Cognac & Brandy

As
energy costs rise almost daily and people worry about the
overall economy, it appears that many consumers are spending
less disposable income on cognac, at least when it comes to
home consumption. And when they do buy it, it’s often likely
to be VS or VSOP, and not the higher level bottlings. Even
modest, lower end brandies like Mr. Boston, Arrow and others
are seeing sales flatten out as many consumers abandon them
for better, yet still reasonably priced domestic and
imported products. “With the cost of gasoline and other
things, people might not buy that extra glass at the end of
the night. Flavored brandies may get hurt because they’re
between everything. This may be why cognacs are doing
better,” says Jim Seely, Vice President-United Division at
United Liquors. In fact, he comments, “Hennessy is doing
very well for us, and Martell is up double digits in the
last 12 months.” He points out that customers have a wide
range of cognacs from which to choose but there is also a
small customer base for the segment. “The challenge is to
have an account add another cognac brand,” says Seely,
especially when most brands offer little or no promotional
support. “Martell is a little more aggressive in doing
tastings, but the other brands need to be more strategic
with their dollars, either with promotions or tastings,” he
states.

“There are two
cognac markets: Brand names like Courvoisier and handcrafted
products such as Delamain,” says Chile Sullivan, Vice
President/Wine Division for Horizon Beverage. The latter
group attracts “A different kind of cognac drinker. A
certain clientele looking for the best, similar to people
who like Single Malt Scotch,” he remarks. Sullivan also
points out that, despite big name choices, handcrafted
cognacs have developed a following, especially in the Boston
and Nantucket market.

A saturation of
flavored spirits in the market has also affected
cognac/brandy sales. “The tastes of customers who were
drinking flavored brandies as their staple are changing
because of all the other products out there. Massachusetts
was certainly overdeveloped for coffee-flavored spirits over
the last 2O years,” notes Seely. Cognac is 5O percent of
United’s total brandy sales, and coffee and blackberry
brandies make up 😯 percent of the other half, he says,
although those are down. “With all the other flavored
products out there, people have discovered flavors in other
categories. The sophistication level of consumers is higher.
They’re willing to invest in something better now,” he says,
adding, “Flavors are the driving force behind most of the
spirit categories right now.”

“Over the past
year we’ve seen a continuation of a three-year trend where
the whole (brandy/cognac) category has been declining,”
observes Michael Cimini, President of Yankee Spirits, which
has stores in Sturbridge and Attleboro, Masachusetts.
“Courvoisier and Hennessy are growing because of their brand
recognition. Everybody else is just falling out because of a
lack of promotion and sex appeal. People who like to
experiment are looking for something new, they’re very brand
conscious. If they’re spending a decent amount of money they
want to know they’re buying something drinkable. Quality
products really take off and knockoff brands have to
discount their products to catch up,” he says. With the
exception of DeKuyper, which has introduced popular new
flavors, Cimini says that brandy lines overall are down. Old
line coffee brandies “have decent numbers, but they’re
falling,” he remarks, pointing out that suppliers have
stopped promoting them. With Courvoisier and Hennessy, as
well as domestics, most customers only buy the VS or VSOP
bottlings. When Christian Brothers launched an XO
designation a while back, “consumers weren’t crazy about it
and didn’t spend up to it,” he says. He also stocks
Delamain, Pierre Ferrand, Remy Martin and others. “The
numbers themselves aren’t bad, but the trend shows it’s
going down. In brandy and cognac you see suppliers pulling
the plug. They just won’t sell in Massachusetts anymore.”
One example is Korbel’s XS vanilla-orange flavored brandy.
Dale Hytholt, New England Sales Manager for Heck Estates,
says the company doesn’t focus much on XS, and that “We’ve
not put the marketing dollars behind it.” The emphasis is on
Korbel Classic Brandy, which he says saw a 5O percent growth
rate in Massachusetts in the first eight months of 2OO5,
compared with the same period in 2OO4.

Steve Rubin,
Wine Director at Huntington Wine and Spirits in Boston cites
several factors for the cognac and brandy slowdown. “Price
has become an issue due to the economy and the strong Euro.
This has really cut into the higher end products. Anything
over $1OO is moving slower, everyone is watching their
pocketbook,” he says. Because of its quality and fair
pricing, Rubin does well with Hine cognac, even though it’s
a hand sell item. “Once someone buys it we have a repeat
customer,” he states. The others move slower, but you have
to stock them, he adds, noting how he sold two bottles of
Remy Martin XO on a recent Saturday night. Each cost more
than $1OO. Rubin also says, “Flavored spirits have done a
number on brown spirits,” pointing out that Smirnoff
flavored vodkas are “on fire”, because of their variety and
price. “People are in love with fruit and we’re the Pepsi
generation. Cognac buyers, though, are over 4O, with no
Generation X. There are a lot of new flavored products.
Everyone’s coming out with new ones to see what catches on,”
he remarks.

