Farmers, Resellers and Players: The structure of the Cognac business
Basically, this is how it goes: Farmers grow and produce wine, distill the eau-de-vie (spirit) and make their own Cognac. But some companies, especially the bigger ones, buy different eaux-de-vie from the different growing areas and blend their Cognacs.
Here are some basics one should know:
- About 95% of the spirit is exported
- The core markets are North America, Europe and Asia
- Even in the economic crisis, Cognac remains quite stable
- 4 big Cognac Houses control more than 80% of the market
- The 4 big houses buy grapes, wines or eau-de-vie from wine growers, distillers and bouilleurs de crus (see interactive graph below)
- There are about 6000 wine producers in the region of Cognac. 1500 are simply producing wine that is supposed to be used for distillation. There are 4500 “Bouilleurs de cru“, which distill with their own alembics (pot-stills) or collaborate with cooperatives. The “bouilleurs de profession” simply distill eaux-de-vie, which they originally did not produce.
Wine needs to be planted, grown and taken care of. The viticulteurs (wine growers) don’t just produce juice and then make wine from it. The farmers work a lot on their vineyards, they need to cut the branches, harvest, fight insects or animals (wild boars love grapes by the way). Some farmers have their own alembics (pot stills) but not everyone.
Please see an interactive graph and further information below
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Once the wine is produced, it is distilled to become eau-de-vie (directly translated it means water of life). It’s a clear, transparent spirit – in its purest state. The distilling is executed by distillateurs or bouilleurs. There are two different kinds of distillers:
- Bouilleurs de profession
- Bouilleurs de cru
The bouilleur de profession distills wines and sells the eau-de-vie to négociants or maisons de négoce (Cognac merchants). Normally, the bouilleurs de profession distill wines they didn’t produce themselves – so they buy the wine and sell the eau-de-vie. Often, they have contracts with négociants and distill wines, which actually belong the négociants.
The bouilleur de crus distill their own wines and they are not allowed to buy wine from another wine producer. So they distill and sell to négociants or directly to the end consumer, if they have their own brand. If a bouilleur de cru does not own any pot stills, they either collaborate with other producers that are in the same situation and form a cooperative – or they simply outsource the distilling step and sell the eau-de-vie afterwards.
The bouilleurs de profession (let’s call them professional boilers in a very direct translation) often run several alembics at the same time.
The courtiers are businessmen with a very fine nose. They could be seen as brokers, as they drive around in the region and meet the bouilleurs, taste the eau-de-vie (they test older and younger spirits, depending on whether the bouilleur has older spirits stocked in barrels or not) and take samples in order to make deals with merchants.
Finally, the merchants, called négociants in the region, purchase young and older spirits, stock the eau-de-vie in barrels, create blends and create Cognac. They sort of control the whole business and set prices.
So that’s it – more or less. Of course it’s far more complex what exactly happens in the region. The personal relationships, the contracts, the deals and the prices are kept quite secret. The power structure of the big houses has a huge influence on the business of bouilleurs and wine farmers. It is true that Cognac demands are going up worldwide, but this doesn’t mean that Cognac farmers live better nowadays. They are under a lot of pressure.
2006 has been a very good year, when Cognac sales shifted to 152 Million bottles shipped worldwide. The core markets are North America and Europe, but China and Russia and especially Asia present a remarkable growth. Singapore and Hong Kong play a very important role, as Cognac is imported to resell to the rest of Asia. Basically the Asian nations import high quality Cognacs such as XO.
The market’s players
Over three centuries ago the cards were mixed and the structure set. The first merchant houses were founded in the 17th century; soon foreigners entered the business of production. There were Irish, British and Dutch coming to Charente, with distribution infrastructure in place in order to distribute the spirit. Later on, Cognac became one of the most important spirits in the world. Some houses were bought, some vanished. Today, all the bigger houses have been purchased by corporations such as LVMH. If there is one Cognac house which is really big, it’s Hennessy. Hennessy controls about 40% of the worldwide sales, which represents 50 Million bottles per year – this is about the amount the other three ‘big merchant houses’ sell together. There is Rémy-Martin (founded in 1724, which belongs to Remy Cointreau), Martell, which belongs to Pernod Ricard and Courvoisier, which is part of Fortune Brands.