The cognac market - France

1.2 A long-term growth market worldwide

The overall value of the cognac market is growing faster than global consumption, due to higher prices.

Between **** and ****, shipments increased by +**.*% in volume and +**.*% in value. This represents a total of ***.* million bottles (***) from Cognac.[***], shipments are back on the rise in ****.

**.*% of Cognac production, or nearly ***.* million bottles, will be exported in ****. [***]

The Nafta zone (***) accounts for **.*% of shipments, for a total of *** million bottles in ****. That's *% more than in ****. [***]

The global market has experienced three major crises in the last twenty years[***] :

in ****-****, the market suffered the fallout of the economic crisis, declining by **% in value and **% in volume. since ****, the crisis in the Chinese market has led to a drop in demand and exports to this country, of the order of *% in volume. The Chinese market has been strongly affected, losing **% in value between **** and ****. The Covid-** crisis will unsurprisingly lead to a drop in consumption and exports in ****. (***)

Although France is the only producer, it is only the fifth largest market for cognac.

1.3 Cognac: a prestigious French spirit

Cognac is one of the most prestigious spirits, alongside Armagnac, aided by major investments by French luxury goods companies (***).

The cognac market represents sales of nearly *.* billion euros by ****. This figure is rising steadily, with the exception of **** due to the health crisis, which saw a **% drop in market size. By ****, however, the market will be back on a par with, or even higher than, pre-crisis levels. [***]

trends in cognac market size France, **** - ****, € billion CAGR: +*.*% Source: ****

Most of the market's sales are captured by * major houses: Hennessy, Martell, Rémy Martin and Courvoisier. However, they rub shoulders with numerous other players, such as winegrowers (***). [***]

Although cognac is a French spirit, most of its production is exported internationally (***), where consumption is much higher than in France; **.*% of cognac is consumed abroad by value.

The low level of consumption in France can be explained by the way people view cognac: a drink consumed mainly in the business world. In the United States, cognac enjoys a more "trendy" image, and is available in the country's bars and nightclubs (***). [***]

All the more so as competition is increasingly fierce on international markets. Other types of brandy, such as armagnac and calvados, are also trying to ...

1.4 Cognac exports head for Asia and America

Spirits are still consumed less by the French than by the inhabitants of foreign countries (***), who associate them with everyday, high-end beverages. As a result, most spirits produced in France are exported internationally. In ****, spirits exports represented a volume of ***.* million liters, compared with just *** million liters sold in France in supermarkets and CHR. [***]

In terms of volume, the main spirits exported are cognac (***), as there are large consumer markets in foreign countries, while other spirits such as calvados remain regional products, little known abroad.

Breakdown of exports by volume France, ****, % (***) Source: ****

The value of spirits exports is largely dominated by cognac (***). Relatively expensive bottles are exported internationally, benefiting from the image of a luxury product in customer countries.

Breakdown of exports by value France, ****, % of total Source: ****

In the case of cognac, exports are almost exclusively the industry's sole outlet, since **.*% of production is exported. [***]

Exports have been rising steadily since ****. Between **** and ****, exports rose by **.*% in value and only *.*% in volume, showing that producers are trying to move upmarket over time. [***] The following graph shows that the vast majority of bottles exported have a capacity of * liters or less.

Value of cognac exports France, **** - ****, € billion Source: ****

The main ...

1.5 A market impacted by the Covid-19 crisis in 2020

In ****, *** million bottles of cognac were sold worldwide, notably in the United States (***). [***] In ****, the year of the coronavirus-related health crisis, *** million bottles were shipped, representing an **.*% drop in volume compared to ****. The drop in value was even greater, reaching -**.*% between **** and ****. The market was therefore heavily impacted in ****.

However, by ****, the cognac market will be back on a par with pre-crisis figures for ****. In fact, ***.* million bottles were sold in ****, ** million more than in **** and ** million more than in ****. What's more, total sales for the sector will be *.* billion euros in ****, compared with *.* billion in ****.

