Investors believe Remy Cointreau is overly focused on cognac, according to Reuters

By Emma Rumney

LONDON (Reuters) – Remy Cointreau investors are urging the company to diversify its business further as its heavy reliance on cognac sales in the United States and China has left it vulnerable to the global spirits downturn. The maker of Remy Martin cognac has already expressed its intention to expand sales in other markets and invest in its range of other beverages, including Cointreau liqueur and The Botanist gin.

Currently, Remy generates about 70% of its sales from cognac, with the majority coming from the U.S. and Chinese markets. Recent challenges include destocking in the U.S. and a slower-than-expected recovery in China post-pandemic. According to three Remy investors interviewed by Reuters, diversifying beyond cognac is crucial to safeguard against market fluctuations.

“The risk of over-reliance on cognac is evident,” said Fred Mahon, a fund manager at Remy investor Church House. While Remy does have other brands in its portfolio, there is a lack of exposure to popular spirits like tequila. Mahon advocates for more acquisitions and diversification, emphasizing the importance of strategic targeting of smaller, high-quality brands.

Remy’s stock hit a four-year low following disappointing first-quarter sales results. While the entire spirits industry is experiencing a slowdown after a post-pandemic surge, competitors like Pernod Ricard and Diageo have a more balanced product and market mix.

Long Road Ahead

In addition to economic challenges, cognac manufacturers like Remy are facing potential tariffs from Beijing amidst an EU-China trade dispute. Declining sales in the U.S. have raised concerns among investors like Nicolas Brault from Banque Hottinguer, who questions the future of cognac in American markets.

“Is there a future for cognac in the U.S.?” Brault pondered. He acknowledges the need for diversification but believes that cognac will remain Remy’s cornerstone product. Chief Financial Officer Luca Marotta has committed to significant investments in expanding the non-cognac segment over the medium term.

Remy CEO Eric Vallat has outlined plans to boost sales in additional regions, including Europe and Africa. As the largest spirits markets globally, the U.S. and China are vital for any major player in the industry, but Remy must consider diversification amidst ongoing challenges, says Joseph Gabelli from Gabelli Funds, another Remy investor.

“Although it will be a challenging journey, building up sales from other products and regions is essential for Remy’s long-term success,” Gabelli remarked.

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