Trouble in Hong Kong cuts tourism, spending on Cognac.
The protests in Hong Kong have harmed the tourist industry and hence Cognac sales. The Far East accounts for more than 25% of Cognac sales but about 40% of the revenue as longer-aged, higher-priced Cognacs are more popular in that region than in North America where nearly 46% of all Cognac sales occur. North American sales are more heavily tilted towards younger V.S. Cognacs than the V.S.O.P and XO Cognacs that are popular in the Far East.
Luxury goods maker LVMH, owner of the Hennessy brand, spirits giant Pernod-Ricard, owner of the Martell brand and Rémy Cointreau, owner of the Rémy Martin Cognacs have all reported lower Asian sales as a result of the turmoil in Hong Kong. LVMH and Pernod-Richard are less impacted from lower Cognac sales as Cognac and higher end Cognacs are not major drivers of either companies’ overall revenues.
The slow down in Cognac sales in Hong Kong has impacted Rémy Cointreau to a greater extent than LVMH and Pernod-Richard, because its Rémy Martin brand, the number two Cognac producer by volume, historically contributes about 75% of overall revenue to the parent company. Rémy Martin Cognac sales account for approximately three times more than sales of its liquors that include House of Metaxa, St. Remy and Mount Gay Rum.
In addition, Rémy Martin’s product line consists almost exclusively of longer-aged, higher-priced Cognacs, the type that are prized in Asia. Rémy Martin uses exclusively grapes grown in the Champagne region of Cognac, one of the most prized growing crus.
Despite its Hong Kong sales woes, Rémy Cointreau, still reported an overall sales gain of 2.1% of Rémy Martin Cognacs in the first half of 2019. (April-September), compared to a 4.9% growth in sale of its other products. The company noted that “a fall in tourism in Hong Kong..) masked a continued steady demand for cognacs, in particular China.”