Cognac Under Pressure: Hennessy Suspends Its Relocation Project In China

The French spirits producer and market leader Hennessy (a subsidiary of the luxury goods group LVMH) finally suspended its project to relocate to China, which had planned to bottle its famous cognac on the Asian continent. “The company has decided to suspend the test project for bulk shipments of cognac (...) while closely monitoring political and diplomatic developments”, the company said in a press release.

Last week, several hundred employees went on strike in Cognac, in the Charente region of France, ten days after learning of their employer's initiative. Hennessy was considering several strategies to circumvent the anti-dumping laws (on brandies) introduced by the Beijing government about a month ago. One of the strategies considered by Hennessy was to send the cognac in bulk to China and bottle it there. This strategy could have partly circumvented the new measures applied by the Chinese government, which focus on imported finished products.

Since October 11, China has required foreign companies importing brandies from the European Union to pay a deposit of between 30% and 40% of the value of the goods. The decision is aimed primarily at major French cognac producers such as Hennessy, Rémy Cointreau and Pernod-Ricard, as the spirit drink accounts for 95% of all European brandies. This sector ( i.e. cognac), which employs 72,500 people in France, relies heavily on exports, which account for 98% of its sales, worth 3.35 billion euros. China is its second biggest market (25% of exports), following the United States (38% of exports).

During this period of reflection by Hennessy, the G20 was held in Brazil. On the sidelines of the international summit, Presidents Macron and Xi Jinping confronted each other in an exchange that apparently determined the suspension of the project. However, employees remain cautious, fearing the potential resumption of an initiative that has not been totally abandoned, and are maintaining a strike day tomorrow in Cognac.

Market conditions are becoming increasingly restrictive for the major players. Hennessy saw its sales for the first nine months of the year fall by 8%, to a total of 4.2 billion euros. This decline is mainly attributed to difficulties on the Chinese market, between new customs measures and sluggish demand. Results are not going well for the other French spirits giants either. After two exceptional post-pandemic years, Pernod-Ricard saw its sales plunge in the last financial year, ending June 2024. Sales fell by 4% to 11.6 billion euros. Rémy Cointreau, meanwhile, recorded sales of 533.7 million euros for the first half of the 2024-2025 fiscal year, representing a year-on-year decline of 16.2% on a reported basis.

The entire industry is therefore in difficulty, and has been since the beginning of the year. “The first few months of 2024 have left a bitter taste: volumes are down by around 5% on the previous year, and the downward trend is accelerating”, the French Spirits Federation was already alarmed this summer.