Martell’s $3,600 Cognac Sells Out as Chinese Splurge – Bloomberg

Demand For High-End Liquor Remains Strong In China, Following Massive Turnout At Wine Auctions Earlier This Year

Huge in China - Martell's $3,600 per bottle L'Or cognac

Huge in China - Martell's $3,600 per bottle L'Or cognac

Bloomberg reports that cognac brand Martell has sold out of its $3,600-per-bottle L’Or cognac, mainly because of strong demand in the Chinese market, where cognac has increased in popularity rapidly over the past 15 years. As developed markets like the US become less dependable in the face of economic concerns and consumer cut-backs, distillers have had to look eastward, and the growing popularity of cognac, wine and other liqueurs has counteracted the falling demand in other global markets.

In East Asia, much of the success of cognac depends on the China market, where Chinese drinkers have responded well to branding and marketing efforts of brands like Martell and Hennessy, and brand tie-ins have boosted the visibility and consumer recognition of major brands. And although Martell still lags behind Hennessy in the Chinese market, major initiatives like television sponsorship and bar promotions have significantly boosted their market share in the last few years. As an earlier Bloomberg article points out, “[Martell’s parent company] Pernod has established a strong foothold in the Chinese market, overtaking Rémy Cointreau Group for second place, with 26% market share, compared with Rémy’s 20%, as of 2007, the latest data available from Euromonitor. Both companies still lag behind leader LVMH Moët Hennessy Louis Vuitton, which holds a 44% market share.”

Writing on Martell’s $3,600-per-bottle L’Or, Ladka Bauerova explains that Martell’s success indicates that some of Asia’s richest consumers are shrugging off the financial crisis:

L’Or, French for “gold,” was introduced in China at the end of last year, and some of the blend’s brandies date from 1871. It has a hand-worked, gilt-trimmed crystal bottle, as well as a Chinese waiting list for several years’ upcoming vintages.

“If you want to be taken seriously in Asia, you really need this kind of product,” Jean-Etienne Gourgues, Pernod’s commercial director for cognac and champagne, said last week at Martell’s chateau. “It gives your brand the necessary cachet.”

Distillers are relying on the Chinese as the economy shrinks in the U.S., where wholesalers are cutting their inventories of spirits and a 1990s hip-hop fad for cognac has withered. At rival LVMH Moet Hennessy Louis Vuitton SA, China has surpassed the U.S. as the company’s biggest cognac market.

Maurice Hennessy says China overtook the U.S. as [his] brand’s biggest source of revenue and profit in 2008. The family business merged with champagne house Moet & Chandon in 1971, and combined with Louis Vuitton fashions in 1987 to form LVMH, controlled by billionaire Bernard Arnault.

“Asian consumers are extremely status-conscious,” Maurice Hennessy said last week at Chateau Bagnolet, one of his family’s estates in Cognac, the southwest France region where the amber- hued brandy is made. “They demand only the best quality.”

Sales in China will grow faster than 10 percent in 2009, Hennessy said during a lunch at his estate. Asia is more profitable than the U.S. because the region’s consumers buy only the aged, more expensive VSOP and XO categories, he said.

[In contrast to the North American market], Pernod’s Gourgues says Martell hasn’t been so hurt by the U.S. troubles, since it sells primarily in Asia. The brand’s revenue increased 13 percent in the nine months through March. Sales of Hennessy and Remy Martin, which sell most of their cognac by volume in the U.S., fell during the period.

L’Or was Martell’s answer to ultra-premium products from the other big three cognac houses. Hennessy’s Richard costs about $2,500 and is blended from brandies aged 40 to 200 years. Remy Martin’s most exclusive bottle, Louis XIII, sells for about $2,000. Both brands have decanters made by French crystal producer Baccarat.

“We lacked an ultra-luxury bottle in our portfolio, and L’Or really filled that gap,” Gourgues said.

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