The Story Behind the Decline of Cognac

When prestige met reality in the world of brandy

In recent years, the decline of Cognac has been nothing short of dramatic. Global demand has fallen sharply. For example, Remy Cointreau (the company most reliant on Cognac) has seen nearly 40% of its revenue vanish between 2023 and 2025, along with two-thirds of its profit margins. A true nightmare for one of the industry’s giants.

In this article, we will explore the main reasons behind this collapse and examine the possible scenarios for what lies ahead.

A concentrated market

The Cognac market is highly concentrated, dominated by 4 major houses.

Hennessy leads by a wide margin, holding nearly 50% of global market share. It is owned by LVMH, and even provides the “H” in the group’s acronym.

The other 3 players operate at similar volumes: Martell (owned by Pernod Ricard), Remy Martin (owned by Remy Cointreau), and Courvoisier, the only independent house among the 4.

The rise…

In the 20th century, cognac developed a powerful and unexpected cultural connection in the United States, particularly among African-American consumers. After World War II, Black American soldiers stationed in France were introduced to cognac and brought an appreciation for the spirit back home. Over time, this taste became embedded in African-American culture, especially as cognac brands began to recognize and actively market to this loyal and influential demographic.

By the 1990s and early 2000s, cognac was deeply intertwined with hip-hop culture, with artists like Tupac, Busta Rhymes, and Jay-Z frequently referencing Hennessy and Courvoisier in their lyrics.

More recently, cognac has ridden the wave of global premiumization, finding explosive growth in markets like China and across Asia, where Western luxury goods are potent status symbols. High-end cognac has become a staple in both corporate gifting and nightlife, helping brands like Hennessy and Rémy Martin expand their global footprint.

… and the fall

While cognac remains a globally respected luxury spirit, it has faced a significant decline in recent years, driven by a mix of economic pressures, shifting consumer preferences, and geopolitical tensions. One of the most immediate causes of this downturn has been the sharp drop in demand from China and the US, the 2 cognac’s largest export markets. In China, anti-corruption measures and a cooling economy have reduced corporate gifting and luxury consumption. Meanwhile, in the US, consumer tastes are shifting toward other spirits like premium tequila, bourbon, and Japanese whisky, which are perceived as more versatile or trend-forward, especially among younger drinkers.

Cognac also suffers from an aging brand image and limited relevance in modern cocktail culture. While its heritage and complexity are undeniable, cognac is often viewed as a sipping spirit reserved for special occasions or older demographics. This has made it less adaptable to the growing demand for mixable, sessionable drinks in casual settings. Additionally, rising production costs and global inflation have put pressure on pricing, making high-end cognac even more expensive at a time when affordability is top of mind for many consumers.

Another critical factor amplifying cognac’s decline is the inventory overhang across distribution channels, which has had a disproportionately strong impact on producers. This destocking cycle has led to a dramatic short-term drop in shipments from manufacturers, creating a lagging effect where actual sales to end consumers may not seem as dire as the plummeting figures reported by cognac producers.

And now?

Looking ahead, 2 scenarios could define cognac’s future. The first is a slow, partial recovery, where demand gradually stabilizes as excess inventory clears and macroeconomic pressures ease. But in this view, cognac’s boom years are behind it. The shift in consumer tastes (toward more casual, mixable, and affordable spirits) has left cognac somewhat out of step with the times. Even if volumes recover modestly, it may remain a niche luxury product with limited relevance among younger drinkers.

The second, more optimistic scenario envisions a stronger rebound, driven by brand reinvention and global recognition. Cognac’s deep heritage and cultural cachet still carry weight, especially in emerging markets and travel retail. But the path to growth will depend on evolving with the market, not just waiting for the past to return. In this scenario, potential growth would translate to a 3% to 6% compound annual growth rate (based on different analysts) over the next decade modest and steady, but far from explosive.

Potential for investors

Rémy Cointreau is now trading at the same level as it was in 2011, effectively erasing 14 years of market gains. A local bottom appears to have formed in April 2025 around 40€, and the stock has since rebounded by roughly 20%. From a technical standpoint, the current zone is intriguing, but any meaningful upside will depend on which recovery scenario plays out.

If the slower recovery (scenario 1) materializes, the upside appears limited. The stock already trades at a price-to-earnings ratio above 25x, inflated by collapsing margins, which leaves little room for multiple expansion. However, if the stronger rebound (scenario 2) takes hold, driven by a return to growth and margin recovery, the stock could potentially climb back toward 90€, its first major resistance level.

Pernod Ricard faces a similar market setup, though with key differences. The company is more diversified than Rémy Cointreau and has successfully preserved its margins, keeping its PE ratio below 15x, a much more reasonable valuation. However, it is not immune to the broader downturn. Pernod is contending with a widespread decline in global demand for alcoholic beverages (as I described in this article), which weighs on its growth outlook. Technically, the chart shows a similar setup.

Conclusion

Cognac's dramatic fall has exposed the fragility of even the most iconic luxury products when faced with structural shifts in consumer behavior and global demand. What was once a booming symbol of cultural relevance and premiumization has now entered a period of deep uncertainty. The industry is at a crossroads: either evolve to meet the tastes and habits of a new generation, or risk becoming a relic of its past success.

For investors, the market offers both risk and opportunity. Valuations reflect much of the pessimism already, but the path forward remains unclear. Whether this downturn marks a cyclical low or a more permanent contraction will determine the returns from here. It may look like a speculative bet, but for investors who have long considered entering these names, current valuations and technical levels are aligning for a potential first entry point. That said, cautious investors are likely to stay on the sidelines.