French drinks company Rémy Cointreau’s first-quarter sales for the period ending 30 June were hard hit by the ongoing impasse for Cognac sales in the key China duty-free market. However, the company is optimistic of a return to normalised business in the sector.
As reported, China’s Ministry of Commerce (MOFCOM) slapped heavy ‘temporary anti-dumping’ measures on imported European brandies from 11 October 2024 in a tit-for-tat response to the EU’s anti-subsidy probe into Chinese electric vehicles.
This had a disastrous impact on Cognac (in particular) sales in Chinese duty-free as retailers were unable to procure new supplies. Cognac accounts for an estimated 90% of sector giant China Duty Free Group’s liquor sales.
Rémy Cointreau noted the impact of “tough market conditions and inaccessibility of Chinese duty-free markets” in contributing to a modest +1.3% year-on-year organic rise in Cognac sales.
Relief is in sight, however, following MOFCOM’s much-anticipated final ruling on its anti-dumping investigation earlier this month.
While concluding there was clear evidence of dumping which had undermined China’s domestic brandy industry, MOFCOM said it had accepted price undertakings submitted by relevant EU industry associations and companies (which include Rémy Cointreau).
Imports that meet the terms of these undertakings will be exempt from anti-dumping duties.
French trade association Le Bureau National Interprofessionnel du Cognac noted on 4 July there has been no information on the reopening of China’s all-important duty-free channel for Cognac sales (representing nearly 20% of category sales in China).
However, the MOFCOM ruling was widely seen as paving the way for a normalisation of trading in the sector for companies signing the required undertakings.
Asked on the earnings call about the impact on duty free of the company having signed those undertakings, Group CFO Luca Marotta said: “So today, the situation seems to be improving. Officially, it’s opening, but there is obviously some difference in terms of official statements… we hope that will be fully operational as it seems. And in that case, clearly, it will help.”
Marotta said the Q1 sales performance had been impacted by “tough market conditions for China and the continued disruption of travel retail in China”.
He added, “Excluding this technical specific factor, representing a negative impact of 2.5 points at group level, China specifically would have been positive, showing a good resilience.”
Marotta commented, “In China, sales were down low to mid-single digit amid challenging market conditions, particularly for the high-end segment. Disruption within the duty-free [sector] will also be a key headwind, representing for this region a negative impact of 6.5 points at APAC level.
“Excluding duty free, China would have been positive by mid-single digit. In parallel, direct channels, which account for around 50% or half of the sales in Q1, proved to be very dynamic, generating a very strong growth.” ✈
