Mixed Signals

If cognac and brandy represent the good life, then their fortunes these days are a good indicator of what’s happening in the world at large. The good life vanished for many with the financial crash a year ago. At the same time, the market for cognac and brandy changed dramatically. Cognac sales decreased significantly along with many other high-end spirits segments, while the entire cognac and brandy category ended up basically flat for the year after several years of solid growth.


The story has continued much the same this year with overall category sales down and cognac segment off even more precipitously. While many of the shifts are driven by the lackluster economy, other factors are at play, and not all the news is doom and gloom. Domestic brandy is a bright spot, and as we come out of the recession, spirits makers are optimistic about a rebound in cognac sales.


In 2008, cognac and brandy sales declined about 0.8% overall, to just under 10.5 million 9-liter cases nationally. The real disparity, though, has been in the performance of domestic brandy versus cognac.


Category leader E&J Brandy was up 4.6% in 2008 nationally to nearly 2.9 million 9-liter cases; the brand gained 3.0% in the control states. Other domestic brandy producers among the top ten brands have seen similarly robust sales despite the downturn. Paul Masson Brandy saw sales increase 4.6% nationally to almost 2.5 million cases (up 2.2% in the control states). Christian Brothers sales gained 2.6% to almost 1.7 million cases (up 2.7% in the control states), while Korbel Brandy saw sales increase 4.7% nationally (3.9% in the control states).


Meanwhile, the big cognac houses continue to endure losses. In 2008, segment leader Hennessey was off 6.0% in volume to 2.16 million cases (down 3.1% in the control states); Remy Martin’s sales declined 7.1% off 2.0% in the control states); Courvoisier volume fell 5.0% (down 1.2% in the control states); and Martell’s sales also declined.


Looking for Value


The economic downturn has factored heavily in the performance of most brands in the past year, whether up or down. Because most cognacs are luxury products and priced relatively high compared to other superpremium spirits, they’ve been hit harder than other spirits.


“Lots of people slammed on the brakes on discretionary spending,” said Lamar Johnson, brand manager for Remy Martin. “Last year was unique in terms of the economic crisis worldwide, but in the last three months we’re seeing early green shoots of a healthy recovery.”


Since the downturn has crimped consumer spending, consumers have been looking for value, which has helped brandy, especially domestic brands, forge gains.


Yet another example of consumer belt-tightening has been the decline in the restaurant industry. Consumers aren’t eating out as frequently, and aren’t spending as much when they do.


“The on-premise market is hurting except in casual dining,” said Jon Guggino, vice president of marketing for specialty wines and spirits at Constellation Wines. “People are not ordering top-shelf spirits when they go out, or not as much.” But he added that at-home entertaining has been gaining.


The trend has actually helped buttress sales at off-premise outlets. And marketers are even more focused than ever on the off-premise market to leverage the trend.


“There’s more in-home entertaining going on,” stated Kim Washington, director of luxury brands at Beam Global. “Cognac is still an affordable luxury, so consumers are still buying it,” though not as much as they were. At the same time, cognac is also seeing more competition from other superpremium segments, Washington said.


Indeed, many of the superpremium brands in other categories aren’t as expensive as cognac, making them more attractive to consumers suddenly more conscious of their spending habits in a recessionary economy. Supply issues in the Cognac region of France recently also put upward pressure on prices, exacerbating the problem.


“I don’t know if the trend will reverse itself as the economy recovers,” said Abaigeal Hendron, Jacques Cardin brand manager. “If people are expanding their repertoire, other brands have already fragmented their loyalty. It will be a challenge to bring people back.”


For brandy drinkers, however, everything is business as usual. The trends – trading down, entertaining and drinking more at home, and an aging population – all auger in brandy’s favor.


“I think brandy is a life-stage drink,” said Justin Ames, senior brand manager for Christian Brothers at Heaven Hill. “At age 45, you see people getting into brandy.” 


Hedging Their Bets


Spirits marketers are responding to short-term trends caused by the downturn in ways that expand opportunities. To a degree, brands have hunkered down, forsaking extravagant programs of a few years ago to concentrate on the basics. But make no mistake, they’re all aggressively pursuing the business that’s out there and hedging their bets on what consumers might do next.


Category leader E&J, for example, recently introduced a cognac to its line to complement its best-selling VS and VSOP domestic brandies.


Constellation Wines has redirected marketing funds to Paul Masson Brandy in response to the brand’s recent gains. Using its VSOP marque as a halo for the brand, Paul Masson dialed up the “It’s good to be king” ad campaign last year from August through December. Since about a third of its volume is holiday-oriented, it is amping up the campaign even more this year.


But the brand sees a lot of opportunity for brandy year-round, not just in cold weather months. This past spring, the brand teamed up with Will Castro, car customizer to the stars who has a show on cable TV’s Speed channel. Paul Masson used Castro’s likeness on POS material and promoted the partnership with a sweepstakes that offered a Jeep Wrangler customized by Castro’s company Unique Autosports as a grand prize.


Christian Brothers is concentrating on tailoring programs to local markets. It uses an Afro-American “center city” program in major metro areas, particularly on the East Coast and Midwest, and Spanish-language POS in specific markets, especially on the West Coast. Working closely with distributors in each market, the brand bases programs on local trends.


A blanket program covers much of the northern half of the country in cold-weather months. Concentrating on Minnesota and Wisconsin, the brand sponsors ice-fishing contests and winter festivals.


More Mainstream Products


The major cognac houses still push their ultra high-end marques to provide the halo of heritage and mystique of their art. But all are spending money on marques and programs that are more accessible to mainstream consumers.


