Every morning a small group of master blenders enters a glass bunker inside cognac house Martell’s complex of 19th-century warehouses to start the daily ritual of tasting, cataloguing and mixing the 300-year-old French company’s heady elixirs.
With cognac usually sold as a blend of different vintages, the panel’s job is to create the same taste year after year for each of the Pernod Ricard-owned producer’s lines, mixing hundreds of batches of the grape-based spirit under the watchful eye of the cellar master.
“The most important, most decisive tastings are done at the end of the morning from 10am to 11am when we start to feel hungry, so we are much more sensitive to smells and aromas,” said Christian Guerin, one of Martell’s experts. “But the work of learning cognac is one of decades, of tasting and remembering constantly. There is no school for this — you learn in the cellars.”
The commitment to constancy stands in contrast to the international ructions filtering into this region of south-west France, where the geographically protected brandy is the dominant industry, boasting sales of almost €4bn ($4.4bn) a year and employing more than 60,000 people directly and indirectly.
A sharp drop in exports to the US, cognac’s biggest market, has dented sales for producers, while an anti-dumping investigation launched by China this month amid a wider trade dispute with the EU has created further risks for the industry.
With more than 97 per cent of cognac exported, the spirit is far more internationally exposed than other protected French agricultural products such as wine, champagne and cheese, which have sizeable domestic markets.
The three French groups that dominate the cognac market — Hennessy owner LVMH, Rémy Martin producer Rémy Cointreau and Pernod Ricard — reported declining sales of the spirit in their most recent earnings, driven by slowing US demand after a pandemic boom in premium spirit sales.
More than half of all cognac bottles were exported to the US, according to industry association the Bureau National Interprofessionnel du Cognac, with the majority consumed by African-Americans, a demographic whose incomes have been hit particularly hard by the cost of living crisis as inflation rates have risen.
Last year was already a “year of adjustment” for the spirit following record export years in 2021 and 2022, according to Raphaël Delpech, BNIC director-general.
Export volumes fell by about 19 per cent in the year to July 2023, according to cognac wine growers’ union UGVC, largely led by the US market as pandemic-era savings dwindled and distributors worked through excess inventory stockpiled in the expectation that the party would continue.
The big producers expect surplus stocks to clear this year but the market for premium spirits is anticipated to remain softer, reflecting a wider slowdown in demand for luxury products as squeezed middle-class consumers rein in spending.
Meanwhile, US nightlife promoters and bartenders have noted a shift in taste towards tequila.
LVMH’s Hennessy is much more exposed to the US than Martell, having pioneered the promotion of cognac in US nightclubs from the 1970s, earning it cachet in the hip-hop scene. The group’s cognac sales fell 14 per cent on an organic basis in the first nine months of 2023, making its wine and spirits business the luxury conglomerate’s only division to suffer a fall in revenues over the period.
While the Chinese investigation has had no discernible affect on cognac sales, it adds to the headwinds facing the industry. The BNIC and its members have said they would co-operate with Chinese authorities but deny there were any dumping practices.
“It is clear that this is a political issue, and it must have a political solution. There is no other way to resolve this,” Delpech said.
The cognac industry planned in long cycles, projecting annual production volumes as much as 15 years in advance, he added. “The average age of cognac on the market is seven years, so for us three years is short-term planning.”
So far the effects on the day-to-day operations of the region’s 270 producers and the winegrowers that supply them have been muted. However, the uncertainty and threat of escalation is making them nervous as they lobby Paris and Brussels to find a political solution to the trade dispute with China.
“Is there an economic impact [from the China dispute]? No, not any time soon,” Delpech said. “But we accord huge importance to our reputation, and to find ourselves used for diplomatic reasons in an issue that implies we have not respected certain rules — that bothers us a lot.”
In a worst-case scenario where China imposes more than 100 per cent increases on import duties — as it did for Australian wines in 2021 — imports could crash, according to analysts at Deutsche Bank, who forecast this would result in sharp drops in net income at Pernod Ricard and Rémy Cointreau, the two most China-exposed producers.
There was ‘‘no clarity yet’’ on what would happen with the China investigation, according to Spiros Malandrakis, drinks analyst at Euromonitor — but the dispute over Australian wines and subsequent tariff increases ‘‘led to the complete collapse of sales of Australian wines for a couple of years. So that was really, really, effective.’’
Cognac had also ‘‘become incredibly associated with luxury”, he added. “Sustainable growth is based on diversification, and if all the eggs are in the luxury Chinese and US basket, that presents a longer-term risk.”
Martell, the second-biggest producer, faces a particular risk in China, which has become its biggest market after decades of investment in the country.
“We are concerned [but] we started trading in China in 1858, our network and identity is very strong, and that doesn’t change overnight,” said Alexandre Imbert, the brand’s legal affairs manager.
He also noted that this was not the first time cognac had found itself in the crosshairs of an international trade dispute, after the administration of former US president Donald Trump raised taxes on European wines and spirits during a trade dispute between plane makers Airbus and Boeing.
“This is a question of escalation of a political issue, the same thing happened during the Trump years,’’ Imbert said. “We know how to advocate for ourselves at the highest level.”
By September, concerns about getting dragged into the stand-off between Beijing and Brussels were already high enough that France’s wine and spirits industry body wrote to then-prime minister Élisabeth Borne, warning it could be targeted by China in retaliation for Brussels launching an anti-subsidy probe into Chinese electric cars.
In public, business carried on as usual, with China’s ambassador to France visiting Cognac in November and Martell hosting its top 250 Chinese distributors at its historic mansion outside the city last month.
But in meetings with government officials in Paris since the Chinese investigation was launched, Martell’s message has been clear as it rallies support.
“This is a warning shot. If [China] targets us, it will not just be our industry — others could follow,” Imbert said, adding that the consensus was that “the important thing is avoiding that China goes further” — damaging the industry and its producers.
France’s economy ministry has said the government and the European Commission were “fully mobilised to ensure the defence of our companies”, adding there was no indication any French producers were guilty of dumping.
Delpech said the industry wanted assurances from Paris and Brussels “that just because we are an agricultural, rural industry we are not going to be treated as secondary compared to other sectors perceived as more modern and technologically advanced”.
Officials “need to take into account the contribution to the trade balance, employment and national image of the cognac industry”, he added, while noting how disruptive agricultural producers’ protests could be if they felt their interests were not being protected.
Hervé Bache-Gabrielsen, the fourth-generation director of a small family cognac maker that bears his name who was recently elected to represent producers at the BNIC, said that while the “complicated” situation with China “is a little beyond our control . . . we have a strong reputation and a responsibility to maintain that over time”.
Speaking from his brand’s underground “paradis” — the name given by every cognac house to the storage room for its oldest batches, he nevertheless remained circumspect over the industry’s prospects.
“All of this will still be here long after this matter is resolved.”
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