Chinese President Bursts the Cognac Bubble

No matter what the situation in life, there are always has to be a combination of ups and downs.  And the cognac market has been enjoying riding the crest of a wave when it comes to exports to the Chinese market, but that appears to be coming to an end.

This is thanks to the clampdown by President Xi Jinping on what is referred to as ‘conspicuous consumption.’

In China, the giving of lavish gifts and outwardly displaying tokens of luxury, such as cognac, has been the norm for a long while.  And as the country has enjoyed increasing wealth over the last few years, this phenomenon has become even more widespread.  But the Chinese President is doing his best to put an end to this, and for cognac exports this is proving to be far from favourable.

‘Substantial double-digit decline’

With the last few years of sales to China having shown double-digit profit, this year it seems there is now a trend heading in the opposite direction.  In November, Remy Cointreau (owner of Remy Martin Cognac) announced that it expected a ‘substantial double-digit decline’ thanks to the fall in sales to China.  This had the effect of shares in Remy Cointreau dropping by nearly 10 per cent in value.

Pernod Ricard (owner of Martell Cognac) and LVMH (Hennessy Cognac) have also reported a similar slowdown.

And whilst the Chinese New Year (January 31) would normally be cause for celebration thanks to increased cognac sales, this year it appears that the scenario of cognac fuelled banquets and presents of expensive older cognacs will not be the case.

Instead, it appears that Chinese distributors have large stocks of unsold orders, and not in the position to import more.

Jonathon Fyfe, a business analyst at Mirabaud Securities, London, says that the practice of giving luxury gifts and lavish entertaining by the Chinese rich set has gone – and not likely to return.  And these sales, according to Fyfe, accounted for a massive 25 per cent of cognac sales in China.

Sources: mobile.businessweek.com

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