Europe-China Trade Dispute Takes Toll on Hennessy Cognac as Spirits Firms Reconsider Their Strategy
(Photo: Hennessy)
On Tuesday, French luxury giant LVMH reported on a 10% decline in “Cognac & Spirits” sales in the first half of 2024. While brands like Moët & Chandon Champagne, Dom Pérignon and Belvedere Vodka performed comparatively well, cognac suffered due in part to ongoing trade tensions between the European Union and China.
Across the board, wine & spirits revenue slumped 12%, representing the biggest hit to any division in the company’s portfolio. Explaining why its brand Hennessy — the most profitable cognac imprint in the world — witnessed a tumble, LVMH blamed “weak local demand in the Chinese market.”
The statement might come as a surprise to casual onlookers. China regularly clocks in as the world’s second-largest cognac consumer behind the U.S., importing 32 million bottles in 2023 alone. According to IWSR Drinks Market Analysis, the country accounts for 44% of global VSOP-and-above cognac sales by volume and 48% by value.
In other words, Chinese consumers spend more per bottle than their American counterparts. At least until recently.
Behind the scenes, a long-unwinding trade scuff between the European Union and Chinese officials has placed the fate of cognac directly in its sights. The saga traces its origins to September 2023, when the EU announced an investigation into Chinese electric car subsidies. In retaliation, China quickly announced an anti-dumping probe into European brandy and later pork products.
The tit-for-tat has escalated beyond ambiguous threats. Days after the European Commission announced duty taxes of up to 38.1% on Chinese electric vehicles, China suggested that it would levy tariffs on European brandy as early as August. For perspective, French cognac makes up 99.28% of all EU brandy imports to China.
Yuyuan Tantian of China Central Television wrote in June:
“It is a naked act of protectionism, creating and escalating trade frictions, and destroying fair competition in the name of ‘maintaining fair competition.’ It is the greatest ‘unfairness.’ Faced with such actions, China must of course take countermeasures. […] The EU still has time to think about whether to choose a win-win situation or to harm others and not benefit itself.”
Trade talks have stalled as the August deadline looms closer. On Thursday, the European Food Agency reported that representatives from LVMH, Pernod Ricard and Remy Cointreau met with Chinese officials to discuss a potential brandy deal.
Remy Cointreau CFO Luca Marotta says that Beijing remained tight-lipped, remarking that officials “did not give any official communication regarding the timing of its decision after the hearing.”
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