In late-January, Moët Hennessy reported a 14% slide in full-year sales from 2020. Here, just-drinks picks through the wine & spirits group’s performance over the past five years for the trends set to affect the company, specifically, and the global wine and spirits categories, more broadly.
How will Moet Hennessy emerge from the COVID era?
Anyone pondering the prospects of a luxury goods firm in a pandemic-riddled world, a company which does a significant chunk of its business in China, the US, and Global Travel Retail to boot, could take their cue from renowned hedge fund manager Terry Smith who snapped up shares in Moet Hennesy’s parent company this year.
He did well from it too: LVMH‘s stock entered 2020 at EUR419.10 per share and closed the year at EUR510.90 – despite hitting lows of EUR295 at the height of the coronavirus pandemic. So, what does this say about market expectations in times like these for companies at the ‘bling’ end of the scale and – for our purposes – about luxury drinks brand owners such as Moët Hennessy?
Moet Hennessy 2020 – Sales versus 2019 – reported
Source: Company results
With its huge footprint in China, it’s no surprise that Moët Hennessy began to see the effect of COVID on its performance as early as January 2020, when CFO of LVMH Jean-Jacques Guiony told analysts: “Let’s not panic, let’s analyse the situation calmly.” Things got a lot worse from that point, as we know, and the company’s first-half results reflected this, with sales tumbling 23%.
While China was the first to suffer, it was also the first market to recover. By spring 2020, China was re-opening and this was reflected with a marked improvement in Moët Hennessy’s performance through the second half of the year there and also in the US, where both Hennessy Cognac and the Champagne portfolio performed well.
Also serving as a boost to results was the integration of wineries Château d’Esclans and Château du Galoupet (purchased for their high-end rosé wines in 2019) for the first time over a full year and a new Cuban rum brand, Eminente, which launched in the third quarter.
Moët Hennessy sales thus ended 2020 14% down at EUR4.75bn. Its spirits stable dropped 12% in the year to EUR2.64bn, while wines fell even further, down 16% to EUR2.12bn. Profits across wines and spirits declined 20% to EUR1.39bn but still did significantly better for parent firm LVMH than its perfumes and cosmetics brands (where profits were down a whopping 88%) and watches and jewellery (down 59%).
Moët Hennessy currently accounts for about 11% of LVMH’s group sales – down from 2019’s 13%, in part due to its parent’s acquisition of jewellery brand Tiffany’s. On the surface, this could make the arm vulnerable to a sell-off – rumours of such a move to Diageo, which already holds a 34% stake, have swirled for years – but, 2020’s performance compared to its sister business units, should cement its importance to the wider group, at least in the short- to medium-term.
Such figures are useful in that they indicate a company that, while dealing in luxury goods, shows all the signs of being pandemic-proof. But, they shed little light on general fitness levels. For that, we would do better to look at performance over the years prior to 2020.
Moet Hennessy Full-Year Sales 2016-2020
Source: Company results
2019, for example, saw Moët Hennessy post a 6% rise in sales, with spirits up 7% attributed to a strong showing in China for Hennessy Cognac – in the process of becoming the world’s leading premium spirits brand by value – as well as solid performances by Scotch single malts Glenmorangie and Ardbeg. In the same year. wines were up 4% as a result of the company pushing price increases across its Champagne brands, from Moët & Chandon to Dom Perignon.
Looking back over the results of four years preceding 2019, one might see slightly differing figures but broadly speaking a similarly solid performance, led by flagships Hennessy, Glenmorangie, Moët & Chandon and Veuve Clicquot. In normal times then, a solid performer with a brand portfolio broadly in alignment with drinks market trends.
Luxury brands in a pandemic
These are, however, far from normal times – so where does that leave a company like Moët Hennessy?
There are plenty of positives. First and foremost, its structure as a family-owned company – Diageo may hold 34% but it’s the family that still steers the ship. This ownership model allows for long-term strategic planning and the stability that comes with it. In a call during the initial outbreak of coronavirus in China, LVMH CEO Bernard Arnault told analysts: “The fact that we’re a family business allows us to take a long-term perspective that’s vital in our business. Analysts here mustn’t expect us to look at the quarter with the share price for the next six months … . I see some sceptical looks, but we’re pretty indifferent to that. It doesn’t matter in the least to me, I don’t manage things on that basis.”
