Last October, Beijing introduced tariffs in excess of 30% on imports of bottled cognac from the European Union, affecting Hennessy as well as other players such as Rémy Cointreau and Pernod Ricard. Reuters reported that Hennessy is considering bottling its cognac in China to dodge these tariffs, a decision that has triggered a strike at its French facilities. Bottling in China rather than France would allow the company to bypass customs duties, but would spell disaster for 500 on-site employees.

This strategy is designed to respond to anti-dumping measures imposed by Beijing. According to Bernstein analysts, it would involve shipping cognac in bulk, thereby significantly reducing the costs associated with customs duties, cost of goods sold and ocean freight. Thus, the average landed cost per liter of a 1,000-liter container would be significantly lower than that of a 70-cl bottle, both in terms of production costs and sea freight. It is important to note that current Chinese legislation also exempts containers of over 200 liters from customs duties, thus offering an opportunity for Hennessy, unless the Chinese authorities decide to revise these regulations.

However, this strategic positioning, profitable as it may be, would break a major spirits industry taboo: premium brands must be bottled at source, in order to maintain quality control and authenticity. It's not the first time Hennessy has broken codes. In a broader context, Hennessy has already deviated from another industry norm regarding pricing policies. Cognac initially followed a rhythm of healthy annual price increases with the inevitable tactical trade discounts. After the pandemic, Hennessy did an about-face by raising prices significantly, then reversed this trend in mid-2023 when demand normalized. Bernstein notes that competitors have followed this practice, such as Courvoisier, now under the Campari umbrella.

For the moment, nothing is set in stone. It is possible that this announcement will be used as strategic leverage to exert pressure on the French government, thereby influencing the European Union to negotiate an agreement on tariffs imposed on Chinese electric vehicles, the origin of this trade dispute.

This period also coincides with significant financial and management changes at Moët Hennessy and its parent company LVMH. Organic Cognac and Spirits sales were down 10% on 2019, and margins also suffered, again according to Bernstein. Amid these challenges, LVMH is making a significant management reshuffle, with Jean-Jacques Guiony replacing Philippe Schaus as CEO of MH, and other key management changes suggesting a possible new focus on cost management or strategic realignments.