MORE COGNAC SOLD IN USA IN 2018 THAN EVER

Cognac Economy is Up

Source: ShankenDailyNews

Cognac is enjoying a renaissance. Last year global volumes increased by a robust 5.5% to 15.4 million cases, with the U.S. at the forefront, accounting for nearly 40% of total consumption. After crossing the 6-million-case mark on 9.7% growth in 2017, Cognac has now expanded its U.S. volume by nearly 2 million cases in just the past three years. With demand skyrocketing—particularly for the VS segment—keeping adequate supply in the pipeline is now the major concern.

Hennessy continues to drive the market in the U.S., averaging an annual increase of 12.9% over the past five years. In 2017, the brand increased 7.4% to just under 4 million cases, and might have risen higher if not for its supply constraints.

Still, Hennessy is now nearly twice as large as it was in 2012, when it depleted 2.16 million cases. “Hennessy has plans for growth across all our qualities in the coming years; however, we do need to continue to manage our growth and supply carefully,” says Giles Woodyer, senior vice president for Hennessy at Moët Hennessy USA. “We’re continuously improving and building our supply development efforts including expanded relationships with growers, new plantations, and strategic investments such as our recent considerable investment in our packaging and logistics site, Pont Neuf, which opened last year.”

This new 280,000-square-foot Pont Neuf facility will allow Hennessy to produce around 10 million cases annually by 2020, up from 7 million cases currently.

Read more at ShankenDailyNews

COGNAC EXPORTS HIGH TIME HIGH

Cognac exports in 2017-18 are valued at €3.2 billion, an increase of 8.2% in volume (250.9 million bottles) and 5.4% in value compared to 2016-17.

This is the fourth consecutive year of export growth, according to the Bureau National Interprofessionnel du Cognac(BNIC), the cognac trade body.
The American zone, with ALENA, was the largest export area, taking 89.8 million bottles, a increase of 9.4% in volume and 0.2% in value. The US was the largest ALENA export zone, with a ninth consecutive year of export growth.

The Far East, with 60.9 million bottles, was in second place with a growth of +13.5% in volume and +12.4% in value. Singapore (26.6 million bottles) and China (26.2 million) were the main export countries.

In Europe, exports were stable at 41.3 million bottles, down by 2% in volume but up 3% in value.
Source: Vinexpo Newsroom

MORE COGNAC SOLD = MORE COGNAC TO BE PRODUCED: 2018 WILL BE A GOOD HARVEST!

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Even with a dry summer the production of grapes in Cognac are looking goodaccording to the BNIC by 31st August 2018.
"Quasiment pas de pluie lors de la semaine passée. Dans l’ensemble le vignoble supporte bien cette sécheresse, toutefois certaines parcelles montrent des symptômes déjà marqués : jaunissement du feuillage, baies petites et molles. Les températures encore élevées en milieu de semaine provoquent de nouveaux dégâts d’échaudage. Elles se rafraîchissent nettement en fin de semaine."

Source: http://www.cognac.fr/cognac/_fr/4_pro/index.aspx?page=actualite&id=7501&src=flash

Hence, the Government and Cognac Society (BNIC) have agreed for a rather high rate of harvest per hectar of vineyard for the production of cognac, i.e., 14,64 hl AP /ha.
This decision follows a rather large demand for cognac in 2018 with + 8,2% in volume and 5,4% in value on 31st juillet 2018.
"Confirmant un besoin total de 914 700 hl AP, la filière Cognac a validé, au sein de la Section ODG du BNIC, un rendement annuel Cognac 2018 à hauteur de 14,64 hl AP /ha. Ce chiffre, issu du Business Plan Cognac a été entériné ce jour dans le cadre du Comité Régional INAO. Cette décision collective et unanime répond à la forte demande des marchés et à la croissance des expéditions ... et ... tient compte de la capacité du vignoble affecté par les aléas climatiques et des dernières estimations de récolte de la Station Viticole du BNIC."

Source: http://www.cognac.fr/cognac/_fr/4_pro/index.aspx?page=actualite&id=7505&src=flash

EXPECTED GROWTH OF SHARES FOR REMY COINTREAU

Remy Cointreau logo

Rémy Cointreau (RCO FP): Premium Growth but Premium Valuation

Source: Jefferies International Limited

Edward Mundy, ACA

June 11, 2018

Rating HOLD

Price Target $120.00 (from $105.00)

Price $122.90

Key Takeaway

We like Remy's category exposure (80% cognac) and see upside as the CEO rolls out her vision for the company as a super-premium business. Fundamentals in the Cognac Division remain strong which should support EBIT growth 12-13% in F19. While we like Remy, trading at 33.3x CY19E (vs staples 18.9x), the shares need upgrades to perform. Remain at HOLD.

Attractive category exposure... With 80% of the business cognac, rising further if other brown spirits Metaxa, St Remy, Mount Gay, Islay Spirits are included, Remy offers a highly attractive brown spirits portfolio that is well positioned to capitalise on the spirits premiumisation trend.

...with a vision as a super-premium business... Remy does not have the financial superpower to compete head-on with spirits majors. Instead, the business will borrow from the CEO's experience in luxury goods, relying more on digital and direct to consumer sales than traditional FMCG marketing.

Premiumisation strategy on-track - co is making good progress with the premiumisation model with 53% of the portfolio now over $50 a bottle vs 45% in F15. The move to 60%-65% over the next three to five years should be feasible given that 80% of sales are over $40. Given that it is unlikely that Cointreau can be sold for >$50 a bottle, the conversion of this 27% of the portfolio ($40-$50 a bottle) is likely to take place across cognac (1738), gin (Botanist), Mount Gay (xo) and higher variants of Metaxa.

