By Ruth Bender
PARIS-- Rémy Cointreau SA is making a millionaire's bet. The
French drinks maker is convinced that ultra-rich Chinese will again
sip from the world's most expensive bottles of cognac following a
slump in demand that stems from an anticorruption campaign by the
Chinese government. The Chinese have stayed away from expensive
liquor since the government banned extravagant gift-giving among
officials more than a year ago.
"There are more and more millionaires and billionaires out
there," said Valérie Chapoulaud Floquet, the former L'Oréal SA
executive who took over as chief executive of Rémy this autumn.
"Especially the younger generation of very rich in China will still
want to spend their money."
Rémy is going against the grain of many of its competitors, such
as France's Pernod Ricard SA, which have launched cheaper drinks on
the Chinese market and cut prices in the belief that the days of
selling $2,000 or $3,000 bottles of cognac are over. Rémy is
convinced that there will still be a niche market, where the
wealthiest Chinese will buy the most exclusive brands, just more
"discreetly," according to Ms. Chapoulaud Floquet.
"Do you think Ferrari sales would go up if they launched a
cheaper car model?," François Hériard Dubreuil, the company's
chairman, said, when asked why Rémy had not to cut prices or gone
down the drinks chain. The Hériard-Dubreuil family controls more
than 50% of the group's capital.
Ms. Chapoulaud Floquet said that Rémy is pushing the promotion
of its very expensive products in private events such as dinners to
a very elite and rich target group to make sure that the company is
perceived as the most exclusive brand once the Chinese become more
confident again about purchasing luxury items--even if that means
suffering more in the short term.
"There are no signs of recovery in the market for now and no one
can say with certainty when consumption will again pick up," the
chief executive said. Pernod Ricard last month said that it expects
sales in the country to continue to improve gradually in the months
to come.
Rémy Cointreau has been among the hardest hit by the Chinese
slump as it relies for more than half of its sales and margins on
its flagship Rémy Martin cognac, for which China was one of the
biggest markets.
Net profit at the company fell 25% in the first half of its
financial year to EUR64 million ($80 million) from EUR85.5 million
as cognac sales continued to drop sharply in China.
Operating profit fell 23% to EUR102 million, a
lower-than-expected drop as the company kept operating costs to a
minimum even as sales fell 16% over the period. Shares rose 2.5% on
the better-than expected numbers.
Rémy said that it still targets organic growth both in sales and
operating profit in the full year. This target excludes the loss of
a distribution contract in the U.S., which would have weighed on
sales further.
Inti Landauro contributed to this article.
Write to Ruth Bender at Ruth.Bender@wsj.com
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