This is also a company that, despite the headlines around its success in China and the US, enjoys a good geographical spread. Leave 2020’s figures aside and taking the period from 2016 to 2019 as a better bell weather of Moët Hennessy’s performance, in an average year, Europe accounts for roughly a quarter of sales, the US for just over 30%, Asia for another 30% and the rest of the world laying claim to the remaining 15%.
Moet Hennessy Sales by Region 2016-2020
Source: Company results
For all its prestige pretentions, Moët Hennessy is also a volume player – Hennessey passed the 8m-case mark in 2019 and Glenmorangie, which has been repositioned as a more premium brand in recent years, has always focused on volumes, particularly in the UK. This is also true of its Champagne brands, with the likes of Moët & Chandon and Veuve Clicquot found on supermarket shelves and as the house pour in 10% of global bars. A similar story can be found in the company’s still wine business too; for every Chateau d`Yquem in the portfolio, there’s also a Cloudy Bay.
Also worthy of note is the breadth of the brand portfolio. Away from its stars in Cognac and Champagne, Moët Hennessy boasts still and sparkling wines, new and old-world vineyards, Scottish and American whiskies, vodka, rum and Tequila. Such a roster shows the company’s strength in classic categories (Champagne, Scotch and Cognac) as well as emerging ones (rum and Tequila).
Keen readers will see some gaps in that line-up, however.
Potential for growth
Readers of just-drinks will need no reminding that gin has been an enormous success in the last decade. Yet, Moët Hennessy has no brand of its own in the category even though, as an owner of distilleries, it would be well-placed to do so and should find it simple enough to execute, particularly as there is currently no ultra-premium gin storming the market.
The company’s tie-up with Diageo, which is strong in this area with brands such as Gordon’s, Tanqueray and 2019’s ‘super-premium’ launch Villa Ascenti, may discourage Moët Hennessy from entering this sector – indeed, it may well be that the business is satisfied with this. Perhaps, it is believed that the gin boom will soon enough be a gin bust and exposure via Diageo is exposure enough.
Industry forecasters would likely suggest the company is wrong. Leaving the pandemic aside, it was premium (alongside flavoured) gins that were most recently driving growth in the wider gin category and research shows global consumption had no signs of stopping – Statista predicts an annual growth for gin of 6.7% between 2021 and 2025 in the US alone. The category may well slow in more-mature gin markets such as the UK and Spain but others, including the world’s biggest market for gin, the Philippines, are still showing potential. All of which could make one wonder if leaving the market for partner Diageo to soak up is a wise move.
No- and low-alcohol is another glaring omission from the line-up. This is still a burgeoning trend and, while it has hardly grown deep roots in the drinks industry as yet, both macro and micro trends would indicate this is but a matter of time. Millennial consumers, no longer whippersnappers or trendsetters but now parents and mortgage payers, continue to eschew alcohol and Gen Z coming up behind them are showing much the same dislike for liquor. Couple this with the anti-alcohol movement that maintains its power in Europe and the US, speaking to the health concerns of an ever-aging population, and the die is cast.
Moët Hennessy has shown it can be successful in acquisitions, and it might seem prudent to use this talent now and snap up cheaply one of the more luxurious non-alcoholic distilled spirits that have emerged on the market. Either that, or it could use its distilling expertise to create its own.
Speaking of new brands, there are some question marks over recent launches: Memories still linger of the ill-fated 10 Cane rum, which lasted a mere decade and was discontinued in 2015.
Volcán De Mi Tierra Tequila, a joint venture with the Mexican Gallardo family, has fared better thus far, but has been criticised for being something of a damp squib to-date. Launched in 2017, reports were that the company was finally looking to ramp things up in 2020 and Moët Hennessy will be hoping that over the next few years, the brand’s growth will be more of a “slow burn’ than a failure to ignite, particularly as Tequila and Mezcal are hotly tipped for a boom in the UK and Western Europe.
It’s a similar story with the purchase (also in 2017) of Woodinville Whiskey Co in the US, which strengthened the company’s presence in the American whiskey category. This was a shrewd acquisition at the time: American whiskey was – and remains – a sector with huge growth potential outside of its home market, as consumers turn to darker spirits but need accessible flavour profiles to make the move. It seems even more shrewd from today’s perspective, however.
