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Global market review of brandy and Cognac forecasts to 2016 2012 edition Author: IWSR editor Alexander Smith Published by IWSR and just-drinks.com February 2012 Published by Aroq Limited Seneca House Buntsford Park Road Bromsgrove Worcestershire B60 3DX United Kingdom Tel: +44 (0)1527 573 604 Fax: +44 (0)1527 577 423 Web: www.just-drinks.com/market-research/ Registered in England no: 4307068 i
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Table of contents Executive summary s Chapter 1 Scope of the market Non-Cognac Brandy Cognac Armagnac International trade Non-Cognac brandy Cognac Armagnac Chapter 2 Industry structure Cognac New golden age for Cognac Value growth Armagnac premiumises Sustainable growth? Natural cap on growth Opportunity for non-cognac brandy Price or prestige? Luxury growth Pushing the boundaries Blanche Cognac and Scotch Brandy s mature-market challenge Chapter 3 The Americas United States Canada iv
Mexico Chile Chapter 4 Asia-Pacific China Important modern-on-trade channel Hong Kong Vietnam Taiwan Japan Malaysia The Philippines India Non-Cognac brandy Singapore Australia v
Chapter 5 Europe Ireland France United Kingdom Belgium Cognac Non-Cognac brandy Germany Denmark Sweden Spain Greece Italy Portugal Russia vi
Chapter 6 Other markets South Africa Travel retail Recent Cognac sector news round-up from just-drinks NORDICS: Altia to acquire Xanté Co FRANCE: Chinese New Year spikes Remy Cointreau nine-month sales GLOBAL: Cognac trade body hails "remarkable" 2011 FRANCE: Remy Cointreau buoyant on H1 profits rise GLOBAL: China's Cognac market still has legs - analyst FRANCE: Remy Cointreau rides Cognac wave in H1 AUS: Accolade Wines sells brandy to Vok Beverages FRANCE: Remy Cointreau sees sales leap in Q1 Comment - The Cognac-Shaped Elephant in Diageo's Room UK: Beam Global expands reach of Courvoisier Connoisseur Collection FRANCE: LVMH rides the Cognac wave in Q1 UK/FRANCE: Diageo should buy Remy Cointreau - Deutsche Bank List of tables Table 1: Leading non- brandy markets, 2006-2016 consumption volume ('000s nine-litre Table 2: Cognac - leading regions, 2006-2016 consumption volume ('000s nine-litre Table 3: Top ten Cognac markets, 2006-2016 consumption volume ('000s nine-litre Table 4: Top 5 brands in Asia, 2006-2010 consumption volume ('000s nine-litre Table 5: Top ten non-cognac brandy markets, 2006-2016 consumption volume ('000s nine-litre Table 6: Top ten Armagnac markets, 2006-2016 consumption volume ('000s nine-litre Table 7: Leading companies, 2006-2010 consumption volume ('000s nine-litre Table 8: Cognac shipments by major market, 2010 (hectolitres HPA) Table 9: Cognac sales by major region, 2006-2010 by retail value (US$000s) Table 10: Leading Cognac brands, 2005, 2009, 2010 by retail value (US$000s) Table 11: Designation: shipments by quality, 2010 (hectolitres HPA) Table 12: Armagnac sales by retail value top five countries, others and total (US$) Table 13: Cognac sales by quality 2006-2010 ('000s nine-litre vii
Table 14: Leading brands in United States, 2006-2010 consumption volume ('000s nine-litre Table 15: US Cognac sales by quality, 2006-2016 consumption volume ('000s nine-litre Table 16: Top 10 non-cognac brandy brands in the US, 2006-2010 consumption volume ('000s nine-litre Table 17: Top brands in Mexico, 2006-2010 consumption volume ('000s nine-litre Table 18: Top 10 non-cognac brandy brands in Mexico years, 2006-2010 consumption volume ('000s nine-litre Table 19: Top 5 non-cognac brandy brands years in Chile, 2006-2010 consumption volume ('000s nine-litre Table 20: Leading brands in China, 2006-2010 consumption volume ('000s nine-litre Table 21: Cognac sales in China by quality, 2006-2016 consumption volume ('000s nine-litre Table 22: Leading brands in Vietnam, 2006-2010 consumption volume ('000s nine-litre Table 23: Leading brands in Taiwan, 2006-2010 consumption volume ('000s nine-litre Table 24: Leading brands in Japan, 2006-2010 consumption volume ('000s nine-litre Table 25: Top 5 brands in Malaysia ('000s nine-litre Table 26: Leading Non-Cognac brandy brands in the Phillippines, 2006-2010 consumption volume ('000s ninelitre Table 27: Leading non-cognac brandy