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Wine and Spirits

US and Chinese demand for cognac prompts LVMH to open US$118 million bottling plant

Hennessy cognac is a huge hit in China and the US, where it has become popular in cocktails and a favourite tipple of rappers. The demand is so great that the distiller is opening a huge bottling plant

PUBLISHED : Thursday, 19 October, 2017, 5:45pm
UPDATED : Thursday, 19 October, 2017, 5:45pm

Luxury goods maker LVMH hopes to be well on its way to remedying its cognac shortage within two years, billionaire boss Bernard Arnault said as its Hennessy label struggles to keep up with demand in the United States.

The distiller is dealing with low stocks and production problems, including hail and frost that have hurt recent harvests.

With no quick fixes likely – cognac is a double-distilled spirit that needs to be aged for at last two years – Hennessy is tackling production constraints with an eye on the longer term, by planting more vines, Arnault said.

“There is land within the area which is not being used,” Arnault, LVMH’s chairman and chief executive, told journalists at a new Hennessy bottling plant near the city of Cognac, on the banks of the Charente river in southwest France. The label works with 1,600 winegrowers there.

“We have a bottle shortage, given the success of our products across the Atlantic and in China,” he said.

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The acquisitive businessman – whose sprawling LVMH group includes fashion houses such as Louis Vuitton and champagne label Moët & Chandon – ruled out buying up rival cognac makers to fix shortages.

Hennessy is looking to produce more of its lower-end “VS” stocks for the US, the world’s biggest cognac importer, where the spirit is a popular base for cocktails.

Cognac has also shed its fusty image to become a hit with rap musicians.

“We will try to boost the product for which we have the greatest demand to satisfy … I’m certain that in a year or two we can do it,” Arnault said.

Smaller peers such as Remy Cointreau are hoping to capitalise on Hennessy’s US blip to take market share. Hennessy says it has 50 per cent of the global cognac market.

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Newer vineyards may take more than six years to provide Hennessy with saleable cognac, but the firm would be able to release more stocks in the short term knowing it has more coming, Hennessy’s chief executive Bernard Peillon said.

From 2019/2020 the new 100 million (US$118 million) plant will increase Hennessy’s annual production capacity to 10 million cases, up from 7 million now.