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Hennessy’s Progress Drives Cognac To New Heights In 2017

January 19, 2018

With market leader Hennessy firing on all cylinders, U.S. Cognac shipments surged last year, as volume and value both rose by double-digits. According to the Bureau National Interprofessionnel du Cognac (BNIC), exports to the U.S. grew by 11.5% to 82.6 million bottles (about 6.4 million cases) in 2017, with value rising 12.7%. Driven by the U.S. market’s strong showing, Cognac’s global export value leapt 14% last year to a new record high of €3.15 billion ($3.85b). By volume, total Cognac exports reached 197.4 million bottles on growth of 10%.

Impact Databank estimates that Hennessy rose about 10.5% to 4.1 million cases in the U.S. market last year. With that performance, the brand has nearly doubled in size since 2012, when it was at 2.16 million cases. And while competitors like Rémy Martin, Courvoisier, Martell and d’Ussé have also been demonstrating solid growth lately, Hennessy’s share of the U.S. category has continued to rise. Five years ago, the Moët Hennessy USA brand comprised about 61% of the total Cognac market—now its share of the U.S. category is nearing 70%.

While volume growth has been strong for both Hennessy and the overall Cognac category, the value numbers have been even more pronounced, as consumers trade up from VS to the category’s higher qualities. “From my seat, the VSOP segment is where we’re seeing the most dynamism,” Martell brand director Brian Smith recently told SND. Giles Woodyer, Hennessy’s senior vice president for the U.S., adds, “Hennessy VSOP ($45) today, from a volume and value standpoint, is larger than ever, and Hennessy XO ($200) has tripled in size in the last three years.” Progress for the upscale marques has contributed to a near-tripling of Cognac’s shipment value to the U.S. over the past half-decade, to nearly $1.5 billion. Globally, VS shipments were up 15% by value last year, while VSOP offerings grew by 11% and older qualities rose 17%.

One looming challenge for Hennessy—and perhaps for Cognac overall—will be maintaining adequate supply to keep up with rising demand. Hennessy is addressing the issue with a new bottling facility that will boost capacity by 40% to 10 million cases by 2020, but in the short term the brand will need to manage supply carefully, Woodyer notes. Meanwhile, due to frost last April, Cognac’s 2017 yield per hectare was down by about 13%, further pressuring supply, although the BNIC noted that the industry’s “climate reserve”—which has stocks of 184,000 hectoliters of pure alcohol—will help blunt the impact of the short crop.

In addition to the surging U.S. market, China and other nations’ renewed thirst for Cognac is likewise boosting growth. Shipments to the Far East grew 11% to 56.9 million bottles last year, with China accounting for 25.5 million bottles, while Europe’s volume shipments rose 6% and Russia posted a strong recovery, advancing by 33% in 2017. —Daniel Marsteller

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