brands in India, 2006-2010 consumption volume ('000s nine-litre Table 28: Leading brands in Ireland, 2006-2010 consumption volume ('000s nine-litre Table 29: Top 5 Cognac brands in France, 2006-2010 consumption volume ('000s nine-litre Table 30: Top 5 Armagnac brands in France, 2006-2010 consumption volume ('000s nine-litre Table 31: Leading brands in the UK, 2006-2010 consumption volume ('000s nine-litre Table 32: Top five brands in Germany, 2006-2010 consumption volume ('000s nine-litre Table 33: Top 10 non-cognac brandy brands in Germany, 2006-2010 consumption volume ('000s nine-litre Table 34: Top five Cognac brands in Sweden with others and totals, 2006-2010 consumption volume ('000s nine-litre Table 35: Leading non-cognac brandy brands in Spain, 2006-2010 consumption volume ('000s nine-litre Table 36: Leading Non-Cognac brandy brands in Italy, 2006-2010 consumption volume ('000s nine-litre Table 37: Leading Cognac brands in Russia, 2006-2010 consumption volume ('000s nine-litre Table 38: Leading Non-Cognac brands in Russia, 2006-2010 consumption volume ('000s nine-litre Table 39: Leading non-cognac brandy brands in South Africa, 2006-2010 consumption volume ('000s nine-litre viii
Table 40: sales in travel retail by region, 2006-2010 consumption volume ('000s nine-litre Table 41: Cognac sales in travel retail by quality, 2006-2010 consumption volume ('000s nine-litre Table 42: Leading brands in travel retail, 2006-2010 consumption volume ('000s nine-litre ix
Notes about the data Where - or a blank table cell appears in The IWSR data tables, this indicates no sales recorded by The IWSR. When 0.0 precedes - in previous years, this indicates that the brand had not yet been launched in the year(s). There may be some cases where low sales are registered as 0.0 due to rounding. Low sales may also be recorded as Min to signify minimum sales. Unless otherwise specified, all data quoted in this report refers to 2010 market data. When cases are quoted, these refer to nine-litre cases unless otherwise specified Data in tables does not include figures for travel retail. Data may not some due to rounding. Terminology CAGR: compound annual growth rate A&P: advertising and promotions x
Categorisation notes Brandy is a highly varied category and incorporates a wide range of products ranging from Cognacs or Armagnacs, some priced at thousands of dollars per bottle, to local unbranded products selling for a dollar or less. Within that broader brandy category there are a number of distinct sub-categories including. The noble brandies, Cognac and Armagnac, are high margin products produced in a delimited area and strictly regulated. Then, there are the non-cognac grape-based brandies which are defined by country of origin such as Spain, Mexico, France, Italy, South Africa, France, Portugal, Russia, Ukraine, Moldova and the Caucasus nations. Some of these, such as Armenian brandy, can be of very high quality. There are also specific styles of pomace brandy (see appendix for definitions) such as Italian grappa, French marc, Spanish orujo and ponche, or Portuguese aguardiente. Under the brandy umbrella also sit some non-grape brandies. Molasses is used in India, Sri Lanka, Thailand and part of the Philippines. Ginger root is the base for much of the Brazilian brandy. Germany, the Czech Republic and Austria is a large consumer of verschnitt, which is pseudo-brandy made of neutral alcohol and brandy essence and flavours. Neutral Spirit is also used to make viniak in the former Yugoslavia and cheap rakia in Belgium, Romania and most of Russia. A mixture of grape brandy and neutral spirit is also used in the Philippines, Russia and parts of the CIS. It is worth noting that there is also vast brandy production in the wine-growing regions of Central Europe (particularly Romania and Bulgaria), the Balkans and the Southern Caucasus states of Armenia, Moldova and Georgia. Much of this production is low-priced and unregistered, often home produced. This report will focus chiefly on branded, grape-based brandy. Although Cognac sales are dwarfed by non- Cognac brandy in volume terms, the former is much more significant from a value standpoint, and thus is the primary focus of this report. xi
