Author: David Baker

Demand for cognac in China increased by another 15% last year with Singapore also seeing a 10% rise.   This continuing trend exerts even more pressure on a market which is already struggling to meet demand.   It is the Asian taste for superior, older (VSOP/XO) cognacs in particular, that is having such a tremendous effect on prices.  In 2012 the wholesale price of cognac rose by 14% and this year another 24% increase is expected.  Customers buying on the high street can therefore probably expect to pay around 15% more than they did last year.

The growing demand is forcing big commercial negoçiants to blend younger cognacs for their products.  To meet customer expectation more additives are required, producing an inferior quality cognac vastly different from the pure, unique single estate varieties.

In three years’ time the minimum age of XO cognac is set to change to 10 years in the cellar but this was agreed before the recent Asian cognac boom.  The Asian taste for luxury cognacs is already affecting supply of the older varieties so insisting that XO cognac must be aged another 4 years in barrels is unsustainable.  The poor availability of older cognacs means that the big four houses would be unable to supply sufficient quantity of the older XO cognacs required in the growing Asian market.  Their heavy influence on the ruling body is almost certainly going to see the decision revoked.  During the last decade we have seen the average age of XO cognacs decline sharply from up to 20 year old eaux de vie being used, to well under 10 year old, which is now the norm.

At a meeting in Cognac this week, we have received confirmation that some cognac distillers are being offered prices for cognac 22% above this year’s price. So far we understand that only Hennessy have made any offers, but it is certain that the other big houses, Martell, Remy Martin and Courvoisier will follow in order to protect their supplies for the market place.

Last January we saw prices go up by an average of 14%. If this year’s increase becomes the norm it will be a record, but will affect the younger cognacs far more substantially than the older ones, as younger cognacs are being sold in great volumes to the Asian markets.

At Brandyclassics we are constantly trying to keep a step ahead of the market, especially at the present time when demand for cognac is so high. We are able to buy forward to protect the price our customers pay – but sadly there are limits to what even we can do. We see further prices rises for cognacs inevitable, and indeed expect all French brandies, be it Cognac, Armagnac, Calvados or Eau de Vie, to become more expensive in 2013.

Why buy Hermitage Cognacs?

The good news is that whilst cognac prices are increasing, Hermitage Cognacs are still much lower priced and of superior quality than any cognacs made by the big four houses. The message has to be, “Buy Hermitage Cognacs now” – superb value and quality go hand in hand at Brandyclassics.

Whether you’re looking for our one of our exceptional but less expensive award winning 10 year old Cognacs, or a rare luxury such as our Hermitage 1900 Grand Champagne Cognac, rest assured the Hermitage range has a Cognac to suit a wide range of  palettes and pockets.

The Bottle is King, or so the big houses would have us believe. So much so that selling I year old grape brandy, bought for less than 1 euro a bottle,  set in some very fancy glassware and presentation boxes and then sold for HK$1000 (about £90). At least that is the price of one brandy offered by a big Chinese distributor.

Is it surprising that the market is flooded by fake products? One Cognac negoçiant suggested that as much as 80% of the Chinese market is fake and if that is so, then there is a lot of room in the market for the real thing.

Clearly the industry is suffering with these figures, as more real cognac could be shipped in place of the fake products. So what is the industry doing about it? Well not a lot, or so it seems.

Clearly with big pressures on cognac stock, the big houses probably don’t even care, as they are selling all that is available at the moment. The real problems will come when the market turns away from cheap and fake products and turns to other products such as whisky – as was the case in Taiwan. That too was once a big cognac market!

Brandclassics believe it’s what’s inside the bottle that’s important, and our carefully selected range of exceptional cognacs reflects this view.

The big exhibitions are always good places to see the latest innovations in the brandy world and the recent Vinexpo in Hong Kong has been to say the least, an interesting experience…

One such new brandy comes from South Africa. We met the firm by accident one evening after the doors of the exhibition had closed and they explained to us how they made their brandies, which are effectively a by-product from their wines. We went back the next day and tasted their brandy and after the initial shock of sweetness discovered that apart from making wines and brandies they also made honey, which they used to take away the aggressive fiery flavour of the young spirit.

It was a truly interesting experience since during the tasting we also discovered that they were distilling up to about 84 degrees of spirit. We were able to help them here and they will be changing distillation technique in the future and lowering the distillation range to prevent burning the brandy. They have promised to send us some, so watch this space!

Sales of cognacs, fuelled mainly by the massive demand for brandy products leapt 20% in the first six months of 2012. This represents an increase of approximately €200 million over last year. We have to ask, can we maintain this sort of growth when we are currently producing and selling cognacs that don’t have enough time to age sufficiently for their flavour to develop properly?

Cognacs from the top cru, Grande Champagne are the slowest to age and most producers prefer not to bottle them until they are at least ten years old. Naturally, we have to sell younger cognacs and the slow addition of water becomes a necessity. But at the moment the big four are buying cognacs at 2-3 years old and the quantity of young cognacs they are buying is increasing rapidly as is the prices we are having to pay for them.

The truth is that the increase in sales, mainly to China, means that the quality of these cognacs gets poorer every year and the levels of additives are increasing.

The Hong Kong Vinexpo Exhibition took place last month and both Hennessy and Martell were notable absentees. The sale of brandies in China has reached such large proportions that the big houses are now unable to meet the demand of Chinese markets. Admittedly, much of the talk is speculation, but clients are openly asking for supplies of fifty containers to supply their customers. Shipments of cognac are increasing massively as the Chinese middle class growth is expected to increase by 50% by 2015.

Sales of imported spirits into China, which includes some whisky, currently stand at 4 million cases. But this is small compared to the local firewater called Baijiu. Sales stand at 900 million cases and the average person drinks 11.6 litres of spirits a year!

The Chinese are keen to associate luxury drinks, particularly cognac with success and successful young professionals often build bars in their houses and stock them with luxury cognacs. Indeed the Chinese perception of luxury is more to do with the shape of the bottle rather than its contents. It is this very point that is the nub of the problem in China, where cheap brandies can be put into attractive bottles and sold at high prices.

Unfortunately the cognac industry is largely to blame with their use of generic titles such VSOP and XO.  This has created a valueless perception of what we are now selling, merely a strong coloured spirit in a fancy bottle. How much better would it be if we educated our customers to taste the difference between new and old and good and bad? This way they can recognize value and slow the fake markets.

All Hermitage Cognacs come with age statements and guaranteed provenance. Should a discerning Cognac buyer wish to sample a genuine luxury cognac, below are just a few examples from the exceptinoal Hermitage range.