Investors for Remy Cointreau have said that the company needs to diversify as its reliance on cognac sales in the US and China leaves it among the worst-hit by a global spirits downturn.
The maker of Remy Martin cognac has already signalled it wants to grow sales in other markets and invest in its portfolio of other drinks, including Cointreau liqueur and the Botanist gin.
Some 70% of sales for the brand are from cognac, with the vast majority of those in the US and Chinese markets.
Its performance has been hurt by destocking in the US while China’s recovery from the pandemic has been slower than hoped.
Three Remy investors told Reuters it has become increasingly important for the company to diversify its business to cushion the blow when drinks markets falter.
Fred Mahon, fund manager at Remy investor Church House, said, “The risk is that they are just so exposed to cognac.”
Mahon added that while Remy holds other brands, its portfolio lacks exposure to popular spirits such as tequila.
“We’d like to see more acquisitions, more diversification,” Mahon said, adding however that this has to be done well and Remy should focus on smaller, quality targets.
Cognac’s Future
Remy’s shares hit their lowest level since 2016 on Wednesday after first-quarter sales missed estimates.
All spirits makers are experiencing a sharp slowdown in growth following a post-pandemic boom.
However, operations for Remy’s rivals – Pernod Ricard and Diageo – are more balanced across different products and markets.
As well as a slow economy, cognac makers like Remy face the threat of tariffs from Beijing amid an EU-China trade dispute.
Persistent declines in Remy’s US cognac sales have led some investors like Nicolas Brault, associate director at Banque Hottinguer, another Remy investor, to wonder if cognac has fallen out of favour with its base of American drinkers.
“Is there a future for cognac in the US?” Brault said.
“That’s the number one uncertainty.”
He agreed Remy needs to diversify, but said ultimately cognac will remain the company’s main product on which its fortunes turn.
‘A Long Road’
Chief financial officer Luca Marotta said on Wednesday that Remy would invest in a lot over the medium term to increase the size of its non-cognac business.
Remy’s chief executive Eric Vallat meanwhile has said that the company would look to grow sales in other nations, including in Europe and Africa.
The US and China are the world’s largest spirits markets, so investors say that any global player needs a strong business there.
However, Joseph Gabelli, a portfolio manager at Remy investor Gabelli funds, said Remy has to think about diversification given the challenges it faces.
“I say that with full knowledge that it will be a long road,” Gabelli said, adding that building up Remy’s sales from other products and geographies will take time.
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