Executive summary Brandy is the fifth-largest global spirits category with total sales of xxxxxm nine-litre cases in 2010. Brandy is a highly varied category and incorporates a wide range of products ranging from Cognacs or Armagnacs, some priced at thousands of dollars per bottle, to local unbranded products selling for a dollar or less. Although brandy is usually grape-based in some brandy countries such as India, Philippines and Brazil other base materials are used such as molasses or roots. Global non-cognac brandy sales have been steadily rising. Total sales were up by xxxx% in 2010 over 2009. The category has added xxxxm cases since 2001. Most of this growth has come from the three low-price markets India, the Philippines and Russia. These three markets have added an incredible xxxxm cases since 2001 and account for xxxx% of global sales, but little of this is grape-based brandy. Most traditional grape brandy-consuming countries (Germany, Bulgaria, Spain, Mexico, South Africa, Chile and France) are suffering heavy losses or are at best stagnant (the US). Global Cognac sales amounted to xxxxm nine-litre cases in 2010 following a xxx% rise over 2009. Cognac maintained momentum in 2011. Cognac shipments set a new record in 2011, rising by xxx% to xxxxxm litre bottles, according to the BNIC. Today the Cognac industry derives roughly one-third each of its sales from Western Europe, the Americas (mostly the US) and Asia. In value terms, Asia represents a much greater share. Asia-Pacific almost doubled its global share of consumption between 2005 and 2010, rising from xxxx% to xxxx%. Much of that is attributable to the performance of China. In that period, China s share of the global market in volume terms has catapulted from xxx% to xxxx%, and added another xxxxm cases to reach xxxxm cases. If current trends continue, Asia will overtake Europe to become the second-largest Cognac region in 2011. Travel retail is the other major market for Cognac. Travel retail sales have recovered strongly from the economic downturn, rising by xxxx% in 2010 to xxxm cases over the 2009 levels. Much of this was driven by the explosive growth of mainland Chinese travellers. The vast majority of non-cognac brandy is produced and consumed locally. The lower end of the brandy category is extremely price sensitive. Most supplier countries produce their own low-priced brands, making it difficult for quality imports to compete. Global export sales of non-cognac brandy amounted to xxxxm cases in 2010, a marginal increase over 2009. 1
The four major Cognac brands all returned to growth in 2010. Hennessy remains the dominant brand and grew most in volume, adding nearly xxxxxxx nine-litre cases. Although Hennessy s market share declined fractionally in 2010 as the other three leading brands increased theirs, it remains the case that, every year from 2007 to 2010, Hennessy has sold more than the other three combined. The dramatic growth of Cognac in Asia has coincided with a contraction in the lower-value European markets. Growth within the US has also flattened. This has led many to conclude the industry is now looking at a two-speed world. There is a strong correlation between Cognac growth and GDP growth in the markets. This is particularly so in developing markets. This is what powered the expansion of both categories in the last decade and upon which future development depends. In value terms, the shift towards Asia is even more emphatic. The really dramatic aspect of the current Cognac market is the growth in retail value. In 2010, retail value (domestic and travel retail) hit US$xxxxbn, surpassing the previous record of US$xxxxbn in 2008. In 2005, retail value stood at US$xxxbn and just US$xxxbn in 2001. Much of this improvement is driven by Asia and travel retail. Cognac in China is much more weighted towards the higher-quality bracket than is the case elsewhere, and so the market is more profitable for producers. China is the leading Cognac market in the world by value, despite volumes of just xx% of that sold in the US. One natural cap on Cognac s expansion in China, at least from a product standpoint, is tightening supplies of aged inventories. This raises the question of whether there will