FEATURE: COGNAC – VS SOS

Largely driven by cocktail culture, VSOP is where all the action is in the UK Cognac market. Sadly, it’s a drop in the ocean compared with the slumbering VS category. Chris Losh reports

How you choose to view the UK Cognac and brandy market is likely to reveal as much about you as it does about the actual performance of the category. Are you a balloon glass half-full or a balloon glass half-empty kind of person?

On one hand, according to figures from the drink’s generic body, the Bureau National Interprofessional du Cognac (BNIC), the UK is one of only three top-10 export markets to record a dip in sales this year (Finland and Norway were the others).
While markets like the US and China go streaking away, Cognac in Britain showed all the energy of a narcoleptic sloth. A cheap one, too, since the €92 average price per case was the 30th lowest of all export markets.

But on the other hand, this sales dip is barely noticeable, certainly not something to have brand owners sweating into their tweed jackets. And while we might be tough on price, we do shift some volume. For all its travails over the last decade, the UK is comfortably the third biggest destination for the Cognaçais.

Indeed, ACNielsen even has the market showing slight volume rise. For a category that saw its sales here tumble from 17 million bottles in 1989 to 11m bottles in 2001, the current figure of 12.6m bottles shows that Cognac is managing to hang onto its recent gains and is, to all intents and purposes, stable.

This, in itself, would represent a minor victory in an era when white spirits are king. But Cognac has even (whisper it) gone one better by managing to increase value sales, which are now back over £250m a year. The gains might be small, but they’re still welcome, and proof that there is some life in the old chien yet, particularly once you get above VS.

“The biggest change I’ve noticed over the last year is how VSOP has started to really make its mark,” says Jeanette Edwards, marketing manager of Courvoisier. “Before, when we pitched for business, it would be with VS, but there’s a lot more opportunities with VSOP now.”

The VSOP area, of course, has always been the natural stamping ground of Rémy Martin, but over the last few years the company has found its market dominance under threat from its competitors. Three years ago, Hennessy launched Fine de Cognac, to be followed in fairly rapid succession by H by Hine and Exclusif by Courvoisier. Camus has even produced an entire range – Elegance – from VS to Extra packaged in a modern bottle sans cork.

Mixed motives
These newcomers have all been made with a) slightly younger spirits, and b) mostly Borderies fruit in the name of mixability. To add to their modern credentials, they often eschew putting a VSOP designation on the label. The thinking runs that if you can get late-20s and 30-somethings mixing Cognac with tonic, ginger ale, etc, then you have more chance that they will stick with the category as they grow older.

The thinking is sensible (if long overdue) and notable, as much as anything, for the seismic shift in attitude of the Cognaçais, whose prolonged adherence to the Aryan purity of their product was an object lesson in business suicide. The advantage of these neo-VSOPs is that while they are certainly designed with mixing in mind, they still retain sufficient kudos to keep aspirational drinkers and image-conscious bars happy.

“The younger product is important for us,” says Andrew Barraclough, brand manager of Hine. “We don’t make any VS,
so [H by Hine] is our entry-level. But it also maintains all the quality cues that you’d expect. We’re pleased with how sales have gone.”

The positive reaction from the market to the extra energy that the Cognac houses have invested here has, according to the brand owners, resulted in a gradual broadening of knowledge on the part of one section of consumers at least. The vast majority of drinkers might, admittedly, not know the difference between a VS and TCP, but barflies are getting there slowly.
“The feedback we get is that consumers are becoming more confident with the range hierarchy,” says Chris Seale, head of marketing, Cognac and Champagne at Pernod Ricard. ”Five years ago consumers understood Cognac and VS, but now that’s moving up through VSOP and XO, even if they don’t necessarily drink them all.”

The big advantage of VSOP, of course – at least compared to XO – is that it is both aspirational and also affordable, which is important in the UK. While the way in which blinged up rappers have shone a light on XO in the US has resulted in a massive growth in sales of VS among African-Americans, there is no parallel movement on this side of the Atlantic. The City workers who book presentations from Hennessy for brands like Paradis Extra don’t, for the most part, drink VS on a Tuesday night. If they want something cheaper they’re more likely to go for beer than a mixed Cognac.

There’s no question that VS suffers from being used as a footfall driver by the supermarkets, particularly around Christmas, with Courvoisier and Martell – who account for the main branded work – both regularly discounted from £17.99 to £14.99, or even lower. The energy might be in VSOP, but VS (95% of all Cognac sales in the UK) needs a Busta Rhymes of its own.

“The way to do it is to bring the drink to a new audience in terms of serve and when to drink it,” says Pernod Ricard’s Chris Seale. “VS doesn’t have the sexy image of single malt, but we can energise it through new consumers.”

Interestingly, when it comes to getting the Cognac message across to these prospective new consumers, Courvoisier and Martell are following very different tacks. Courvoisier’s Earn It campaign has been focusing, in a fairly humorous way, on the fact that it’s a luxury product that can be out of most people’s reach financially. It cunningly reinforces the quality message even as the brand carries out 25% price cuts in the high street. The contention is simple; even as consumers buy VS they’re dreaming of XO.

Courvoisier has spent big on this; £2.5m this year, with £1m of it in the three-month run-up to Christmas. And, as well as print ads and a tie-up with GQ magazine’s ‘100 Best Things in the World’, there has been a lot of experiential work at Canary Wharf, with posters, graphics, glass walls and the world’s most expensive Cognac – Exclusif – on display at the station.
Martell, meanwhile, is in the process of ditching its ‘Let the Conversation Flow’ campaign, moving from the atmospheric ‘Own The Digestif Moment’ ad to a series of more practical, informative executions.

