Hennessy is not a well-known brand in Spain, but it is the leading French cognac brand and gives its name to luxury giant Moët Hennessy Louis Vuitton (LVMH). A company worth more than 290 billion euros on the stock market and which, in recent days, has experienced a historic event: a strike by Hennessy workers because they fear that part of the production will go to China to avoid customs tariffs which are in force. will impose the Asian country on this alcoholic drink.
This is an atypical situation, because the luxury sector is not used to work stoppages. Even less a group like LVMH which is behind brands like Christian Dior, Givenchy, Sephora or Tiffany, among others.
However, Hennessy has become one of the axes of the commercial battle in which the European Union and China are plunged, with customs duties as the main weapon. A fight where electric cars are the key, but which leads to more and more collateral damage.
At the beginning of October, the government in Beijing decided to impose a customs duty on European brandy and therefore on cognac, the variety produced in the French Cognac region. A surcharge of between 30.6% and 39% in retaliation for Brussels’ decision to impose tariffs on electric cars manufactured in this Asian country, which have carved out a place for themselves in the European automobile market thanks to their more competitive prices . the European Commission sees the existence of state aid to accelerate this competitiveness. A surcharge which also affects Spanish brands, such as Osborne, Fundador or Miguel Torres, for which it is around 35%.
Take the bottling to China
Faced with these tariffs, LVMH is studying the possibility of ending the production of its cognac in China. In other words, I would basically bring it there, where I would bottle it as a mechanism to avoid tariff barriers on a product that lives on exports. According to data published by the Bureau National Interprofessionnel du Cognac (BNIC), the producers’ association, 97% of everything made in this French region is exported, although it is not specified how much goes to China ; and the sector’s turnover exceeds 3 billion euros. In total, this region employs more than 14,000 people around cognac.
The decision is not yet final, but Hennessy workers – more than 500 – have already decided to stop and protest, as they did for several days last week. “Management told us that they wanted to carry out tests to export the products in vats, with a view to future bottling in China by a supplier,” declared Frédéric Merceron, representative of the Fuerza Obrera (FO) union. in Hennessy. the French agency AFP.
The company assures, according to the French press, that it has not made a final decision. “It is important to note that as of today, nothing has been decided yet and we are evaluating all possible solutions,” he said.
This is something similar to what happens with cars, but in reverse. In the case of the Chinese automobile industry, its operators are pulling the strings to set up factories in Europe or partner with local operators to have production “made in Europe” and thus avoid this pricing policy.
Negotiations still ongoing
The customs duties on brandy are already underway, but negotiations on their continuation are still ongoing and Spanish companies are confident that they will bear fruit. “We understand that this measure is part of a broader trade response, but we are confident that agreements can be reached between European and Chinese authorities to prevent this situation from harming consumers and businesses on both sides,” he said. declared the director of Osborne International. , Jaime Fernández, after the imposition of the tariffs, in statements collected by Europa Press.
For the moment, there is no question of relocating production to China, but rather of continuing to seek a diplomatic solution to this commercial battle of which brandy manufacturers consider themselves a collateral victim. “We call on the European Commission to redouble its efforts to urgently find a negotiated solution with its Chinese counterparts and to ensure that tariffs on European brandy resulting from a conflict that has nothing to do with our nature sectoral,” criticized the sector’s employer, Spirits Spain.
The Minister of Agriculture, Fisheries and Food, Luis Planas, also called for continued dialogue. “We all know perfectly well what is on the table, but we must make an effort to ensure that, through dialogue and cooperation, we can obviously overcome this issue,” he assured.
Meanwhile, in France, the Bureau National Interprofessionnel du Cognac is seeking to remove this French region’s eau-de-vie from the trade fight. “France’s priority must be the search for a negotiated solution to remove Cognac from this procedure,” he said in a statement. However, they do not prevent the final bottling from being sent to China. “The BNIC does not intend to comment on the individual strategies of companies, nor on the social movements which could be linked to them,” he explains. “It should be noted, however, that, pending a negotiated solution, and given the deterioration observed, certain companies could be forced to explore all avenues allowing them to maintain the presence of the denomination on the Chinese market to limit the negative impacts.” throughout the sector and region.
This struggle of interests between one side and the other has also reached the presidency of the French government. Emmanuel Macron assured a few days ago that he had discussed cognac with his Chinese counterpart, Xi Jinping, during the last G20 meeting and assured that the dialogue aimed at a “favorable result” for the interests of his country. Furthermore, French Prime Minister Michel Barnier will travel to China to try to remove customs duties on all European spirits.
Setbacks for the fortune of Bernard Arnault
This fierce struggle is hitting LVMH hard, at a time when the luxury giant is not experiencing its best moment. The multinational is controlled by Bernard Arnault, who usually occupies the top places on the list of great European fortunes. According to Forbes, it exceeds 230 billion dollars, or more than 220 billion euros.
But the last few months have not been good. The French multinational is seeing its business suffer because the Chinese market is not doing as well as in previous years. A situation which affects several companies in the luxury sector and which is reflected on the stock market. Since the start of the year, LVMH shares have lost 20% of their value.
During the first nine months of this year, LVMH’s sales fell 2%, although they remain above 60.75 billion euros. This setback is much more significant in the wines and spirits division, where Hennessy is located. There, the drop in sales between January and September was 11%, reaching 4,193 million euros. The reason, in part, is that “Hennessy cognac has been held back by weak local demand in the Chinese market,” as its investor presentation acknowledged. The tariffs did not come at an ideal time and now, if he does not avoid these trade barriers, he could see his position in the Asian giant reduced even further.
