THE COGNAC SECTOR THE COGNAC SECTOR IS WORKING HARD TO STRENGTHEN ITS GROWTH DYNAMIC IN THE LONG TERM
– 2022 analysis
– 2023 trends and mid- to long-term outlook
After a historic result both in volume and value in 2019, 2021 and 2022, and in a less favorable global economic context, the Cognac sector has recorded a 15% fall in sales volumes over the past 12 months. This trend is hardly surprising given the unusual nature of 2022, which, after strong growth during the first half of the year saw a slowdown in Cognac shipments from autumn onwards. The main reason for this is the combination of logistical challenges, inflation, excess stocks and price increases decided by a number of independent distributors in the United States, and very restrictive health measures imposed for several months in China. The effects are still being felt in 2023 although the efforts undertaken in these markets should hopefully allow a return to growth by early 2024.
2022 ANALYSIS
2022 was an unusual year for Cognac. Following on from the COVID-19 crisis and several months of strong growth, the sector had to contend with various challenges in its two main markets from autumn onwards.
- In the United States
In the post-COVID era, tensions over Cognac supplies and logistical import challenges led certain independent distributors* to build stockpiles and significantly increase prices for consumers. This occurred after Cognac houses were required to raise their own prices to partially offset their costs due to rising inflation. For VS and VSOP consumers in particular, studies have shown that inflation and the uncertain economic context somewhat impacted consumption patterns.
- In China
2022 saw the implementation of very strict lockdown measures which reduced economic activity and consumer spending. Cognac sales were also impacted, with such measures only gradually lifted in early 2023.
“We are well aware of the cyclical nature of the Cognac sector, and our job is to precisely know how to manage and anticipate these cycles. The COVID period was unprecedented. We consider 2022 to be an unusual year. In 2023, we are ramping up our efforts and making adjustments in the Cognac sector, which should enable us to consolidate our long-term growth prospects. Our objectives in this area have been confirmed”, noted Christophe Veral, President of the BNIC.
2023 TRENDS AND MID- TO LONG-TERM OUTLOOK
As early as the second half of 2022, Cognac houses have taken action on the American market in close collaboration with their commercial partners. This strategy to win back American consumers focuses on the visibility and desirability of Cognac, as well as on logistics and distribution in order to rebalance stocks. It will be rolled out throughout 2023. In China, intense in-the-field work is being carried out to ensure that the Cognac sector benefits as much as possible from a significant economic recovery forecast in the next few months.
“The situation we have experienced since autumn 2022 was to be expected. After record highs, we have entered a new phase. In a changing economic and geopolitical context, Cognac houses are fully on board and continue to invest in their markets. The measures we take today will lead to growth in the future”, Vice-President of the BNIC, Alexandre Gabriel, added.
In detail:
From 1 June 2022 to 31 May 2023, the sector shipped 188.1 million bottles, accounting for a turnover of 3.7 billion euros ex-Cognac. This represents a 15.6% fall in sales volumes over the past 12 months and a 4.3% rise in sales by value.
The NAFTA trading zone recorded a 30.1% fall in sales volumes with 84.6 million bottles of Cognac shipped and a 14.7% drop in value.
In Europe2, the picture is contrasted depending on the country, with a 5.6% slump in sales volumes and a 2.4% growth in value.
In the Far East3, the sector recorded a 0.7% increase in Cognac shipments by volume and a 29.4% increase by value over the rolling year.
The growing rise in Cognac sales has also been observed in other markets such as South Africa (+42.7% by volume and +43.1% by value), which has become the 5th largest Cognac market this year, opening up exciting prospects for the sector.
During the same period, VS qualities represented 52.3% of sales by volume, vs. 37.1% and 10.6% for VSOP and XO qualities respectively.
In this context, key players in the Cognac sector are reaffirming their objectives and continuing to invest in the future. On 5 June, the cornerstone of the new headquarters on the banks of the Charente river was laid, and the BNIC unveiled measures aiming to accelerate the sector’s environmental transition, including the implementation of a collective support and funding scheme for R&D projects, named Imagine Cognac, and the strengthening of Cognac Environmental Certification (CEC), with the aim of 100% estates certified by 2028.
(*) Since the repeal of prohibition, a specific distribution system known as the “Three-Tier System” divides the sale of alcoholic beverages into three distinct tiers in the United States: producers and importers (tier 1), distributors (tier 2) and retailers, i.e. shops, bars and restaurants (tier 3). As a result, in most states, distributors develop their own sales policies (pricing and stock management).
1| North American Free Trade Agreement (NAFTA), signed by Canada, the United States and Mexico.
2| Far East: China, Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand.
3| European Continent
© BNIC / Aurélien Terrade
ABOUT THE BNIC
The BNIC, or Bureau National Interprofessionnel du Cognac, represents, develops and preserves the Cognac AOC (Appellation d’origine contrôlée), both in France and abroad.
In the 150+ countries where Cognac is sold, this Geographical Indication provides consumers with a guarantee that they are buying an outstanding wine spirit. Comprising an equal number of members from the winegrowing and commercial sides of the industry, the BNIC is a coordination and decision-making body which brings together almost 4,300 winegrowers and grower-distillers, 120 professional distillers, and 265 merchants operating within the appellation.
The BNIC defends the interests of Cognac producers and consumers, with an unwavering commitment to everyone with an interest in this appellation.
