Price rises are making Cognac vulnerable to trading down, but this is good news for cheaper brandies, says Richard Woodard
that pre-Christmas trading is crucial to Cognac's fortunes for the entire year is an understatement. As Linda Sooprayen, Maxxium UK
brand manager for Rémy Martin, points out, 11% of total VSOP Cognac sales took place in the shopping week before Christmas in 2007. And on an individual brand basis, Rémy expects to net more than 50% of its total annual sales in the last few weeks of the year.
But this year, a number of factors are conspiring to make Cognac suppliers more nervous than usual about Christmas trading. Most notably, of course, the current economic downturn has sparked fears that sales will be depressed as cash-strapped consumers cut back or trade down to cheaper alternatives.
This situation has been exacerbated by the price rises which have swept through Cognac over the past year or so, brought on by the rising costs of raw materials, energy and fuel - not to mention the pound's decline
against the euro.
This year's adequate harvest, coupled with a decline in export sales, should help to cool the market, but with a typical branded VS now costing £20 or more, the temptation for consumers to move to cheaper brandy segments has rarely been stronger.
For many, this will mean leaving Cognac's borders for Armagnac or a cheaper French brandy like First Drinks Brands' Three Barrels, but more exotic locations are also featuring on consumers' radar.
Waitrose spirits buyer Michael Simpson-Jones reports "consider-
able" growth in Armagnac sales over the past six months, and is noticing a cross-category trend. "The growth in sales of golden rum, sipping rum and malt whisky suggests
our customers are being creative and experimenting with less expensive options," he says. "Spanish brandy is also doing particularly well at the moment."
That's music to the ears of Martin Skelton, managing director of Gon-
zález Byass UK, owner of Soberano 5.
He says that Spanish brandy - bearing in mind the hordes who consume it while on holiday every year - is still under achieving in the UK, and is amazed that some retailers still don't stock it at all.
But one factor links all European brandies at the moment: the increasing cost of eaux-de-vie, thanks to the end of EU subsidies for distillation. This will have a disproportionate effect on the already slim margins of cheaper products, and has already pushed the price of own-label Spanish brandy over £10.
That in turn could give a competitive advantage to South African brandy, often a high-quality product which excels at tasting competitions. African Spear, a KWV brandy tweaked to the demands of the UK market by importer Emporia Brands, is already achieving some success with multiple retail listings. Others, such as Distell's Klipdrift and Van Ryn's, could follow next year, although for the moment they remain mostly confined to the ex-pat market.
For the moment, the Cognaçais are pinning their hopes firmly on VSOP and XO, amid continuing evidence of trading up from VS. The latter still accounts for 85% of the UK Cognac market, but is in decline (-7.6%, Nielsen year to Oct 4).
Meanwhile, VSOP continues to grow, encouraging producers
such as Rémy Martin, which still dominates with about two-thirds of off-trade VSOP sales. "VSOP is
flexing its muscles, growing at a healthy 7.5% year on year (Nielsen year to Oct 4)," says Sooprayen.
Meanwhile, both Chris Seale at Pernod Ricard UK (Martell) and Courvoisier brand manager Claire Richards see an opportunity for off-trade VSOP growth as consumers cut back on expensive nights out.
"By investing a little more and trading up to higher styles of their favourite brands, they can enjoy quality drinks at home, but still spend less than they would on a night out," says Richards.
Cracking the code
If you were inventing a simple, consumer-friendly way of classifying brandy today, terms
such as VS, VSOP and XO wouldn't figure very prominently. They are, in FMCG marketing terms, a bit of a dog's breakfast, potentially off-putting to bewildered, time-poor consumers.
French brandy Three Barrels is trying to address this with its Plain English Guide, which aims to explain the arcane differences between classifications in a no-nonsense way, and is
being distributed to
consumers and the off-trade (OLN, Nov 28).
The Cognaçais too recognise the need to de-clutter a category which runs the risk of perpetuating old-fashioned and elitist associations. Launches such as Rémy Martin Coeur de Cognac and Courvoisier Exclusif aren't all about designations - Exclusif is a VSOP, but doesn't make a fuss about it - and they have slicker, more modern packaging to match a product that is formulated for mixed drinks and cocktails.
Linda Sooprayen, brand manager for Rémy Martin at Maxxium UK, points out that at least half of Coeur de Cognac purchasers over the past year have been "inexperienced" Cognac drinkers, but stresses the importance of also winning over the loyalists. "After all, we are looking to build on our existing loyal fan base - not replace it," she points out.
Claire Richards, Beam Global UK brand manager for Courvoisier, scents a knock-on opportunity from the slowly growing popularity of Cognac cocktails in the on-trade. "Exclusif mixed with ginger ale and apple juice, served in a tall glass topped with ice, is a great example and easy to make at home," she says. "Retailers can boost profits by speaking to their customers and offering simple suggestions or by displaying soft drinks that work with Courvoisier alongside the bottle."