Cognac Calamities

Rachel Reeves, our frazzled Chancellor of the Exchequer, is scrambling around for additional sources of tax and excise revenue.  Her options are dwindling as we come closer to Budget day on 26 November.

In the past, UK governments were prone to hiking excise duties on booze and spirits in an effort to plug a widening fiscal gap.

Rachel may be tempted to slap additional duties on spirits, including cognac, as a means of raising revenue. Yet such a strategy would certainly backfire and may well lead to less revenue being generated. 

The simple fact is that consumers are losing their taste for spirits. This is in no short order attributable to Generation Z’s ebbing penchant for strong spirits. They prefer zero alcohol brands, or marijuana.

Cognac illustrates this conundrum very well.

Cognac crossroads

Earlier this month I heard first-hand about the collective woes of the cognac fraternity at the Duty Free & Travel Retail Global Summit, held in Cannes on the French Riviera (a tough research assignment, admittedly). In Cannes, there was an air of all-pervading gloom demonstrated by cognac producers along with the marketing conglomerates that were keen to sell their wares at duty free outlets worldwide. Dr Munif Mohammed, CEO of Lagardere Travel Retails, based in Dubai, summed up this view when he told me India was now one of their fastest expanding markets, whereas Europe was facing daunting challenges.

Gen Z are now looking for novel life experiences, rather than the materialistic cachet of designer handbags, exclusive perfume or prestigious brandies and whiskies. This worries the purveyors of luxury goods, notably conglomerates such as LMVH, the owner of Hennessy cognac. 

In a recent interview for a local French newspaper La Charente Libre, Charles Delapalme, in his first intervention since taking on his role as Hennessy president six months ago, laid bare the woes of cognac.

“We survived other crisis in the past, we are going to survive this one as well, even though it is a particularly deep and severe one.”

In 2025, LVMH is experiencing a significant reversal of fortunes with a recent Berenberg analysis report stating that “the luxury super-cycle is over”. Consequently, LVMH was downgraded from a “buy” to a “hold” by the German investment fund.

Cognac is a curious commodity. French consumers tend to shun it, in fact, 95% of annual production is exported, mainly to China and the USA. Primarily, Cognac originates from only two French departments, namely Charente and Charente-Maritime. The market is dominated by four brands: Hennessy, Martell, Remy Martin,  and Courvoisier, which account for over 90% of total sales.

All four are facing hard times. Sales in China are significantly down, following a major anti-dumping review, although earlier this summer, Beijing granted important exemptions to the leading cognac producers - provided they sign up to a minimum export price. Meanwhile, in the US, where cognac sales are worth € 1 billion a year, the Trump administration is levying stiffer tariffs on brandy. Indeed, producers are now looking at paying a 15%  levy on their exports.  The President, a well-known teetotaller, is unlikely to be overly sympathetic to the cognac region’s plight.

In 2021, cognac exports totalled 223.2 million bottles. But sales plummeted to 165.3 million bottles in 2023, with sales plateauing in 2024. Last year, revenues were down as consumers-  in their droves - steered away from the more expensive VSOP category (down 8.6%), while the more exclusive XO category saw sales tumble by 26.4%.

Fresh recipes

Clearly, cognac houses have to rethink their marketing strategies. To restore their liquidity, and achieve sustainable sales growth, they need to appeal to a younger generation of drinkers. Rejigged cocktail recipes may prove one route. I well remember some memorable evenings in New York I’ve enjoyed at the Brooklyn Academy of Arts with a range of celebrity performers promoting their music, and alluring cognac cocktails, to a hip crowd. This was clever sponsorship to a generation unfamiliar with their product.

 Cognac needs to come up with some fresh, eye-catching, marketing campaigns if it is to regain lost markets in the next five years.

Aurélie Colin-Thevenet, an expert on cognac brands marketing, suggests that brands should focus on experience and added value to the consumers. “Instead of relying too heavily on history and heritage”, she observes, “they should focus on more client-centric campaigns. In Travel Retail, we’ve seen some excellent examples like Hennessy’s partnership with NBA, and lately with Lebron James at LAX Airport. Furthermore, the Big 4 – as they are known locally in the cognac area - should concentrate on embarking more mixologists and bar tenders, as they are the gatekeepers to younger audiences. The competition from rum, whisky, tequila and mezcal is intense.  More often than not, this duel is won by providing workshops and entertaining training sessions to help the mixologists understands how to use and sell the products”.

Aurélie adds: “Another short-term solution that has been pursued in recent months by the Cognac industry is to court the French market. But a domestic market that has been long overlooked is not so easy to reactivate”.

For older connoisseurs of cognac, these belt-tightening times may trigger some unexpected opportunities to sample prestige brandies, but there are not enough of us to underpin a substantial tax take for Rachel Reeves. She may be better advised to look into more radical options, such as imposing a tax on legalised marijuana sales.

Keith Boyfield