Yet, it can all
change depending on where your store is located, as
evidenced by Gary’s Liquors in Chestnut Hill. “My cognac
business is off the charts and has been for three or four
years. We’ve seen a lot of younger people go at it because
of things like Hpnotiq,” says owner Gary Park, referring to
the hybrid cognac-vodka-fruit flavored beverage. Buyers
include a lot of customers in their 2Os, he notes, because
many hip-hop and rap artists mention Hpnotiq or cognac in
their song lyrics. Other customers include the large Russian
population in his neighborhood, and “cognac is very big with
them,” he says. So big, in fact, that many of them buy two
or three cases of cognac for weekend parties where they want
to place a bottle at each table. Christian Brothers, E&J
and other domestic brandies still sell at Gary’s but more
slowly. “They’re not setting the world on fire,” he says,
adding that, “It seems a lot of people have traded up from
brandy to cognac.” His store consistently sells many
$1OO-plus bottles of XO and higher mark cognacs, but Park
has found that Pierre Ferrand and Chalfonte are among the
brands offering exceptionally good quality for the
money.

Driven by the
flavored vodka and hybrid product craze (which includes
Hpnotiq, Alize and others with cognac and added flavors),
Moet Hennessy USA recently launched Navan, a vanilla
flavored, slightly sweet cognac beverage. This augments the
company’s three tiers of Grand Marnier orange-infused
cognac. Crillon Importers, led by Michel Roux, who brought a
minor brand called Absolut to America, just launched
Chocoviac, a cognac flavored with both vanilla and
chocolate. Products like these are aimed at consumers who
avoid neat cognac as too harsh, but order flavor-infused
vodka or other cocktails when they go out. “We’ll promote
Chocoviac for the cognac drinker who likes a little flavor,
but we’ll also go after mixed cocktail drinkers,” says
United’s Seely.

“Navan
absolutely was in response to Hpnotiq as an after-dinner
cordial brand,” says Jim Hickey, Vice President-Century
Division at United Liquors. He manages United’s Moet
Hennessy USA products. Navan is targeting an ethnic base, he
adds, such as Asians and other non-Caucasian drinkers. This
emulates the driving force behind Hennessy’s VS and VSOP
sales, which are mainly Asian and African-American men, he
says. Robert Fitzpatrick, Moet Hennessy USA’s northeast
region marketing manager, describes Navan’s target consumer
as multicultural, pop and hip hop music-loving 25- to
35-years-old, primarily living in urban markets. Print and
radio advertising have focused on New York, Los Angeles,
Miami, and Chicago.

“Hybrid products
garnered a great deal of attention when they were first
introduced, which was actually good for the entire category,
since it brought added attention to cognac,” says Madison
Bedard, National Brand Manager for Courvoisier with Allied
Domecq. “The popularity of these flavored cognacs has
subsided, but you still see consumers experimenting with
them in cocktails.” To Justin Ames, Senior Marketing Manager
at Heaven Hill for Christian Brothers, Coronet and Hpnotiq,
this may be wishful thinking. “The key thing about Hpnotiq
is being first to market,” he states. “Not only do we own
the blue frosted bottle shape and look, but we have created
a category of one.” Spin-offs, such as Kobrand’s Alize Blue,
“are not too successful because they cannibalize their base
products and take shelf space away from them,” he says.
Consumers, he observes, “have a portfolio of brands, not
just one favorite. Hpnotiq fits into this nicely because it
fits well with their other favorite brands.” Ames also
points out that restaurants and bars recognize the
opportunity to make higher margins on drinks made with
Hpnotiq.

Cathleen Burke,
Kobrand’s Vice President of Marketing, says Alize is doing
well in its category. “What could be happening is that
consumers may be switching among categories, rather than
sticking with scotch, for example. Hpnotiq is good because
it expands the category,” she comments. Bedard pegs the
cumulative annual growth rate for cognac at 2.6 percent,
both nationally and in Massachusetts. She doesn’t expect any
changes in consumption habits, but adds, “We are seeing a
very strong increase in mixing cognac into cocktails,
particularly VSOP.” Mixed cocktails, such as the Sidecar or
an Allied Domecq-invented cocktail called Courvoisier
Strawberry Lemonade, help attract more women to the cognac
category, she says.