Hennessey, for example, recently introduced Hennessey Black in 10 select markets across the country. The new line extension is made from a blend of 35 to 45 distinctive pale and gold colored eau-de-vie chosen for their floral elements, according to the company. The liquid is then aged in French oak barrels previously used by Hennessy for at least five years, producing a lighter, more floral cognac, the company says, designed to mix well in cocktails.


Remy Martin VSOP, the number-one VSOP in the country, is putting emphasis on chilling cognac as a new and interesting way of consuming the product.


“Chilling it enhances the aromas, smoothes out the flavor and enhances the mouthfeel by making it more viscous,” said Johnson. “It’s also more mixable so it appeals to a wider audience.”


The “Remy Chill” program promotes the idea with POS materials, music download cards that consumers can chill to, and light-up ice cube signage for retailers.


Pushing one marque more mainstream doesn’t mean Remy is neglecting its high-end marques. Remy 1738 has a new campaign that plays off the TV show “Mad Men” with a look and feel that hearkens back to the ’50s and ’60s. Remy also released two limited editions in the past two years, a blend of all 1965 eaux-de-vie in 2007, and a one in 2008 from a blend cellared in 1989.


“Ultimately, cognac and premium spirits are still an affordable indulgence,” Johnson said. “Retailers should have as wide a portfolio as possible. We have a wide breadth of marques from VS up to Louis XIII, and retailers should have multiple offerings to meet consumers’ needs.”


Courvoisier also is playing to multiple audiences. The brand is just finishing up its three-city “Le Nez” program, an experience formerly only presented at the Courvoisier Chateau in France. The sensory experience exposes consumers to the brand in a different way and educates them about both cognac and Courvoisier.


At the same time, the brand has been focusing on Exclusif, a marque it introduced two years ago that is designed to be more mixable and stand up to ice. Made with up to 12 year-old eaux-de-vie, the marque comes in a sleek modern package to appeal to consumers of superpremium spirits.


Still in development is an enhanced and increased level of retail programming on VS for next year. Coming off strong holiday programs with gift packaging across all marques, Courvoisier hopes to maintain momentum and bring consumers back to the category as the economy rebounds.


Martell is focusing on the long-term potential of both the category and the brand instead of the short-term shifts brought on by the downturn.


“We need to market the category as a luxury product for all consumer segments,” said Larry Neuringer, Martell brand manager. “So we’ve increased our focus on higher marques. Our strategy is ‘show the best, sell the rest.’ We’ve backed away from VS and from price decreases on other marques.”


The brand adjusted its shelf price on VS before the recession knowing it would affect sales (accounting, in  part, for the dramatic drop), and took price increases on higher marques like Cordon Bleu, XO, Extra and L’Or de Jean Martell. Using tastings, education, special event sponsorship and active local marketing, the brand started to get its message across this year. Its high-end marque L’Or de Jean Martell went through its entire allocation and had a waiting list for buyers. Fortunately, new shipments have arrived in time for the holidays.


Opportunities still abound in the category, despite consumer wariness as the economy slowly rebounds. JC Cognac, for example, saw sales rise 50% through August over the previous year. Introduced a few years ago, JC admittedly is growing off a small base, but the brand shows what can be done even in a tight market. A VSOP JC Cognac is priced competitively, and the brand is highly visible in key accounts with tastings and in-store demos.


JC Apple and JC Jasmine, introduced at the same time, are doing as well or better in some cases as the VSOP due to their mixability. Hendron said the brand may achieve enough critical mass next year to warrant some big brand-awareness building programs in 2011.


Even small brands like Camus, Hine, Delamain and Raynal are capitalizing on their uniqueness to maintain sales in difficult times. Camus recently released Cuvee 3.128, a new high-end marque. Delamain is known for its vintages – cognacs made with grapes from a single region. And Raynal makes superb French brandy blending cognac and brandy made with grapes from other French wine regions.


And with the economy seeming to be moving in the right direction, the holidays and the cold-weather months are a great time to be selling cognac and brandy.


World Brandies


There are essentially three types of brandy. Brandy made with fermented juice of crushed grapes is the most common. Distilled once or twice, the resulting spirit is mellowed and aged in wood casks, usually oak.


Brandy made with pressed grapes, skins, and stems after the grapes are crushed is called pomace. Usually bottled without being aged, or even seeing the inside of a wood cask, these brandies are edgier and more raw than their refined siblings. Best examples of the style are Italian grappas and French marcs. Lately, a South American brandy from Chile similar in style to pomace called “pisco” has become more popular here.


Grape brandy production likely entered Europe through Spain, and was spread even further by missionary monks to France and Ireland. (The monks in Ireland improvised and invented whiskey since barley was easier to grow than grapes.) Dutch traders brought brandy to northern Europe from southern Spain and France, calling it “brandewijn,” or “burnt wine” because it was boiled or “burnt” during distillation.


Spain produces a unique style of brandy using the same “solera” system used to make sherries, and another more traditional style. In the solera system, a series of butts are racked together. Brandy is drawn off from the oldest butt in the series, but never more than a third. That’s replaced with brandy from the next butt in the series, and so on, with the most recently distilled brandy going into the first, or youngest, butt in the series. Solera systems hasten maturation by combining vintages, with many as large as 30 stages. Cardenal Mendoza is a good example of the style.


Many countries have a thriving brandy industry producing internationally known brands – Presidente from Mexico and Metaxa from Greece, not to mention the lighter “California-style” brandies such as E&J, Paul Masson, Korbel and Christian Bros. from the U.S.


Finally, fruit brandies (not fruit-flavored brandy) are brandies distilled from a variety of other fruits. Well-known examples include calvados – apple brandy from Normandy-and Williamine – pear brandy from Switzerland.

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