Cognac’s Decline: A Spirited Battle Against Tequila’s Rise in the US Market
Cognac’s Rocky Road in 2023
The Cognac industry, particularly in the vital US market, has experienced a notable 16% volume decline in the first half of this year compared to 2022, as per IWSR Drinks Market Analysis. Despite a robust Compound Annual Growth Rate (CAGR) of 12% from 2014 to 2019 and a spike during the pandemic, Cognac volumes plummeted by 20% in 2022. The global sector, too, witnessed a 10% drop last year.
US Market: The Epicenter of Change
The US, accounting for over 40% of global Cognac sales, is seeing significant downturns. IWSR attributes this partly to post-pandemic supply chain complexities, with bloated retailer and distributor inventories. Additionally, a shift back to pre-pandemic drinking patterns is evident.
The Agave Effect
Interestingly, IWSR points to the rise of agave-based spirits as a factor diminishing Cognac’s allure, with consumers gravitating towards more budget-friendly options. Both Cognac and Tequila vie for the same demographic, notably middle-income ‘core’ drinkers and affluent urban Millennials. Richard Halstead of IWSR remarks on the competition between the two, especially in social settings.
Cognac’s Niche Audience
Cognac’s consumer base is relatively small in the US. Only 8% of drinkers recall consuming Cognac, compared to 27% for Tequila. Moreover, the income demographics differ, with Tequila attracting a higher proportion of affluent consumers.
Tequila’s Rising Tide
Tequila’s inherent advantages over Cognac, such as diverse styles and consumption opportunities, are highlighted by Jose Luis Hermoso of IWSR. Its role in popular cocktails like Margaritas enhances its appeal, a trend reflected in Cognac drinkers’ cocktail preferences.
Gender Neutrality and Brand Challenges
Marten Lodewijks from IWSR also notes Tequila’s more gender-neutral appeal in the US, contrasting with Cognac’s predominantly male consumer base. Major Cognac brands like Rémy Cointreau and Moët Hennessy have reported significant declines, with Pernod Ricard’s Martell Cognac also feeling the impact in the US.
Cognac’s Cyclical Woes
Historically, Cognac has been sensitive to economic downturns. The current decline is viewed as a cyclical rather than a structural issue, with a need for brand owners to diversify Cognac’s consumer appeal in the US.
Strategic Shifts
To regain its footing, the Cognac sector is encouraged to explore broader consumption methods, potentially challenging Tequila’s dominance in the cocktail realm. The Bureau National Interprofessionnel du Cognac (BNIC) reported a global drop in Cognac volumes by 4.8% in 2022, underscoring the urgency for strategic adaptations.