be enough Cognac to satisfy growing demand, particularly for the higher qualities. The dynamic of tightening supplies in recent years has seen producers increasingly shift their focus from more established markets, such as the UK or even the US. The tightening Cognac supply has also led suppliers to focus to a greater extent on the luxury end of the market. The really encouraging aspect is the very strong performance at the prestige or QSS end of the range. In many markets, particularly Asia, Cognac and Scotch compete head on. For many years, Cognac held a virtual monopoly on ultra-premium and luxury purchasing, but in recent years Scotch has successfully moved into that space with an array of new products that rival Cognac for quality, imagery and price. The challenge for Cognac producers is to both demystify and increase occasions of usage, while retaining the products high-end credentials. This requires a delicate balancing act. There is an on-going debate within the Cognac industry about the merits of promoting cocktail usage. 2
The consumer-base for non-cognac brandy in most Western European markets is an ageing one. The category is also suffering from underinvestment. 3
Chapter 1 Scope of the market Non-Cognac Brandy Brandy is the fifth-largest global spirits category with total sales of xxxxxm nine-litre cases (including Cognac and Armagnac) in 2010. As might be expected, brandy consumption is generally based around the major wineproducing regions. However, the leading consuming markets India and the Philippines are minimal wine producers. Other top markets, such as Brazil and the Russian Federation, are also comparatively limited wine producers. Global non-cognac brandy sales have been steadily rising. Total sales were up by xxxx% in 2010 over 2009. This represents an acceleration over the 2005 to 2010 compound annual growth rate (CAGR) of x% and the 2001-2010 CAGR of x%. Between 2009 and 2010 global brandy sales added an incredible xxxm cases. If you go back further, the category has added xxxxm cases since 2001. Most of this growth has come from the three low-price markets India, the Philippines and Russia. These three markets have added an incredible xxxxm cases since 2001 and account for xxxx% of global sales, but little of this is pure grape. However, the incredible growth in those three markets distorts the picture somewhat. Most traditional grape brandy-consuming countries (Germany, Bulgaria, Spain, Mexico, South Africa, Chile and France) are suffering heavy losses or are at best stagnant (the US). Fifth-ranked (of all brandy countries) Germany fell by CAGR - xxx% to xxxm cases between 2001 and 2010, seventh-ranked South Africa by -xxx%, eighth-ranked Bulgaria by -xxx%, 10 th -ranked Italy by -xxx%, 11 th -ranked Mexico by -xxx%, 13 th -ranked Spain by -xxx%, 14 th -ranked Chile by -xxx% and 15 th -ranked UK by -xxx%. 4
Chapter 2 Industry structure Cognac Table 1: : Leading companies, 2006-2010 2010 consumption volume ('000s nine-litre Owner 2006 2007 2008 2009 2010 % Change 09-10 Vol Change 09-10 Share 10- Total LVMH xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxx% xxxxxx xxxxxx% Remy Cointreau xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxx % xxxxxx xxxxx% Pernod Ricard xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxx % xxxxxx xxxxx% Beam Global xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxx % xxxxxx xxxxx% Tiffon xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx - xxxx % - xxxx xxxx % Camus xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxx % xxxxx xxxx % Bacardi - Martini xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx xxxxx % xxxxx xxxx % C.C.G. International xxxxxx xxxxxx xxxxxx xxxxxx xxxxxx - xxxx % - xxxx xxxx % Bache Gabrielsen xxxxxx xxxxxx xxxxxx xxxxxx xxxxx - xxxx % - xxxx xxxx % Altia xxxxxx xxxxxx xxxxxx xxxxx xxxxx - xxxxx % - xxxxx xxxx % Others xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxx % xxxxx xxxxx % Grand Total xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxxxxxx xxxxx % xxxxxx xxxxxx% Source: The IWSR The four major Cognac brands all returned to growth in 2010. Hennessy remains the dominant brand and grew most in volume, adding nearly xxxxxxx nine-litre cases. Although Hennessy s market share declined fractionally in 2010 as the other three leading brands increased theirs, it remains the case that, every year from 2007 to 2010, Hennessy has sold more than the other three combined. In 2010, Hennessy s share was xxxx%, Rémy Martin xx%, Martell xxxx%, and Courvoisier xx%. Hennessy s growth in 2010 came almost exclusively from the Asia-Pacific and duty free markets. In Asia alone, Hennessy increased by xxx% or xxxm cases. Australasia grew only fractionally and remains of very limited 5
