuit, filed October 20, seeks access to Empire Investments’ financial data to “to ensure that it is being run in a manner consistent with the duties owed to its members, to assess the status of its business and the effectiveness of its operations and controls, to ensure that its members and directors are being kept properly apprised of its affairs, to protect its members’ rights, and to assess the value of its members’ respective membership interests.”
In fact, the lawsuit goes on to claim that despite the “remarkable success” D’Ussé has experienced, the brand “could have done even better—indeed, it stands on the precipice of astronomical growth—and is being held back by Empire’s conflicts of interest, as a subsidiary of Bacardi, and mismanagement of the company. To make matters worse, SCLiquor has a credible basis for believing that Empire’s recent mismanagement is the result of a scheme to intentionally depress D’Ussé’s value,” the lawsuit said.
Bacardi responded in court papers claiming Empire Investments struck a “handshake deal” with SCLiquor LLC to purchase Jay-Z’s 50% share in the brand. According to published reports, Bacardi claims that the rapper “abruptly reneged on its agreement and doubled its demanded valuation.” The court had not responded to Bacardi’s filing at press time.
D’Ussé may be the most dynamic Cognac brand by percentage growth, but its volume pales in comparison to market leader Hennessy. Hennessy’s growth stalled in 2021 at least in part due to supply chain issues, but the brand continues to dominate the Cognac sector in the U.S. with volume at 5.1 million cases. The brand has been on a strong growth trajectory in recent years. From 2015-2020, Hennessy grew at an average annual rate of 11.1%, according to Impact Databank.
While the bulk of Hennessy’s volume is at the VS and VSOP levels, brand owner Moët Hennessy USA (LVMH) has invested heavily in the luxury end of the market with unique rare expressions. For example, in September Hennessy released the limited-edition Hennessy Paradis Golden Edition exclusively on BlockBar.com, a DTC NFT marketplace for luxury wines and spirits. The edition, originally available in 700-ml. format and later available in magnum format as well, features a golden decanter with exclusive NFT artwork.
Rémy Martin was the second-ranked Cognac in the U.S. in 2021. Like Hennessy, the brand faltered a bit last year after posting strong growth in the 2015-2020 period. While Rémy Martin declined 3.3% to 1.43 million cases last year, the brand appears to be barreling back this year. In its half-year results ending September 2022, parent company Rémy Cointreau reported that the company’s Cognac division grew 22.4% over the first quarter, with the majority of growth coming from the United States.
Rémy Martin also enjoys a celebrity collaboration. The company partnered with musical artist Usher last year for the launch of “Team Up For Excellence—The Film”, which highlighted the cultural connection between Cognac and American music. This year, the two launched the global campaign Usher x Rémy Martin 1738: A Taste of Passion, featuring a limited-edition bottle and NFT, whose design was inspired by A.I. integrated technology. The NFT is available exclusively on BlockBar. Courvoisier and Martell, the fourth- and fifth-ranked brands, respectively, both registered strong gains in 2021. Beam Suntory’s Courvoisier advanced 12.1% to 792,000 cases last year, according to Impact Databank. This year, the brand was supported by a series of events titled “We Found Joy.”
Courvoisier partnered with Yinka Ilori for the fully immersive series of global events which brought the beauty of summer in Courvoisier’s home of Jarnac, France to life. “We also reinvigorated our packaging, taking inspiration from our design archives, including some of the earliest bottle and label designs created for the brand,” Gibbons said. “Each element, from bottle shapes, to colors, to visual codes, tells a specific story about the brand and our history.”
Like other brands, innovation is part of the strategy. Courvoisier Mizunara, a new Cognac finished in Japanese oak barrels, had a limited release this year. Only 500 bottles of Courvoisier Mizunara were made available in select countries, for a suggested price of $2,000 a 750-ml.
At No.-5, Martell’s total volume jumped 32.4% to reach 230,000 cases last year, according to Impact Databank, and Raux says the dynamism is continuing this year. “We’re approaching the half-way mark of our fiscal year and are pleased with how Martell has performed, especially against the difficult macro-environment that has reached every corner of our industry, and beyond,” she says, noting the brand’s continuing double-digit growth. Martell’s Blue Swift variant, a VSOP Cognac finished in Bourbon barrels, is particularly dynamic. “It’s one of the main growth drivers this year,” Raux adds.
Looking ahead, Martell is embracing technology during this year’s holiday season with a near-field communication (NFC)-chipped value-added product that “unlocks custom recipe content and an unexpected collaboration leveraging brainwave technology to visually interpret individuality,” Raux says. “On a global level, we’re also excited to launch an interactive experience in The Sandbox early next year that will cement Martell as the first Cognac house to enter the metaverse.”
Growing Cocktail Culture
NFTs, NFC, the metaverse, and other innovative digital efforts notwithstanding, Cognac marketers are at the same time pushing back into the on-premise after two years of Covid-19 slowdown. In both the on- and off-premise, Cognac-based cocktails continue to make headway as a consumption alternative to drinking the luxury liquid neat. In fact, Hotaling’s Radics says Cognac needs to continue to move away from some of the imagery of the past to appeal to a new generation of consumers. “We need to bring down some the imagery of an ascot-wearing man sipping Cognac at home,” he says. To that end, the H by Hine expression is specifically formulated for cocktails, and Hotaling is making a big push this year. “All of our growth this year is coming from the on-premise,” he says. “We want to build on that and a lot of that is focusing on the role Cognac can play in cocktails.”
Courvoisier is promoting its Gala cocktail, which features Courvoisier mixed with Fever Tree Sparkling Lemon, in an effort to appeal to a new generation of Cognac drinkers. “Courvoisier is excited to have its long-term efforts focused on introducing our premium liquid to a new, younger, and multicultural consumer through new and refreshing ways,” Gibbons says.
She adds that while Cognac is still mainly perceived as a digestif, “bartenders are becoming more open to new and lighter ways to present the spirit.” Gibbons notes that the company is “encouraging bartenders to move away from the thinking that Cognac cocktails need to be heavy and spirit forward.”
That might be the right play, given that Cognac still carries a reputation for being an older person’s drink. At The Beehive in Boston, Merritt says Cognac doesn’t get much traction as a call spirit but “the recognition is there when the spirit is in a cocktail.” A popular cocktail at The Beehive is the Vieux Filou ($16), which contains Demon Seed whiskey, Hennessy Cognac, Antica Formula sweet vermouth, Benedictine liqueur, and Peychaud’s bitters.
Expanding usage occasions with cocktails may be a growth driver in the near future, particularly if the premiumization trend falters with the country’s current economic woes. Or, Cognac could buck the prevailing wisdom that suggests consumers trade down during economic upheaval and continue to expand the luxury end of the market. It’s likely to be a combination of both as marketers scramble to hold and expand on the volume gains achieved over the past three years.