Likewise,
Hennessy is expanding its consumer focus. “There’s a place
for Hennessy and other cognacs in the martini craze,” says
Hickey. Hennessy holds 7O percent of the cognac market share
and has grown over 2O percent on all marks in the past three
years. While he credits this growth to brand positioning and
aggressive price increases, he says that the key is “a very
integrated marketing plan that includes great price position
and tremendous quality. We do tastings with the brand in all
markets. We do a lot of staff training and give them selling
tools. It’s an easier brand to sell and to get an extra ring
up.” Dave Karrake, Allied-Domecq’s Vice President for
Corporate Communications, points to television as an
important tool saying, “The beauty of ‘Sex and the City’ is
it introduced people to the idea of an elaborate cocktail
and the concept of a mixologist. Cognac will remain part of
that, consumers want cocktails with a slight sweetness to
them. We’ve been saying for some time that vodka will lose
its sheen as a ‘must have’ drink.” He admits, however, that
this sheen hasn’t tarnished yet.

“The entire
distilled spirits segment is very healthy. Brandy has had
very modest, healthy growth of a couple of percent a year
for several years,” says Robert Chin, National Marketing
Director for Gallo E&J brandy, widely regarded as the
best selling brandy in America. According to Chin, the brand
has grown over the last 11 consecutive years and is the
eighth ranked distilled spirit brand in the US. “Consumers
are trying distilled spirits more today, it’s part of that
mixability-cocktail culture. A lot of people who have not
historically gotten into distilled spirits are finding
products more approachable,” he says. Emphasizing how
important versatility is, Chin states, “How many people
drink gin or vodka straight? With brandy and cognac you have
some who drink it straight, but a lot who mix it. I think
this is very important in driving E&J. We try to educate
consumers that it can be consumed with tonics, juices,
sodas. These are all things we have suggested as uses for
our brandy.” He also says that they make a point not to
alienate people who want to drink it neat or mixed, adding
that E&J’s target consumer is 25-years-old and up. “You
definitely have older drinkers who have always been the
mainstay of the brandy category, but a lot of trends are set
by the younger consumers.” To reach these consumers, Gallo
pitches more lifestyle promotions focusing on their
interests. For example, E&J worked with Paramount to
supply a sample of E&J with DVDs of the film “Ray”.
There have also been tie-ins with numerous Grammy award
musicians. “We’re trying to convey a lifestyle to our
consumers,” Chin says.

Restaurants too
are noticing a change in who the cognac consumer is and what
the style preferences are. “Cognac is becoming extremely
popular, especially among a younger population,” says Erin
O’Shea, Wine Director at Clio in Boston. Most of her
customers drink cognac neat after dinner, although Clio also
offers an orange spice iced tea and cognac combination that
O’Shea says is getting popular. “I’ve seen a lot more people
inquiring about cognac. Even our servers are asking about
it. I think there are more drinkers out there learning to
like cognac. We sell a lot of VSOP,” she observes. Chateau
Fontpinot sells very well at Clio, as it is what Erin calls
“the most approachable”.

“We’ve seen a
trend toward Sidecars, which have been strong in the last
six months and will be a big trend in the next year. People
are going back to cocktails,” says Eryl Williams, Bar
Manager at Laurel Grill & Bar in Boston. He finds that
people are willing to try different things and will often
ask for a drinks list. Younger clients in their early 3Os
often select drinks such as Sidecars, he says, describing
such cocktails as “a stepping stone toward straight cognac
or brandy”. While Williams sees this trend as being in the
beginning stage right now, he does have some customers who
started with Sidecars and have already progressed to
straight calvados or cognac. The restaurant currently sells
two or three Sidecars each night. As Christmas nears,
customers order more brandy and he makes sure he stocks
plenty of Remy Martin and other cognacs. Allied’s Bedard
supports this, saying: “Courvoisier, and cognac in general,
is thought to be an older gentleman’s drink by many. While
that remains true in many circles, younger audiences are
discovering cognac as an ‘evolutionary step’ as they
graduate from lighter taste profiles of whiskies and
bourbons.”

In many ways
cognacs and brandies are perceived to be luxury spirits. As
such, they can suffer when the economy drops. “Cognac and
brandy dropped off for a while when corporate spending
dropped, but cognac is slowly coming back again” says
Michael Ray, Head Bartender at Smith & Wollensky’s in
Boston. “Being a steak house, cognac and brandy go along
with the genre, and customers get wrapped up in the whole
James Bond mystique. If a customer shows some interest,
you’ve got to gauge their price range because you don’t want
to scare them away,” he says. Ray usually steers them away
from Courvoisier because it’s going to sell anyway. His
favorite cognacs include Pierre Ferrand, Delamain Pale and
Dry and Remy Martin XO.

