Hennessy Cognac Sales Drive LVMH Growth
Hennessy Cognac Shipments Show Strong Growth in the United States and China.
Yesterday, LVMH reported record revenues of €21.8 billion during the first half of 2018, an increase of 10% over the first half of 2017. Hennessy Cognac sales volumes increased 3%, while revenues increased 8% during the first half of 2018, driven by “strong growth in the US market in a tight supply environment” while “the Chinese market continued to develop rapidly.” The greater increase in revenues compared to the increase in sales volumes was due to an increase in sales of higher priced Cognacs.
LVMH’s record first half 2018 financial results follow record results in 2017, including Hennessy Cognac sales of 90.8 million bottles. The luxury behemoth reported 2017 revenues of €42.6 billion, up 13% from 2016 revenues. Hennessy volumes were up 8% in 2017, but were negatively impacted by supply constraints in the second half. Supply constraints continued to plague Hennessy through the first half of 2018.
Hennessy has been the victim of its own success. During the first quarter of 2017, the company noted that there was a potential Hennessy V.S. shortage brewing. At that time, a Hennessy representative noted “there may be issues of availability in the later part of the year given the consistently strong demand.” LVMH further noted that Hennessy V.S. sales had grown 15-20% over the past three-four years. Hennessy’s U.S. sales are primarily driven by its Very Special (V.S.) Cognac. The growth rate of sales of Hennessy V.S. is about 30% in the United States. V.S. sales account for well over 80% of Hennessy cognac sales in the United States. It was the growing popularity and sales of Hennessy V.S. that caused LVMH executives to realize that ‘they can’t go further down in inventory.”
Indeed, during the second half of 2017, inventory shortages of Hennessy V.S. were reported across the United Stated in selected markets, preventing the company from achieving double digit Cognac sales growth. Continued tight supplies of Hennessy restrained sales growth in the first half of 2018. LVMH noted that they have been working on a “value creation strategy in context of tight supply” that involves selling higher priced, longer aged cognacs, especially in China.
As part of their strategy to focus on higher end Cognacs, Hennessy recently got the regulatory go ahead to sell an “XXO” cognac, Hennessy XXO Hors d’Age Cognac, blended with 14 year old and older eaux-de-vie. Hennessy already sells some of the highest priced Cognacs in the world including, Hennessy XO Cognac, Hennessy Cognac Paradis and Hennessy Richard Cognac.
In the first half of 2018, LVMH’s sales were strong in its two largest markets, the United States and China. While the U.S. makes up about 55% of Hennessy’s overall shipments, 65% of Hennessy V.S. sales occur in the United States.
Upmarket Cognac sales hold the key to growth
Hennessy is aware that continued growth will rely on pursuing an upmarket strategy that will involve selling increasing amounts of its V.S.O.P, X.O. and other longer aged cognac products. From the LVMH annual report: “Growth remained robust in the United States where it pursued its upmarket strategy.”
Preparing for growth
Hennessy opened a new bottling facility in the fall of 2017 at Pont-Neuf. The new plant will allow Hennessy to ship 8 million cases of Cognac in 2018, up from 7.5 million cases in 2017.