Cognac continues to blossom, benefiting from the brown spirits boom and increased interest both at retail and in the on-premise. Last year, volumes in the United States grew by 17 percent to nearly 5.4 million cases, according to Impact Databank. But despite such healthy signs, some retailers see challenges ahead—mainly surrounding supply issues and consumer awareness.
“Next year will be interesting for Cognac,” says Alex Poreda, director of sales at Florida chain ABC Fine Wine & Spirits. “With global demand increasing, it appears some of the larger houses will go on allocation.”
Last year was explosive for Cognac overall and for No-1. Hennessy in particular, which reached nearly $1.6 billion in retail sales, nudging Jack Daniel’s out of first place to become the largest spirits brand by value in the United States. “We’re at the tip of the iceberg in terms of the potential,” says Giles Woodyer, Hennessy’s senior vice president for the U.S. In October, the brand announced that it would expand its existing vineyards to boost its production capabilities.
Hennessy has 68.4 percent of the U.S. market, and last year saw its U.S. volumes rise by 21.5 percent to 3.7 million cases, according to Impact Databank. While Hennessy is the clear leader, the competition is growing. Rémy-Cointreau USA’s Rémy Martin continues to rise in the U.S., up 9 percent to 823,000 cases last year. In third place, Beam Suntory label Courvoisier was up 6.2 percent to 470,000 cases, while Pernod Ricard’s Martell increased by 6.1 percent to 105,000 cases—a slowdown from the previous year’s 33-percent growth rate. Meanwhile, Bacardi’s D’Ussé, which debuted in 2012, has already captured a substantial share of the market. In 2016, the brand—which offers VSOP and XO expressions—grew by 47.5 percent to 86,000 cases. “We expect to deplete nearly 150,000 cases this year,” says senior brand manager Tyler Phillips. “This is tremendous growth for a brand celebrating only its fifth birthday.”
Cognac At Retail
Big retailers like ABC Fine Wine & Spirits, BevMo and Costco say the strongest growth is still concentrated among the top four brands, which comprise around 90 percent of the market. “Cognac is up 8.5 percent in ABC’s stores in the last year,” Poreda says, and while Hennessy VS is the category leader by far, the chain stocks up to 81 Cognac SKUs at its 125 stores.
Costco has experienced double digit-growth in Cognac over the last few years, according to assistant vice president for beverage alcohol Annette Alvarez-Peters. While the bulk of Costco’s sales are in Hennessy and Rémy Martin, Alvarez-Peters notes that Costco’s Kirkland Signature XO Cognac is very popular during its seasonal availability. Though Cognac is growing for Costco, the category is only represented by two or three SKUs per store.
BevMo follows the expected trend: Hennessy VS is the most popular Cognac in the chain, but among smaller brands, Hine has recently seen a strong upswing. Domestic brandies are benefiting from Cognac’s increased popularity, with higher-end selections like Germain-Robin drawing Cognac drinkers’ attention. At BevMo, Cognac plays a role in overall spirits growth and isn’t drawing drinkers away from other categories. “It’s an item consumers can switch to on an occasion when they don’t feel like having their traditional after-dinner cocktail,” says Brian Bowden, BevMo’s general merchandise manager of spirits and beer.
Andy Lebamoff, co-owner of Indiana’s 15-store Cap N’ Cork retail chain, has also witnessed Cognac’s consistent growth, with Hennessy at the forefront. Lebamoff’s persistent problem is supply. “When we can get Hennessy VS, it does great,” he says. “Southern Glazer’s Wine & Spirits is constantly out of stock, though—I order 100 cases of Hennessy every two weeks, and I never know if I’m going to get it.” Lebamoff worries about losing customers because he cannot keep Hennessy on his shelves. He adds that Courvoisier and D’Ussé also perform well in his stores, but that they hit different price points than Hennessy VS. “Courvoisier retails in our stores at $21.99 a 750-ml. and does extremely well at that price point, but it’s still not as popular as Hennessy, which is priced $9 higher,” he says. “That’s a different tier for consumers.”
