Remy Cointreau posts encouraging annual results to continue industry trend

Following on from the latest statements from Diageo, Pernod Ricard, Davide Campari Milano, Constellation Brands and even beleaguered Treasury Wine Estates, Remy’s figures beat its own estimates and analysts’  consensus forecasts.

Organic operating profit rose by 18.8% compared with the 22% fall a year earlier due to the impact of the pandemic, with its performance putting the French group well on course to meet its goal of increasing gross margins to 72% by 2030 and operating margin to 33%, up from 67.3% and 23.4% respectively last year.

Not only that, Remy said it had made an “excellent” start to its present financial year and predicted further growth in operating profit at the same time as heavily increasing its investment in promoting brands, especially its premium Remy Martin and Louis XIII cognacs.

The company, along with numerous of its rivals, plans to buy back shares to boost returns to shareholders and  also handed them an 85% increase in dividend, taking the payout to a record level.

While citing the buoyant American market as an engine of growth, especially for Cointreau, which enjoyed “spectacular” sales within the growth of the rise in off-trade sales and the trend to home consumption of cocktails, Remy also underlined the importance of China to its business.

Although sales of imported brands account for only 1.5% of spirits imports to China, its middle class is growing exponentially, a long-term trend that can only be underlined by last week’s  about-turn in Beijing to allow families to produce three children. That is a pathway  to ever stronger opportunities for global brands.

Remy Cointreau was quick of the blocks in developing the Chinese market and is by far the sector leader in cognac, the predominant imported spirit.

Eric Vallat, the chief executive, revealed that in the second half of its year, Remy achieved a staggering growth rate of 39% in sales to China, bringing the annual growth rate up to 17% after accounting for the ravages of coronavirus on the first six months’ figures, which suffered a 7% fall.

One of the key factors behind that success was e-commerce, which chairman Marc Hériard Dubreuil said now generates “more than 20% of our business” in China.

Similarly Vallat said of the US market: “We have been very active on e-commerce … where all our brands increased sales. 

“It’s interesting to note that Cointreau even achieved the number two position among the liquour brands in 2020 on Drizly, which is an amazing improvement versus the year before in the context of growing Drizly sales. It’s a great achievement, we are very proud of.”

Remy expects e-commerce to generate at least 30% of its worldwide sales as part of its current 10-yaer plan to 2030. It gives brands extra targeted visibility to consumers and keeps costs down.

That growth will in part contribute to its predicted margin expansion and help to make up some of the progress lost until the global travel retail sector reopens as the effects of the pandemic ease. That, said Vallat, “is still very complicated”.

But he acknowledged that it is unlikely ever to return to the same trading pattern, notably due to the Hainan factor.

Hainan, China’s smallest and most southerly province, is known domestically as the “Hawaii of China” because of its comparable climate. 

Not only is it a favourite holiday destination for the Chinese but a year ago Beijing launched a hugely ambitious plan to transform the entire island into a free trade port, making it the largest special economic zone in China. 

Key to that will be duty free sales, which will not only boost the national economy but also reduce the outflow of foreign currency.

The plan is to rival Dubai as a global centre and eclipse other Asian locations such as Singapore or Hong Kong.  Until now, rich Chinese intent on a weekend’s luxury shopping have made the hop over to South Korea.  Now they are likely to head south at home.

In 2020 there was unprecedented growth in local luxury shopping in mainland China and in the first quarter of this year much of all growth in the global luxury market came from China. 

For Hainan, there could be no better timing for global travel disruption, catapulting it to the top of the list for Chinese travellers. 

 Since last June the non-taxable allowance purchase allowance has tripled to $15,500 per person within which there is no limit to the amount spent on a single product. That easily encompasses the most expensive luxury wines and spirits.

Daniel Langer, CEO of the leading luxury, lifestyle and consumer brand strategy firm Équité, wrote recently in the South China Morning Post: “Not only will China account for more than 50% of global luxury product sales well before 2030, but areas like Hainan will further accelerate the trend of repatriation and increased domestic tourism, entertainment and shopping.”

Hainan could spell High Noon for some duty-free channels. It is a factor none of the luxury drinks producers can afford to ignore.