Chapter 3 The Americas United States Table 2: : Leading brands in United States, 2006-2010 2010 consumption volume ('000s nine-litre Brand Owner 2006 2007 2008 2009 Hennessy LVMH xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxxx Remy Martin Remy Cointreau xxxxxx xxxxxx xxxxxx xxxxxx Courvoisier Beam Global xxxxxx xxxxxx xxxxxx xxxxxx Salignac Beam Global xxxxx xxxxx xxxxx xxxxx Martell Cognac Pernod Ricard xxxxxx xxxxxx xxxxx xxxxx Jacques Cardin Cognac Sidney Frank xxxxx xxxxx xxxxx xxxxx Ansac Unicognac xxxxx xxxxx xxxxx xxxxx Landy Gabriel & Andreu xxxxx xxxxx xxxxx xxxxx Meukow C.C.G. International xxxxx xxxxx xxxxx xxxxx Ferrand Cognac Ferrand xxxx xxxx xxxx xxxx 6
Chapter 4 Asia-Pacific China Cognac grew xxxx% in China in 2010 to xxxxm cases. Cognac overtook Scotch for the first time since 2004 as the leading imported category. Growth of around xx% is expected by major players in 2011. BNIC exports to both China and Singapore show very strong figures for the first half of 2011 MAT: +xx% into China, +xx% into Singapore. There is a large unidentified amount of VS (close to 200,000 being shipped into China in 2011. Sales of Cognac were also very strong in the key period of the Chinese New Year in February 2011. In China, Cognac has an advantage at all levels of the distribution chain: for consumers VSOP seems like a trade-up proposition from 12yo Scotch; for importers the price per case of Cognac is higher than the price per case of whisk(e)y; and for bar owners Cognac is also more profitable as they can charge more. By contrast the 12yo Scotch is distributed nearly exclusively though contracted outlets. Moreover, Cognac also dominates the meal/banqueting business in the Guangdong and Fujian provinces, which is also booming. 7
Chapter 5 Europe Ireland Irish GDP rose by an anaemic xxx%, according to preliminary IMF estimates and is forecast to grow by xxx% in 2012. The country is wrestling with a serious government debt crisis and the prospect is for increasing taxation and slow growth. The debt crisis stems from the collapse of the housing bubble, and the heavy indebtedness also extends to the Irish people. The on-premise has been contracting for several years due to the poor economy and the earlier ban on smoking in pubs. Cognac sales benefitted from the slowdown in cross-border trading, following the reduction in excise duties, and should continue to recover sales in coming years, rising by xxx% to xxxxxxx cases. This improvement is more a reflection of the reduction in cross-border sales and doesn t signify in increase in consumption. Table 3: : Leading brands in Ireland, 2006-2010 2010 consumption volume ('000s nine-litre Brand Owner 2006 2007 2008 2009 Hennessy LVMH xxxxxx xxxxxx xxxxxx xxxxxx Martell Cognac Pernod Ricard xxxxx xxxxx xxxx xxxx Courvoisier Beam Global xxxx xxxx xxxx xxxx Remy Martin Remy Cointreau xxxx xxxx xxxx xxxx Bisquit Distell xxxx Others Others xxxx xxxx xxxx xxxx Grand Total Grand Total xxxxxx xxxxxx xxxxxx xxxxxx 8
Chapter 6 Other markets South Africa South Africa s economy has experienced strong and consistent growth over the past decade and is now recognised as one of the world s most prominent emerging markets. This title was rubber-stamped when South Africa was invited to join the BRIC nations of Brazil, Russia, India and China. The South African economy was hit hard by the global financial crisis; it suffered a xxx% contraction, but bounced back strongly in 2010 following the hosting of the FIFA World Cup. With increased commodity prices, an improving services sector, increased trade and investment with other BRIC nations, and increased inter- African trade, the economy is predicted to