One high-end retailer says his stores are bucking the current trend. David Driscoll, spirits buyer for California-based K&L Wines, isn’t convinced that Cognac will be able to move beyond its current VS-dominated market to the sort of wide connoisseurship that has propelled whisk(e)y to new heights. “It’s not performing as well as other categories,” says Driscoll. “People want numbers on bottles that tell them how old it is. They want spirits at higher proofs, and they frown on sugar or caramel coloring being added to them.”
In Driscoll’s view, there’s often consumer confusion about what goes into Cognac and how it affects the taste. Boisé—a blend of sugar, oak chips and brandy—can be added to Cognac to enhance a young eau-de-vie’s richness. Many major houses are believed to use the boisé method, although none of them advertise it publicly. Additives don’t appeal to Driscoll’s consumers, so he began offering Cognacs from producers that don’t use boisé. “It turned out that Cognac without sweeteners or additives was even less successful than the Cognac that has them,” he says. K&L shies away from the major brands and instead focuses on smaller producers with compelling stories. Through its import company, K&L seeks out “artisanal, more site-specific Cognac producers whom we think will resonate with our customers,” Driscoll explains. The chain has found success with Ragnaud Sabourin Cognacs, which are priced at $100 or more.
Cognac regulations will change beginning in April 2018. The youngest Cognac in an XO blend will have to be 10 years old, up from the current allowable age of six years. Cognacs aged six years and up will be given the designation Napoléon. “Premiumization is the name of the game,” says Phillips of D’Ussé. “As consumers become more educated on Cognac quality and versatility, and suppliers and retailers become more challenged to keep up with demand, higher marques become increasingly important and of interest within a portfolio.”
Despite the new requirements for bottling Napoléon and XO blends, brands don’t seem overly concerned. “We’re starting to see more innovation on liquids, which we haven’t really seen in the past,” says Jeanette Edwards, global brand director for Cognac at Beam Suntory. “Courvoisier is one of the first brands to do a lot more around liquid innovation, with the 12- and 21-year-olds actually having age statements.”
Poreda of ABC points out that the higher age requirement for XO Cognacs, plus the category’s growth overall, will lead to price increases. “A lot of the producers I speak with, like Kelt and Hardy, are already aging their XO for ten years,” he notes. “If the four main brands have to take price for the extra aging—which I assume they’re going to have to eventually—other smaller ones will follow. VSOP sales may jump a bit more because people may trade down based on cost.”
Spurred by developments in whisk(e)y, Cognac producers are becoming more creative. Courvoisier has found success with limited releases like its VSOP Exclusif, a higher-end blend from the company’s best producers in Grande Champagne, Petit Champagne, Fin Bois and Borderies. “We continue to have a strong innovation angle—looking at a variety of liquids and playing around with wood,” says Edwards of Beam Suntory. “Wood, especially, has an impact on the quality and the taste of the liquid.”
Last year, Hennessy released Master Blender’s Selection No. 1, a blend of Cognacs aged up to 16 years, to highlight the skill of the company’s master blender. “Master Blender’s Selection No. 1 was a huge success,” Woodyer says. “It was an opportunity for master blender Yann Fillioux to draw from some of the rarest eaux-de-vie within our library.” The second entry in the series launched in October. “What’s important about the Master Blender’s Selection is that it’s not following a particular pattern or style,” Woodyer explains. Master Blender’s Selection No. 2 ($92 a 750-ml.) is aged in young French oak casks to add elegant notes of vanilla and oak.
Martell has released VS Single Distillery, a young Cognac sourced from one of its distillation houses. The brand is also innovating through its Blue Swift expression, a VSOP finished in Bourbon barrels. “People try it and love it,” says Martell brand director Brian Smith. “The bourbon notes in the liquid create an amazing tasting experience.”
