China anti-dumping probe piles pain on Europe’s cognac producers

Beijing’s latest salvo in simmering trade tensions with the European Union has added to the list of woes facing local cognac distributors struggling to shift stock amid China’s economic slowdown. 

Liquor dealers in Guangdong province say that even before China launched an anti-dumping probe on Jan. 5, inventory was piling up with even deep discounts on e-commerce platforms failing to raise demand. Guangdong’s liquor association has said half of China’s imported cognac from companies like Pernod Ricard SA and Remy Cointreau SA is consumed in the province. 

Distributors are selling bottles at prices of 30 to 40% less than in early 2022, before China’s economy started weakening, said dealers familiar with market conditions who asked not to be named due to political sensitivities. Sales of imported liquor had dropped 40% in 2023 from the year before, one of the people said. 

The dealers said they won’t consider importing more cognac for the foreseeable future as they’re already saddled with too much supply, and don’t anticipate enough demand in 2024 to make a dent. 

This points to a declining outlook for European makers who have expressed optimism over China’s post-Covid consumption of high-end liquor as demand in the US softened, and is a scenario being seen across several luxury sectors in the country as wealthier consumers pull back on non-essentials. 

The worsening consumer confidence is worrying global and domestic brands which had bet on a post-Covid financial rebound. While China’s government has pledged to boost morale in the flagging economy, the high-end liquor industry appears to be collateral damage in escalating trade tension, with the cognac probe launched as the European Union investigates Chinese electric vehicle subsidies. 

“Even if any anti-dumping rules are enacted, we have no new purchase plans now, no cash in hand now,” said one Guangdong-based dealer with the surname Wang, who sells imported whisky and brandy. “Huge inventories are still piling up in warehouses.” 

A French cognac industry trade group has said the liquor probe is taking place in the context of unrelated tensions between the two sides. 

The weak sales are fueling heavy promotions on Alibaba Group Holding’s Tmall. The mega online shopping platform has placed discounts on premium bottles sold in the official stores of some French makers — including Remy Cointreau’s Remy Martin, LVMH’s Hennessy and Pernod Ricard’s Martell — with mid to high-end bottles of cognac listed at 20% to 30% off their original prices.

It’s unclear if those discounts are being offered directly by the brands or from local distributors or Tmall itself. The European makers deny that they’ve dropped prices across the board, and say that China’s probe has been launched on reductions of about 16%. This is “singularly low” for an anti-dumping investigation, said the Bureau National Interprofessionnel du Cognac, the French association representing cognac makers.

A spokesperson for Pernod Ricard told Bloomberg the brand doesn’t disclose precise pricing figures, but that it’s increased prices across its range over the last two years in China, with sales up 6% in the last fiscal year. A spokesperson for Remy Cointreau declined to comment. Moet Hennessy did not reply to requests for comment. 

China’s brandy industry is comparatively small — the country imported $1.57 billion in spirits from distilled grape wine in 2023 through November, though they nearly doubled in the four years through 2021 to $1.7 billion, before frequent Covid lockdowns dragged down demand. 

“Everybody is feeling very pessimistic, and can’t see any good signs yet,” said the Guangdong-based dealer. In recent months, she added, some fellow imported liquor dealers have been forced to sell baijiu, the popular sorghum-based local spirits, to improve cash flow. 

Cognac “is a small market,” she said. “So when its drinkers decide not to buy, sales fall off a cliff.”