Scotch is suffering in the US market down to the 25% import tax on single malt, implemented by the Trump administration back in 2019. Since then, figures from the Scotch Whisky Association show Scotch exports to the market have dropped 35%. Moet Hennessy is well-placed to pick up any slack with its Hennessy Cognac (value sales of which are up 21% in the US last year), but having American whiskies to also play with will clearly further strengthen its hand.
Notably, at the end of last year, the company also bought a stake in American rye whisky brand, WhistlePig. Moët Hennessy needs to act quickly if it is to capitalise on the opportunity, in a way it hasn’t so far with Woodinville. Indeed, the company has done little with the brand in its first two years as part of the family, in 2019 it was promising to expand the brand in a number of US states and announced plans to increase production. It will be missing a trick if it doesn’t press ahead with this as a matter of urgency.
Increasing production for newer brands is crucial for a portfolio such as Moët Hennessy’s, which relies on categories with limited supplies of liquid; Cognac, for example, or, more pressingly, Champagne. Hennessey is the largest grape buyer in the Cognac region and is known for paying top dollar to its growers as well, a move that has contributed to a rise in the price of grapes over the last few years (although there are other factors at play as well, not least the interprofessional agreement linking the grape price to the average bottle price, making the selling of grapes more lucrative than making wine). All of this has resulted in a volumes drop for grower Champagne, with what’s left almost totally snapped up by the big names. Moët Hennessy is undoubtedly one of these but supply in Champagne is finite.
The most obvious shadow over Moët Hennessy’s Champagne portfolio’s future performance, however, is not grapes but that same question posed at the very start: What will luxury look like in a post-pandemic climate?
What does luxury mean now?
For all drinks brand owners, questions remain over the extent to which consumers will be willing to flock to bars and restaurants once they are allowed to do so. Early signs look positive: We saw people return to eating and drinking out in their droves in markets across the globe when restrictions were lifted and, as vaccines are rolled out, hope remains. COVID is ever-mutating, however, and new strains troubling. While this concern is not unique to Moët Hennessy, of course, the company is a purveyor of luxury, and luxury drinks are built in the on-premise.
If, in the next few years, the sober reality or memory of a pandemic keeps people at home more than before, where will luxury drinks brands go to play? Prestige brands thrive on being seen to be drunk, brand equity is created – and cemented – in the on-premise, and expert bartenders are needed to gently explain why one liquid is worth so much more than another. Brands at this end of the market also rely heavily on Global Travel Retail, a channel unlikely to return to normal for some years – indeed, now we’ve proved that business can be done remotely without the need for costly business travel, frequent flying at the luxury end of the market may never fully recover.
All that being said, Moët Hennessy has proved itself as an innovator and even in the depths of 2020, there were notable launches. These include, not a vodka but a ‘Malted Rye Spirit Drinks’ from vodka brand Belvedere, a limited-edition bottle for Hennessy XO Cognac designed by architect Frank Gehry, plus a new – arrestingly modern – world-wide activation for Glenmorangie. Furthermore, the company’s post-results presentation to analysts in early-2021 held the promise of more to come.
Innovation in drinks is more than just new liquids, after all, so it pays to note that the final slide of th January’s presentation included a slide entitled “Getting ready for the recovery in 2021”, which placed heavy emphasis on “digitalisation of our Maisons to enrich customers’ experience … “. This isn’t a completely new tack either, the company has form in this area. Past examples include a Dom Perignon on-demand delivery service in NYC and Miami, a partnership with Alexa in the US to champion education, and the installation of a Moet & Chandon vending machine at Henley Festival in the UK.
There’s also been a raft of new hires, all of whom will be keen to show their mettle, including Jasmin Allen as the head of Hennessy in the US, Ipsita Das, the new MD in India, former Mars exec Berta de Pablos-Barbier as head of its Champagne business and new UK MD Alexei Rosin.
The general belief at the moment is that spirits brand owners will make a swift recovery as consumers re-emerge. Based on its current condition, there’s every reason to believe Moët Hennessy will be one of them. A point clearly not lost on Terry Smith last summer.
Moet Hennessy Sales Growth – 2010-2020 – Organic