This is part 7 in our series A short history of Cognac
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Joseph MicallefAccording to the Bureau National Interprofessionnel du Cognac (BNIC), the industry’s trade association, cognac’s three largest markets are the United States (78.7 million bottles), Singapore (23.6 million bottles) and China (22.6 million bottles).

Singapore has the distinction of having the largest per capita consumption of cognac in the world. It has the same distinction with respect to Scotch whisky.

In actuality, a large proportion of Singapore’s imports are shipped on to China. Adjusting for imports via Singapore, it’s quite likely that China is now the world’s largest market for cognac by revenue.

The popular conception of cognac is that it’s an expensive, ultra-aged spirit, the domain of old men nursing snifters on overstuffed leather chairs.

In reality, 90 percent of worldwide sales consist of VS (very special) and VSOP (very superior old pale) cognacs. Roughly half of those sales are earmarked for cocktails, and the balance is mostly served, with or without soda, on the rocks.

High-end cognacs, those classified as XO (extra old) or higher, are less than 10 percent of the industry’s sales; higher in China and the rest of Asia, but only about five percent in North America.

One of the interesting features of the international market is that Asian markets equate darkness with age, so blends shipped to the Far East are sometimes darker than those sold in Europe and North America. A number of the larger houses confirm that the cognac they ship to Asia can be darker but they insist the taste remains the same.

Cognac’s urban connection

U.S. sales have been growing rapidly over the last two decades, driven by the close association of rap music and urban music culture with cognac. The watershed event was in 2001 when the hit song Pass the Courvoisier by Busta Rhymes and P. Diddy ignited a 30 percent jump in the brand’s sales.

A bottle of VSOP Courvoisier

The association of cognac with urban culture is not new, however. Since the 1950s, African-Americans have represented the largest single segment of cognac drinkers in the U.S. The cultural link was reciprocal.

France has always been highly receptive to African-American culture. The French fell in love with jazz and blues long before they became mainstream in the U.S.

Starting in the 1930s, for example, African-American singers like Josephine Baker and later Billy Holiday routinely performed to predominantly Caucasian audiences in Paris at a time when most U.S. music halls were still segregated.

An affinity for French culture notwithstanding, before the 1950s, most African-Americans drank whiskey. It was Hennessy who first specifically targeted the African-American demographic by advertising cognac heavily in magazines like Jet and Ebony. The inspiration for the campaign was credited to Hennessy vice-president of sales Herb Douglas, one of the first African-Americans to hold a senior position in a major spirits company.

The current association of cognac with urban music is simply the most recent manifestation of a relationship that goes back almost three-quarters of a century.

Among the urban artists closely associated with cognac brands are Jay-Z with Bacardi’s d’Usse, T.I./Tip with Rémy Martin and Snoop Dogg with Landy. In 2009, rapper Ludacris released Conjure, his own cognac brand, with producer Birkedal Hartmann.

Hennessy, whose U.S. market share is the largest at 60 percent, is considered the strongest cognac brand in the urban music community. It has been associated with several rappers, most recently Nas.

Cognac’s association with African-American urban culture also helps the industry improve its sales in Africa. Rapidly growing markets, like Nigeria and South Africa, are strongly influenced by U.S. urban culture trends and have also seen increased demand for cognac, boosting sales in a market that historically hasn’t been significant for cognac.

The industry today

The four largest cognac houses, Hennessy (LVMH), Martell (Pernod-Ricard), Rémy-Martin (Rémy Cointreau) and Courvoisier (Bacardi), represent over 80 percent of the industry’s sales. They have a worldwide footprint and typically control their own distribution channels.

Click here to downloadBeneath them is a second tier of about 20 firms, most of them private or part of smaller international spirit companies. These include cognac houses like Camus, Hine, Hardy, D’otard/D’Usse, Frapin, Bisquit and Delamain, among others.

Camus is on the cusp between the first and second tiers of producers. Not quite one of the big four, but larger than any of the other second-tier producers.

This second tier also has an international footprint, but sales penetration is inconsistent, typically relying on third parties for distribution in key markets.

That leaves several hundred small producers. Most of their sales are within Europe and are usually highly concentrated in a very small number of countries.

A smattering of their products is brought into select markets by specialty importers, French-based mail order firms and high-end retailers. For the most part, however, these brands are hard to find.

A bottle of Hennessey’s XO Cognac

Cognac’s future prospects appear to be very good, especially in its two largest markets, the U.S. and China. These two markets, including Singapore, represent two-thirds of the industry’s revenue.

In the U.S., notwithstanding its considerable volume, cognac sales are skewed to a very narrow demographic. Fifty-seven percent of U.S. cognac sales are to African-Americans, even though they constitute only 12.3 percent of the U.S. population.

Moreover, 75 percent of those sales are to African-Americans between the ages of 20 and 35.

Women represent only about 20 percent of sales, much less than for other comparable spirit categories.

Hispanic-Americans consume little cognac, even though many, especially Mexican-Americans (the largest single segment), come from cultures with a long-standing brandy drinking tradition.

Overall, cognac’s American market is based on a relatively narrow demographic segment.

In China, it’s all about growing market share. With only .5 percent of the spirits market, cognac has a lot of room to grow.

Cognac seems far more popular in south China. In north China, whisky is the preferred drink. Cognac consumption in south China is around eight times the per capita average and almost triple the consumption in the north.

Not surprisingly, cognac consumption skews toward a much younger demographic. South China is often seen as the trendsetter for the rest of China, so cognac’s appeal in the south and to younger Chinese augurs well for its future growth in China.

The industry has done an excellent job of growing the volume in its core VS and VSOP brands.

The proliferation in expensive and ultra-expensive prestige bottlings generates a great deal of media attention. But the overall contribution to the industry’s overall profitability is more modest, notwithstanding its high margins.

Moreover, these price categories are far more sensitive to the vagaries of economic cycles and, in China, to anti-corruption crackdowns.

The cognac industry today is not unlike the Scotch industry a generation ago, before the proliferation of single-malt expressions and the expansion of the typical distillery’s core ranges.

Thirty years ago, most distilleries had two or three expressions in their core range. Today the number is often a dozen or more. Roughly 100 distilleries have released around 3,000 Scotch whisky expressions in recent years.

Virtually all the growth in the Scotch industry in the last several decades has come from the expansion of the single-malt category, a result of more distilleries offering single malts, the addition of more age statements as well as vintage bottlings, and the proliferation of different cask finishes.

It’s possible that the years ahead will see cognac offer its own variation of that strategy with an expansion of varietal, single vineyard and more unusual bottlings. Both Camus (Ile de Re series) and Martell (Augier L’Océanique), for example, have released iconic cognacs from the Atlantic coast of Charente-Maritime that show strong maritime influences.

Alternative cask finishes, other than for casks that held grape-based wines and spirits, are not allowed under the cognac appellation’s rules, but a number of producers are experimenting with this option.

Martell has a bourbon-cask-finished cognac and Courvoisier is releasing a PX sherry-cask-finished expression.

The number of single vintage, estate vineyard and Colombard- and Folle Blanche-based cognacs is increasing. Depending on how flexible the BNIC and the appellation’s rules are, producers may be on the verge of a period of widespread innovation.

Cognac has been around for three centuries, but it’s likely that its best years are still ahead of it.

Joseph V. Micallef is an historian, best-selling author, keynote speaker and commentator on wine and spirits. Joe holds the Diploma in Wine and Spirits and the Professional Certificate in Spirits from the Wine and Spirits Education Trust (London).

Joseph is a Troy Media contributor. For interview requests, click here.

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