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Hennessy Cognac Sales Growth in U.S. Strains Supplies
Earlier this week LVMH Moët Hennessy Louis Vuitton (LVMH), a luxury brand conglomerate and owner of Hennessy cognacs, warned that due to significant increases in Hennessy sales, the availability of cognac stocks may be impacted for the rest of the year. The warning was part of LVMH’s first quarter earnings release that reported record revenues of €9.9 billion in the first quarter of 2017, up 16% from the first quarter of 2016.
LVMH record first quarter revenues were driven by 20% revenue growth in Asia and 14% growth in Europe. LVMH revenues grew at 9% in the United States. While LVMH revenues from the United States grew at a lower pace than other global regions, sales of Hennessy cognac skyrocketed.
The Growing Popularity of Hennessy Very Special Cognac in the United States is Straining Capacity and Inventories
During yesterday’s investor conference call, LVMH repeated the potential Hennessy shortage warning and gave further details. In reviewing the first quarter results, LVMH representatives noted that their wines and spirits business grew 13%, with champagne volumes up 7% and Hennessy volumes up 21%. As a result of increased sales volumes, a Hennessy representative noted “there may be issues of availability in the later part of the year given the consistently strong demand.” The representative further noted that Hennessy has 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 is the growing popularity and sales of Hennessy V.S. that is causing LVMH executives to realize that ‘they can’t go further down in inventory.”
LVMH noted that demand at current growth rates could not be met. A representative noted that the explosive growth over the past few years, especially in Hennessy V.S., won’t last forever and that he had “hardly ever seen such type of growth”. The representative further noted that company projections do not include growth rates as fast as recent years’ growth rates, noting that he doesn’t expect the market to fall apart, but that growth will abate. If LVMH’s lower sales growth projections are correct, the company believes that they will be able to meet reasonable Hennessy demand in the future.
LVMH expects that if Hennessy V.S. sales growth continues at its current pace, however, they will experience inventory shortages later this year.
The growth rates of all Hennessy cognacs including its V.S. V.S.O.P. XO offerings all are growing extremely well, according to LVMH. The company noted that its VSOP and XO cognac sales are stronger in Asia than in the United States. He further noted that at the present time there are no capacity issues with V.S.O.P. and XO and then added, but you never know.