Cognac Boom Is Having a Hangover

After a pandemic boom in the luxury cognac market, Americans aren't toasting with it as much these days. Bloomberg reports that brands are seeing sharp declines, with one of the top makers, Remy Cointreau, down 43% in profits this year. Rather than raise prices on their already pricey bottles, the French cognac maker plans to cut internal costs by over $100 million. During the pandemic, when sales surged as people stuck at home with money to burn craved a strong drink, the company raised prices, which they don't plan to backtrack on despite low returns. "Holding prices is reinforcing brand equity," CEO Eric Vallat explained on a call to investors.

The Financial Times cites economic anxiety as one factor in cognac's downturn. "We are crossing into territory where the savings are gone, the support is gone," spirits analyst Spiros Malandrakis told the paper. "It looks like a hangover after the great party that followed the pandemic recovery." Post-pandemic, the demand for cognac remained high when bars began re-opening, but Anthony Brun, president of a cognac producer's association, believes factors like inflation and the Ukrainian war are making sales soft across the board for spirits. Americans are also switching to tequila, another reason sales may be down. But leaders in the industry believe it will rebound. "Cognac is timeless and always comes back," Vallat said.

US consumers are the industry's biggest customers, with more than half the bottles produced getting shipped stateside. FT breaks down the industry's link to Black Americans, who buy up half of what's imported to the US. Hip-hop culture has had a long connection to cognac, which is famously referenced in songs like Jay-Z's "Give It 2 Me" and Busta Rhymes' "Pass the Courvoisier," while Jay-Z and Ludacris have gotten in on the game by launching their own labels more than a decade ago. But the ties go back much further, to the Jim Crow era, when French spirits producers ignored segregation and marketed directly to Black Americans. (Liquor is topping beer in the US).