Author: Marshall Thurlow
In the past years, Cognac enjoyed a steady rise in the US, notably spiking during the Covid-19 era. However, recent times have seen a sharp downturn, marking a significant challenge to its dominance as Tequila asserts its presence in the market.
Until 2019, Cognac experienced consistent growth in the US, amplified by the pandemic. But in the last couple of years, a 20% dip in 2022 and a subsequent 16% drop in the first half of 2023 have signalled trouble for a category that holds 40% of global sales.
IWSR Drinks Market Analysis points towards Tequila as the contender causing this shift. The research firm identifies several reasons behind Cognac’s decline, including logistical challenges exacerbated by Covid-19 disruptions, leading to an oversupply of Cognac inventory.
Economic pressures have also influenced consumer choices. The high-status, high-priced tag of Cognac has pushed drinkers towards more cost-effective alternatives. Tequila, especially agave spirits, holds an edge due to its diverse range of styles and prices compared to the narrower and pricier spectrum offered by Cognac.
Jose Luis Hermoso of IWSR highlights Tequila’s versatility across consumption occasions, from shots to cocktails and even as a sipping spirit, a trait less pronounced in the traditional consumption patterns associated with Cognac.
Additionally, the gender-neutral appeal of Tequila in contrast to Cognac, primarily consumed by men, plays a role. Both categories share a significant consumer base, with Cognac drinkers being twice as likely to also consume Tequila.
The economic disparity between the consumer bases is evident, with Tequila drawing a larger and more affluent audience compared to Cognac. This shift is impacting Cognac’s volume consumption, particularly among middle-income ‘core’ drinkers and higher-income urban millennials, who are diversifying their premium alcohol choices.
The economic hardships have hit Cognac’s market hard, especially impacting entry-level and lower-priced products, the preference of consumers facing financial strain. On the contrary, ultra-rare Cognac expressions aimed at investors and collectors have sustained better performance.
To counter the declining trend in the US, Cognac producers are urged to widen their appeal in the market. This entails reaching out to a broader consumer base, especially those at higher income levels, and exploring new consumption occasions that align with the more vibrant, high-tempo settings associated with Tequila.
This doesn’t change the fact that there are new Tequila players in the market, with the likes of Agave Lux and Tequila Fortaleza offering the market unique and artisan Tequilas that come from small, family run distilleries in Mexico.
How big are the markets?
The Cognac market in the USA holds a significant position, representing approximately 40% of the global sales of Cognac. The market was valued at USD 4.6 billion in 2022. The market has seen notable growth in previous years but has recently faced challenges, including a decline in sales volume in the past couple of years.
The Tequila market in the USA was valued at USD 8.3 billion in 2022, and is expected to reach USD 11.3 billion by 2028.
Cognac’s challenge lies not only in retaining its traditional consumers but also in adapting to the evolving preferences and lifestyles of a changing market landscape dominated by Tequila’s rising influence.
Marshall Thurlow is Director and Founder of Orion Marketing Pty Ltd. He is a digital marketer with expertise in SEO, website design, content marketing and project management.
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