grow in the medium term. Growth is expected to jump up post-2012 as planned infrastructure investment comes into effect. The emerging black middle class is currently around 2m strong and growing. These so-called black diamonds are experiencing a huge growth in living standards and disposable income, and are highly aspirational. This young demographic is increasingly important to South Africa s consumption-driven economy and is thought to account for around xx% of all South African buying power. This rapid accession is accompanied by the overwhelming importance placed on status, which has sparking an increase in the sale of expensive cars, clothes, mobile phones and premium spirits; aged Scotch, whisk(e)y and Cognac now represent the ultimate indicators of status and discerning lifestyle choice. Despite vast improvements in their economic situation, black diamonds are choosing not to leave their homes, which are often situated in the townships, which makes for a curious if contradictory dynamic in the premium spirits market: it is not the city s top-end hotels and bars where premium spirits find their core consumer base, but in the xxxxxxx- plus shebeens of South Africa s shanty towns and townships. Despite these informal bars, ranging from mere shacks to fully-developed taverns, it is not uncommon to find a bottle of VSOP or XO Cognac on a table and shared around with friends, as consumers intent on displaying their wealth to their peers seek maximum visibility in their communities. Cognac is a luxury offering that has begun to capture the hearts of the emerging black elite and although the category is small, it has more than quadrupled its volume over the past five years as its international profile and association with African-American culture appeals to the aspirations of the wealthy black demographic. 9
Recent Cognac sector news round-up up from just-drinks NORDICS: Altia to acquire Xanté Co 23 January 2012 Altia has signed a deal to acquire Xanté Co from the Swedish Tilander family. The Finland-based company said today (23 January) that Xanté and its namesake pear-infused Cognac brand will strengthen its position in the Nordic drinks markets. Financial details of the transaction were not disclosed. Altia's CEO, Antti Pankakoski, said: "The acquisition of the Xanté premium brand represents a perfect fit with Altia s strategy by expanding our market presence in the Nordics and Baltics and increasing our critical mass in Nordic Travel Retail." In 2010, Altia acquired several Nordic drinks brands from Pernod Ricard, including Explorer vodka, Lord Calvert whisky and Renault Cognac. The Tilander family will retain the licence to sell Xanté in the US and Canada. The owner of Xanté Co, Jörgen Tilander, said: "We look forward to being partners with Altia and to continue to build a success for Xanté." FRANCE: Chinese New Year spikes Remy Cointreau nine-month sales 19 January 2012 Cognac sales ahead of Chinese New Year have driven Remy Cointreau to a strong sales increase in the first nine months of its fiscal year. Net sales for the nine months to the end of December rose by xx% on the same period of last year, to EURxxxm (US$xxxxbn), Remy Cointreau said today (19 January). The group was buoyed by a xx% increase in sales of Rémy Martin Cognac, to EURxxxxxm, ahead of Chinese New Year. Excluding currency changes, Rémy Martin sales jumped by almost xx%, underlining the importance of the firm's premium Cognac business in China to its overall corporate health. In the third quarter, the brand's net sales leapt by xx%. However, the group also reported "strong momentum" for premium Cognac in the US, as well as good showings in Russia and Travel Retail. Demand for Rémy Martin is expected to drive the French distiller to a double-digit increased in full-year operating profits, excluding currency and one-off items. But, the group cautioned that its fourth quarter net sales will likely show decline, primarily due to a tough comparison with the previous year, which saw Chinese New Year fall later in the firm's financial calendar. 10
Research enquiries: Liz Hague, Sales Manager email: liz.hague@just-drinks.com tel: +44 (0)1527 573 604 US toll-free: 1-866-545-5878 fax: +44 (0)1527 577423