2.1 Alcohol consumption down in France

Year after year, alcohol consumption continues to decline in France. This is a structural trend, linked to a more urban population that is increasingly health-conscious and identifies less and less with "old" alcoholic products such as wine. [***]

The drop in consumption mainly concerns wines, where per capita consumption fell by *.*% on average each year between **** and ****, from *.* l/capita/year to *.* l/capita/year. The decline was not as great for beers and spirits, as consumption remained at a relatively stable level of *.* l/capita/year. In ****, however, alcohol consumption was down on **** for each category.

Quantities of alcohol consumed by the French France, **** - ****, l/capita Source: ****

Share of the population having consumed alcohol in the last * days, by gender France, **** - ****, % (***) Source: ****

However, some segments fare better than others. Among households that continued to buy alcoholic products, beers and intermediate products (***) saw a sharp increase in consumption, up +**% and +**% respectively between **** and ****. [***]

This trend contrasts sharply with that of still wines, whose consumption among wine-buying households fell sharply (***). It is possible to assume that consumption of intermediate products is gradually replacing that of still wines.

evolution of quantities purchased per buying household France, **** - ****, base *** in **** Source: ****

2.2 Cognac consumption varies by country

The United States and China are the main importers of cognac, which requires producers to know the local clientele in order to produce adapted products.

However, despite its importance in French spirits exports, cognac accounts for a small share of worldwide spirits consumption. Whisky and aniseed-flavored spirits together account for **.*%. Cognac accounts for just *.*%. [***]

Breakdown of global spirits consumption World, ****, % Source: ****

This significant difference between the various spirits is, in part, linked to the fact that cognac is an AOC (***), which limits its production to a particular region.

A scientific study of cognac consumption habits in China and the USA has highlighted a number of differences between the two countries, notably in the way cognac is consumed and the reasons for buying bottles. [***]

Preferred time to consume cognac united States and China, ****, % Source: ****

Whereas in the United States cognac is mainly consumed after meals and in the late evening, the Chinese prefer consumption to take place during the meal, as an accompaniment to food.

Americans also tend to consume cognac in the home or at the bar, which is consistent with their propensity to consume it after meals. conversely, the Chinese perceive cognac as a beverage that is mainly consumed at ...

2.3 Cognac, the "cocktail culture" and its place in the CHR network

Cognac and "cocktail culture

Cognac tends to adapt to the local culture of the country into which it is imported, used according to the image that local consumers have of it. For example, cognac has a special place in American mixology, where it is consumed mainly by young people (***), in the form of cocktails or long drinks. Spirits and cocktail bars are located in urban centers, and are particularly popular with young professionals looking for authentic products. [***]

In China, spirits are mainly consumed at the table. In addition, cocktail culture has developed particularly in bars and karaoke bars, where the newly affluent middle classes flock, bringing in several million new consumers every year.

In France, half of the population consumes alcoholic cocktails at least occasionally, a consumption that occurs regularly in the home (***). [***]

Cognac invites itself into bars and restaurants

Cognac professionals are also seeking to attract demand from bars and restaurants by re-establishing the image of cognac as an alcohol that can be used at the table, in cocktails and not just as a digestif. By giving recommendations for pairings.

for example, the Bureau National Interprofessionnel du Cognac (***), in association with Barmag magazine, has organized the Cognac Cocktail Connexion: a ...

2.4 Cognac has long been a favourite among a segment of the American population

According to the Alcohol Consumption Tracker study, published by IPSOS in ****, the black community has been a driving force for cognac sales in volume in the United States: black cognac drinkers account for **% of the market. In contrast, WASPs (***) have a certain predilection for whisky.

Cognac has been prized by the African-American community ever since it was discovered by G.I. soldiers during the Second World War. As a result, cognac has benefited from media coverage through jazz, rhythm and blues and, more recently, rap music.

As a result, the cognac houses have set up numerous strategic partnerships to develop their brands in this community:

As early as the **s, Hennessy targeted the African-American population with advertisements in Jet and Ebony magazines. Hennessy sponsored an exhibition by photographer Jonathan Mannion, who made portraits of hip-hop stars his specialty. Martell has helped sponsor an annual American blues festival held in the town of Cognac for the past two decades, attracting some **,*** (***) visitors each year

More recently, Cognac has sought to capitalize on the golden age of hip-hop by becoming the iconic drink of the American scene:

rapper Nas became the icon of Hennessy USA in **** Snoop Dogg is the icon of Ferrand's ...