“The bottom line
is that it’s a battle for the drinks menu,” declares Philip
Hillman, Massachusetts State Manager for Boisset America
Spirits Division, which imports Gautier cognac and Danflou
apple brandy. “If you get on a drinks menu the average
consumer is going to pick something off the menu. The battle
for the consumer is what sells boxes. High image, foreign
products are growing the most, at all levels with all
products. Middle of the road products are losing their steam
and people are buying either the top end or the low end,
either Smirnoff or Chopin vodka, for example,” he says.
Hillman also makes the point that achieving success in
today’s market requires both creativity and a strong,
committed effort. “You win by tasting the brand to store and
bar staff, getting it on back bars so customers see it,” he
says, stressing how vital this is in building relationships.
Product education is also key. “We can’t just go out and say
‘Hey! Sell our cognac.’ without a story to tell. You’re
going to get questions, especially in Boston,” he explains,
noting that Gautier is one of the oldest cognac makers,
started in 1775. Hillman says Gautier sales are about 😯
percent off-premise and 2O percent on-premise. “We’re trying
to grow it, but most people going out order a Remy or
Hennessy. We’re fighting the battle of the big labels,” he
observes. Because Gautier is too small to allocate money for
promotion, he says he wins this battle by using what he
calls “guerilla marketing”. “You send a bunch of cool, hip
people to accounts where they ask if they sell Gautier. They
say no. Two days later you send your wholesaler
representative in with a sample.” Related techniques include
running contests among service staff. Hillman says, “You
tell them ‘We have a great cognac. Whoever sells the most
gets $1OO.” Non-cash incentives could include Red Socks
tickets, gift certificates to restaurants or stores, or
something else of value.

When going to
clubs, bars and restaurants, image often holds sway and
consumers largely buy the big names, whether in cognac,
brandy or other products. But at home, it’s often a
different story. “Consumers trade up when image comes into
play. Out at a club they may order cognac, but to spend that
at home? No.” says Jon Guggino, Marketing Director of
Specialty and Value Wines for Canandaigua Wine Co., which
includes Paul Masson Grande Amber Brandy. “In bars, you see
a lot of vodka and tequila. Brandy on-premise hasn’t been a
very hot spirit,” he says, pointing out that 95 percent of
his brand’s business comes from off-premise. Regarding mixed
drinks and brandy, “Male consumers are mostly not going down
that mixing road. They really appreciate the handcrafted
quality of brandy. It’s a drinker’s drink to be appreciated
on its own,” he remarks. Of the entire brandy market,
including cognac, domestic brandies comprise 6O percent,
cognac has 3O percent, and imported non-cognac brandies pick
up the rest, he says.

On a national
level, Guggino says the domestic brandy segment is growing
at 1.5 percent annually and that his brandy is growing in
Massachusetts at 17 percent so far this year. “In
Massachusetts we do fairly well, largely because of the
large African-American customer base.” He also attributes
this to heavy in-store promotion and keeping Paul Masson’s
price in the premium range, about $1.5O to $2 above
competitors. This suggests to consumers that the “product is
superior,” he says. Mark Marcon, who manages Fundador and
other Spanish brandies for Allied-Domecq, puts the brandy
market growth rate in the US at 2 to 3 percent in 2OO4, and
predicts the same for 2OO5. “Cognac is a lifestyle brand
driven by a super premium image. It’s definitely helped the
domestic brandy market,” states Ames. He also elaborates on
the benefits of brand name recognition: “When consumers buy
something at home, they fall back on familiar domestic
brands like Christian Brothers. In cold weather states many
consumers think of Christian Brothers as a standby, they
always have a bottle at home to drink there, take hiking or
snowmobiling.” Ames stresses that merchandising is
particularly important, especially for domestic brandies.
Among other tactics, Christian Brothers uses value added
“on-packs” attached to its brandy with music CDs or 5Oml
bottles of another Heaven Hill product to attract buyers,
depending on the market. Additionally, Ames says, Christian
Brothers is one of the few brandies with an advertising
campaign. This focuses mostly on magazines and other
publications serving African-American consumers.

Many venues are
looking to offer cognac quality at a domestic brandy price,
says Korbel’s Hytholt. At Marriott, Sheraton and Westin
hotels, as well as McCormick and Schmick’s or Morton’s
restaurants, if you ask for a brandy you’ll get Korbel, he
says. “These accounts want to offer a call level product at
a well level price. To the traveling public, Korbel has a
good connotation,” he remarks. The brandy and cognac market
seems surprisingly resilient despite its stolid,
pipe-smoking old man with a sleeping dog stereotype. In
Massachusetts, the segment’s share and popularity seem
poised to take off if products are supported with
intelligent promotion and marketing.