“There’s still a lot of understanding and education needed in Cognac,” sighs Seale. “A lot of people still find it quite confusing. Now is a good time to go back and build on their current levels of knowledge.”

On-trade/off-trade split
A lot more of this consumer education can be carried out through the on-trade since Cognac’s sales channel split is much closer than for most other drinks, around 44% on-trade and 56% off-trade.

“We’re reliant on the gatekeepers to spread the word,” says Courvoisier’s Edwards. “We’ve found that our consumers don’t know too much about Cognac itself. They know XO is good because it’s more expensive, but in terms of understanding what a VSOP, say, stands for, there’s still confusion. We need to ensure that whoever’s touching the consumers imparts a bit of knowledge.”

This can be difficult, though. The level of drinks education among barmen, waiting staff and even sommeliers isn’t always all it could be, and complex categories such as Cognac tend to suffer most.

Nowhere is this more true than in the after-dinner arena where Cognac has suffered from the general change in drinking trends. While most restaurant-goers will have a pre-dinner drink, the market for the digestif has shrunk and selling the concept of a neat spirit after a meal often requires considerable skill on the part of the waiting staff.

The major Cognac houses are working with bars and restaurants to address this, but Pernod Ricard’s Seale admits that it’s a slow burn.

“You can increase the whole digestif category, but it requires a lot of time and effort, not just in terms of our training the staff, but also on the part of the staff themselves,” he says.The key, it seems, might be to look at developing bars over restaurants; moving the spirit out of the “drunk neat in an armchair” arena to something more creative and dynamic. And certainly, many of the new de facto VSOPs are very definitely in a style that will appeal to the average mixologist.

“The great thing about style bars is that you can talk to people who will mix cocktails with VSOP, which drives value,” says Hine’s Barraclough. “And, of course, cocktails don’t get price promoted. They are all about premium, so it’s an opportunity for both the outlet and the Cognac house to maximise revenue.”

There are precedents for growing from the top down, rather than the bottom up – single malt Scotch for one – and there’s no denying the obvious benefits of selling VSOP at nearer to £30 than VS at half that. But, although VSOP, with its double-digit growth, is sexy to talk about, its volumes remain a small percentage of the total. Like it or not, the Cognaçais still need to find a way to inject some life into their core VS business if the narcoleptic sloth isn’t to fall out of the tree altogether.

BRANDY IN THE BALANCE

Brandy, which sells three times as much volume as Cognac, was down around half a per cent last year in both volume and value. Some of this may be related to Three Barrels’ change in distribution from Diageo to First Drinks Brands, and certainly the latter’s brand manager, Mark Collins, accepts that they won’t be turning the category round overnight.

“We’re figuring out ways of reconnecting with our consumers,” he says. “We want to get things right before we charge headlong into activities.”

Gonzalez Byass, owner of the biggest Spanish brandy, Soberano, is pleased with its 10% a year growth, but admits that it has been driven by external factors such as more Brits travelling to, buying property in and living in Spain.

“We haven’t done much real work with it yet, but we are planning to in the near future,” says GB’s Jeremy Rockett. “Having said that, it’s a single SKU, so people have to go looking for it. They don’t
just buy it because it’s on promotion.”

Meanwhile, the German Asbach brandy, distributed by Halewood International is described as “not a great focus for us” by a spokesman there.

REGIONS ON THE RISE

US
Cognac’s number-one market continues to go from strength to strength. It went through the 50m bottle barrier in 2005, and has continued to push on from there. Growth is locked in at around 5% a year, which is no mean feat given the relative strength of the euro and weakness of the dollar.

The drivers are the continued growth in cocktails, and the boom in African-American consumers, who enjoy both the sweeter palate and the kudos of a drink which is less “white establishment” than whisky.

SINGAPORE
Cognac’s second biggest market is also on a roll, up 22% last year and more than double the size it was in 2003. The per-capita consumption of 92 litres (!) suggests an island populated entirely by Olly Reeds, but is explicable by the country’s hub status. Nearly all the Cognac that comes into Singapore is subsequently shipped elsewhere in Asia. The vast majority of Cognacs shipped to Singapore (99.7%) are VSOP and above.

GERMANY
Back to fourth place again, thanks to a 17% rise in sales in 2005, Germany’s 8.2m bottles is Cognac’s best performance in this key spirits market since 1997. The biggest rise was in VSOP (16%) and Qualités Supérieurs (30%), though the discounter stores remain strong and VS remains over 60% of the total German market.

CHINA
Currently the hottest spirits market in the world, Cognac’s sales to China went up 42% last year to nearly 6m bottles. And, boy, do they know how to pay; all but a handful of cases are VSOP and above. The failure to break into younger bars with VS for mixing could be a concern in the future, with Cognac seen very much as liquid prestige, rather than something cutting edge. But that’s a minor quibble. Current rates of growth will see it overtake France to become the fifth biggest market.

UK Cognac sales (million bottles)
(12-month period from 01.09.05 to 31.08.06)
99/2000  10.9
00/01    11.3 
01/02    10.9
02/03    11.5
03/04    12.3
04/05    12.7
05/06    12.6
Source: BNIC

© db December 2006 / Chris Losh