Boutique Cognac house Maison Ferrand is offering innovations beyond its Pierre Ferrand Ambre and other traditional offerings. “We’re now doing a collection of Cognacs we call the Renegade Barrel, where we try to go back to the roots of Cognac making,” says Alexandre Gabriel, Ferrand’s master blender and owner. “This is double-aging with some Sauternes barrels.”
Camus Cognac has also embraced innovation with its Dark & Intense entry. Launched in 2015, the $400 blend is created by selecting aged Cognacs, emptying the barrels, re-toasting them and returning the liquid to the barrels to absorb the flavors imparted by the second round of heating. This sort of innovation allows Camus to bring out new flavors while remaining in line with the strict requirements of Cognac.
Cognac Park offers a traditional range of expressions, as well as specialized releases like Borderies, from Cognac’s smallest region. “It’s like offering a single malt Scotch,” says Anaïs Brisson, Park’s U.S. brand manager. “People who know Cognac appreciate the single expression, and so do whisk(e)y drinkers, because the soil brings a drier finish.” Park is a smaller house—in 2016, the brand sold 5,500 cases in the U.S.—but its unique offerings draw dedicated and educated drinkers. Brisson estimates the brand’s growth at around 16 percent this year.
Cognac benefits greatly from consumer education and advertising aimed at highlighting its merits and its history. For ABC, education helps drive sales across categories, but is especially important for Cognac, given its specialized quality designations. “We host about 42 classes a month around the state for our team members,” Poreda says. “In each of them, we taste 20 or so items, including Cognac.” He adds that it’s essential for sales staff to be able to correctly explain the labels and qualities to consumers.
At the brand level, education can help foster loyalty. “Our Hennessy Academy Program teaches people all about the history, the heritage and how Hennessy is made,” Woodyer says. This year, the brand will complement its education program with a more experiential one: Le Voyage, a retail and on-premise education initiative to promote cocktails and the different qualities of Hennessy. “We aim to really open the world of Hennessy to a whole new generation of consumers,” Woodyer adds, noting that while Hennessy is educating consumers, bartenders are often the best advocates for the brand and Cognac in general. “Bartenders are curious about spirits themselves. They’ve started to research the history of classic cocktails and have discovered that Cognac cocktails were at the forefront.” Banking on consumers’ continued trends to education and trading-up, Hennessy is investing in its VSOP, XO and Paradis expressions like never before. This year, Hennessy VSOP is being advertised on television for the first time.
Over the past year, Rémy Martin has launched two brand-driven consumer education campaigns. In June, it debuted the Rooted in Exception Experience, an augmented reality platform. The experience uses the Microsoft HoloLens to see—in 3D—how Rémy Martin is produced, from the vineyards to the aging process. The Rooted in Exception Experience premiered in Los Angeles and will tour stores and events worldwide. Last year, the company toured La Maison Rémy Martin in Los Angeles, Chicago and New York City to show consumers how the brand is produced. La Maison Rémy Martin is an invite-only event that showcases the company’s Cognac while educating guests about the history of the brand and how to use Rémy Martin in cocktails.
Martell aims to inspire its customers to entertain at home through its HOME initiative, an event series aimed at boosting brand awareness and illustrating how to mix Martell-centered cocktails. “HOME will inspire people to entertain with Martell, which is a key occasion for the brand,” Smith says. “We’re working with celebrity chefs, like Ghetto Gastro. We’ll be releasing a series of videos on Complex to help people understand how to entertain at home with a little bit of flair.” HOME by Martell events were held in cities across the U.S. throughout the fall.
“Customers seem to be picking up brands that they are drinking on-premise: Hennessy, Rémy, Martell,” says Bowden of BevMo. “They’re experimenting with different age statements and marques, as well as trying new cocktail variations.” Park’s Brisson sees consumers willing to try multiple brands before deciding whether Cognac is the right drink for them. Through consumer education, she has introduced consumers to Park’s lighter, fruit-forward expressions.
“Every consumer has a core label, and they branch out from that, usually based on education,” says ABC’s Poreda. “Everyone’s palate changes and evolves, and they explore more as they learn.”