It sounds like a good problem to have: Moët Hennessy is struggling to bottle enough Cognac to meet demand.
As a result, Hennessy VS is being rationed around the world, with the company needing to boost its shipments by 14% to meet current demand.
In the short term, it will make up shortages from its extensive reserves, but in the longer run, it will need to increase production. However, it is dealing with grape shortages due to bad weather in the geographic designation for vineyards whose grapes go into Cognac, north of Bordeaux and is trying to persuade vineyard owners to cultivate more grapes.
According to the Wall Street Journal, growers are wary, having been forced in the past to uproot vineyards because of oversupply when cognac was in lower demand.
The value of Cognac peaked at US$7.8 billion in China in 2012, then crashed by 36% after the state-sponsored clampdown on conspicuous consumption and gift-giving. However, the luxury market is recovering, with Chinese consumers once again spending in the country and overseas.
Hennessy is also facing constraints because of bottling capacity, which it hopes to address with a €100 million plant that it officially opened last week. The plant will allow Hennessy to increase output to some eight million cases sold and shipped annually by 2018.
The company experienced a third-quarter cognac sales volume fall because it held back stock to have enough for the festive season in the United States. The US is Cognac’s biggest market, with Hennessy having almost two thirds of market share, nearly four times its nearest rival, Rémy Martin.
Last year, cognac makers sold 179 million bottles worldwide, or about €2.8billion in sales, up 6% from the previous year and 17% from five years ago. In the United States, sales have doubled over that period.
Why is the US so mad for Hennessy?
Hennessy Cognac has become synonymous with rap music and African Americans, who are the brand’s major consumers in the US.
Vinepair noted in an article last year that it's because Hennessy was one of the first spirit brands to authentically invest in a minority audience.
African Americans developed a taste for cognac during World War II as they travelled throughout France.
Following the war, Hennessy placed advertisements in black publications — a decision Vinepair notes was rare given the times.
“Hennessy was one of the first brands to feature an ad in the famous Ebony and Jet magazines with black models in the 1950s,” explained Kevin Madden, Kevin Madden, Möet Hennessy USA’s Associate Manager of Multicultural Marketing.
And the strategy has paid off.
Pictured above: The Pont Neuf facility was unveiled by Bernard Arnault, Chairman and Chief Executive Officer of LVMH, Philippe Schaus, Chief Executive Officer of Moët Hennessy, and Bernard Peillon, President of Hennessy
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