3.1 A sector that continues to consolidate

Many players are active in the cognac market, as many operations are involved in making cognac, from grape production to international product marketing. The négociant houses (***). Their role is to obtain supplies from winegrowers and distillers, package the eau-de-vie purchased and then ship it. [***]

The role of the winegrowers is to produce the white wines, which are then sold to the distillers, who may be bouilleurs de cru (***). [***]

A number of cooperatives have emerged in recent years (***). Their role is to distill their members' wines or buy brandy to package and ship their own cognac.

Today, the cognac market is particularly concentrated in the hands of a few players: Hennessy, Rémy Martin, Martell and Courvoisier, who share **% of the market by volume and **% by value. [***]

Market share in cognac sales France, ****, % Source: ****

This concentration has been reinforced in recent years via acquisitions by the major players of smaller houses. Rémy Cointreau (***), for example, acquired Larsen in **** and J.R. Brillet in ****.[***]

These acquisitions are both horizontal (***), such as Quintessential Brands, which bought Lafragette&Legier in **** to expand its production capacity for cognac and fruit cocktails. [***]

3.2 An AOC that concentrates production geographically

The cognac appellation is an appellation d'origine contrôlée (***). [***]

Source: ****

This geographical limitation imposed on the AOC, together with the Cognac Business Plan created by the BNIC, has led to tensions between cognac houses and winegrowers, with the former demanding authorization to plant more vines (***). For example, the houses requested the right to plant *,*** hectares of vines in ****, which had been a bone of contention with the winegrowers. FranceAgrimer finally agreed to the houses' request.[***]

In reality, winegrowers are particularly cautious about overproduction in the industry. In the early ****s, a sharp drop in demand from the Japanese market encouraged growers to grub up *,*** ha of vines to avoid a drop in prices. [***]

In other years, supply problems are possible, notably due to the geographical limitation of production and other external elements that can attack the vines (***):

Climatic incidents Vine diseases (***) Flavescence dorée disease

This has encouraged the authorities to authorize two types of reserve to smooth out production:

The climatic reserve set up in **** The management reserve set up in ****

3.3 Slow, complex production

The production of cognac must comply with very precise specifications, which require the various liquids to respect certain alcohol and sugar levels. Between * and ** liters of wine must be used to produce * liter of cognac. [***]

The main element differentiating cognac from other brandies is the obligation for distillers to carry out a double distillation, completed no later than March **st of the year following the harvest. Ageing must then take place for at least * years, in oak casks.

These obligations generally create very large inventories in cognac houses, a fifth of which may exceptionally be taxed under the exceptional profit tax regime, paying capital gains tax on the goods sold. [***]

3.4 Distribution mainly through supermarkets in France

Although limited, cognac sales in France are mainly made in GMS (***). [***] The share of sales in CHR fell sharply in **** compared with ****, from **.*% to **.*%. This drop can be attributed mainly to the closure of cafés and restaurants during the confinements in France.

Breakdown of physical sales by distribution channel, by volume France, ****, million liters Source: ****

This shows that, as in the United States, cognac retains the image of a drink consumed mainly alone or with family, and not at social gatherings (***).

However, a number of wine merchants are developing their own e-commerce sites(***), representing an increasing number of sales in the sector.

4.1 Different cognacs for different ages

All cognacs can be distinguished mainly by the time they have spent ageing under conditions set by very strict specifications (***). [***]

Source: ****

Houses may decide to make a vintage cognac (***).

4.2 Very high prices compared to other spirits

The scarcity of cognac bottles, and the high concentration of the market around * houses (***), enable producers to set particularly high prices compared to other spirits, especially as foreign demand is less price-sensitive than for other spirits.

Thus, it is possible to distinguish several price ranges, which place products in a range aimed at the mass market (***). [***]

Source: ****

Growth is currently particularly strong in segments ranging from top-of-the-range to ultra-luxury, with average annual growth rates between **** and **** ranging from *.*% to **.*%.

This is encouraging manufacturers to offer increasingly aged bottles (***), aimed at an Asian clientele less sensitive to high prices.

by way of example, in ****, the CognacExpertonline resale site will be offering bottles starting at ** euros (***), and up to **,*** euros for a ** cl Hors d'âge bottle.