Margin outlook - positive trends. Given the stronger than expected margin growth in F18, the company has raised its margin guidance to 240-300bps F18-20E. With 130bps captured in F18 (22.0%), this argues for between 50-85bps org margin expansion p.a. F19 and F20. Although the company is investing ahead of growth in A&P, margins should be driven by continued GM expansion given the company's premiumisation strategy.

What are the risks? Key risk for an investment in Remy is concentration risk in cognac & that consumers move away from cognac towards other brown spirits. However, we see an attractive outlook for the cognac industry with scarcity of inventory helping to drive a robust pricing environment.

What's changed? We increase F19 EPS c2% and our price target to $120 (from $105) to reflect the upgrade and the roll-forward of our DCF by one year.

COGNAC DOUBLE DIGITS GROWTH

 

Cognac Sales Image Logo Icon

In 2016-17, and for the third year in a row, cognac export figures showed increases , of 10.2% in volume and 15.2% in value. In total, 190.2 million bottles were exported this year, for a total revenue of 3.0 billion euros.

The NAFTA region was the leading market, with an increase of 9.3% in volume and 13.5% in value, helped by the US market, with an historic 78.7 million bottles shipped during the period.

Source: www.BNIC.com

SALES FROM REMY COINTREAU SHOW GROWTH

Remy Cointreau

After a strong third quarter, Rémy Cointreau’s sales were up by nearly 5% (and 6% on an organic basis) over the first nine months of its fiscal year. The company’s organic sales rose by 9% in the third quarter (ending December 31, 2016), as high-single digit growth in the U.S. market combined with a double-digit advance in China to produce significant progress.

Rémy’s third-quarter sales bump more than doubled analysts’ projections. Flagship brand Rémy Martin was the company’s growth engine over the first three quarters of its fiscal year. 

The Cognac brand’s sales grew by 11.2% on an organic basis. Meanwhile, in China, the brand’s depletions were up by high-single digits, in part because of the earlier Chinese New Year. Beyond Rémy Martin, Rémy Cointreau’s liqueurs & spirits unit (led by Cointreau) grew by 4.1% over the first three quarters, while its partner brands business fell by 15%, mostly due to the end of distribution contracts for Piper Heidsieck and Charles Heidsieck in several key markets.

Source: Shanken Daily News

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AMERICAN CRAFT SPIRITS INDUSTRY HAS ALMOST X10 IN 10 YEARS

The last time I check just about 4 or 5 years ago there were approximately 250 distilleries in the USA.

Now this week the Spirits Business announces 1315 distilleries in the USA.

What happened?

The US craft spirits industry is booming according to The American Craft Spirits Association (ASCA) and the International Wine and Spirits Research (IWSR).

American Craft Spirits Association Logo

Through collaboration these two organizations are currently running a research called the 'Craft Spirits Data Project'.

Main Findings from the Craft Spirits Data Project:

• The U.S. craft spirits industry is growing rapidly. As of August 2016, there were 1,315 craft distillers active in the U.S. The U.S. craft spirits market reached 4.9 million cases and $2.4 billion in retail sales in 2015, growing at a compound annual growth rate (CAGR) of 27.4 percent in volume and 27.9 percent in value between 2010 and 2015. The market share of U.S. craft spirits reached 2.2 percent in volume and 3.0 percent in value in 2015, up from 0.8 percent and 1.1 percent in 2010, respectively.
• Exports offer an additional runway for growth. Exports of U.S. craft spirits reached 523,000 cases in 2015, adding more than 10% of additional volume to U.S. craft distiller total sales.
• Employment and investment are on the rise among craft distillers. In 2016, the industry employed over 12,000 full-time employees (FTEs). Investments by the U.S. craft industry have reached close to $300 million in 2015, which primarily covered the build out of tasting rooms and other visitor experiences, equipment to increase production capacity, and associated labor costs.
• Geographically, the study found the US craft distilling market to be “concentrated”, with the top five states (states containing the highest number of craft distilleries) making up 35.6% of the category: California, New York, Washington, Colorado and Texas.
• The next five states – Oregon, Pennsylvania, North Carolina, Ohio and Florida – comprise an additional 16.5% of the market.

Source: The Spirits Business; Craft Brewing Business

AUSTRALIAN CONSUMERS ARE GETTING INTO COGNAC WITH MARTELL SELLING +10% PER YEAR

Increasing interest for premium spirits in Australia is driving consumer towards cognac. Cognac category in Australia is growing at 10 per cent a year, with Martell reaching 30 per cent market share in Australia.

The two fastest growing products of the 5 SKUs in Australia are Cordon Bleu and Martell XO according to Martell Brand ambassador in Australia.

Cognac Martell - Main Product Range 2012

Martell is also benefiting from a large diaspora of wealthy Asian people who had fled Hong Kong in the 1990s in fear of Hong Kong becoming a Chinese province. Soon to be a 300 years old brand in 2015, Martell is getting organized to celebrate the anniversary.

Martell was established in 1715 and it is the oldest of the 4 big cognac houses, i.e., Remy Martin (Estd. 1724), Hennessy (Estd. 1765), and Courvoisier (Estd. 1835).

Martell is not the oldest house. The oldest cognac house is supposed to be Augier Frères & Co founded in 1643. The Augier Cognac House was acquired by Martel I think in the late 1970s. Martell now and then makes a limited production of Augier cognacs.

Augier Freres XO

Source: The Shout Australia