4.3 Premiumization and development of organic cognac

Premiumization of the offer

One of the main trends of recent years has been the premiumization of products, with bottles of cognac selling at ever higher unit prices. As a sign of this trend, exports rose by **.*% in value between **** and ****, but by only **.*% in volume. [***]

In fact, producers are increasingly concentrating their production on cognacs that age longer (***), which are then exported to Asian markets, where price sensitivity is less important than in the United States.

Market leader Hennessy's collection is mainly made up of aged cognacs: X.O.[***]

This premiumization is accompanied by ever more meticulous packaging.

Frank Gehry - the famous architect - has specially designed a decanter for the ***th anniversary of Hennessy's XO (***).the iconic bottle is wrapped in a pleated bronze sleeve dipped in **-carat gold, and this sculpted decanter is in turn encased in a glass vase.

Another example is A. de Fussigny, which offers its latest organic cru "**** Organic Cognac" in a Green Gen Bottle. The bottle is made from flax fibre and designed by Toulouse-based start-up Green Gen Technologies.

More environmentally-friendly operations

Another trend among growers is their desire to improve their relationship with the environment by limiting their use of pesticides ...

5.1 Producer specifications

The specifications governing the manufacture of cognac are very strict, which ultimately has consequences for the management of the Charente vineyards. [***]

Harvests are limited by a cognac yield set by decree each year (***).[***]

Vineyards producing AOC cognac may also produce pineau des Charentes or vin de pays charentais. For this reason, each year, winegrowers are required to fill out a declaration of parcel allocation, indicating how much of their vineyard will be devoted to each type of production (***).

Produced in a geographically limited region, the BNIC is responsible for drawing up the Cognac Business Plan, which plans production over several years (***).

Then, after complying with the various harvesting and manufacturing conditions, which are also very strict (***), the manufacturer must also respect the criteria that determine the appellation of his cognac. [***]

Source: ****

5.2 A heavy tax burden

As an alcoholic beverage with a high alcoholic strength by volume, cognac bottles are heavily taxed for public health reasons. [***] In France, alcoholic beverages subject to tax are :

Beverages with an alcoholic strength by volume of over *.*% Beers with an alcoholic strength by volume of over *.*%

Premix drinks are also subject to tax when their alcoholic strength by volume is between *.*% and **%.

Taxes on alcoholic beverages are threefold:

Consumption duties on spirits and alcoholic beverages (***) Social security contributions (***) VAT (***)

Source: ****

Source: ****

Overall, for spirits with an alcoholic strength by volume of **%, the breakdown of taxes is as follows in **** for * liter of spirits sold for **.** euros:

Breakdown of sales for a spirit sold for €**, between margin and taxes France, ****, % Source: ****

Total taxes represent **.** euros, or **% of the selling price.

6.1 Company positioning

• Terroirs Distillers
• Painturaud Cognac
• Cognac AE Dor
• Cognac Augier
• Bache-Gabrielsen
• Château de Cognac
• Bisquit et Dubouché (Campari France)
• Chabasse
• Château de Plassac
• Cognac Rastignac - Château de Plassons
• Cognac Claude Chatelier - Maison Ferrand
• DEAU Cognac - Domaine des Moisans
• Cognac Auguste Dupuy
• Cognac Gautier
• Grand Breuil - Maison Tessendier
• H.Mounier Cognac
• Hardy Cognac
• Hine Cognac
• Cognac Jules Gautret - Maison Ansac
• Cognac Larsen
• Louis Bouron Cognac
• Louis Royer Cognac
• Cognac Meukow - Cie de Guyenne
• Cognac Montaubert
• Monnet
• Natol Maison Barbotin
• Normandin Mercier
• Maison Peyrat
• Cognac Planat
• Prince Hubert de Polignac
• Chalvignac Prulho
• Cognac Prunier
• Maison Roullet-Fransac
• Cognac St Rob
• Tesseron Cognac
• Courvoisier Cognac
• Hennessy
• Martell Cognac
• Brard Blanchard
• Bollinger
• Campari France Distribution
• Beam Suntory
• Rémy Cointreau
• Cognac Louis XIII
• Cognac Delamain
• A-de-Fussigny
• Revico
• TFF Group
• Abecassis
• Campari
• Rémy Martin