Hennessy is not a well-known brand in Spain, but it is the main French cognac brand and gives its name to the luxury giant Moët Hennessy Louis Vuitton (LVMH). A company that is worth more than 290,000 million euros on the stock market and that, 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 the tariffs that are going to impose the Asian country on this alcoholic beverage.
It is an atypical situation, because the luxury sector is not used to work stoppages. Even less a group like LVMH that is behind brands like Christian Dior, Givenchy, Sephora or Tiffany, among many others.
However, Hennessy has become one of the axes of the trade battle in which the European Union and China are immersed, with tariffs as the main weapon. A struggle where electric cars are the key, but which increasingly has more collateral damage.
At the beginning of October, the Beijing government decided to impose a tariff 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 the Asian country, which have carved out a niche for themselves in the European automobile market thanks to their higher prices. competitive, in which the European Commission sees the existence of State aid to accelerate that competitiveness. A surcharge that also affects Spanish brands, such as Osborne, Fundador or Miguel Torres, for which it is close to 35%.
Take the bottling to China
Faced with these tariffs, LVMH is studying the option of ending the production of its cognac in China. That is, I would take it in bulk to there, where I would bottle it as a mechanism to avoid tariff barriers on a product that lives off of exports. According to data published by the Bureau National Interprofessionnel du Cognac (BNIC), the producers’ association, 97% of everything manufactured in that French region is exported, although it does not say how much goes to China; and the sector’s turnover exceeds 3,000 million euros. In total, this region employs more than 14,000 people with cognac.
The decision is not yet final, but Hennessy workers – more than 500 – have already decided to stop and protest, as they have done for several days last week. “The management has informed us that it wants to carry out tests to export the products in vats, with a view to a future bottling in China by a supplier,” Frederic Merceron, representative of the Fuerza Obrera (FO) union in Hennessy, told 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 yet been decided and that we are evaluating all possible solutions,” he stated.
It is something similar to what is happening with cars, but in reverse. In the case of the Chinese automobile industry, its operators are pulling strings to set up factories in Europe or partner with local operators to have ‘made in Europe’ production and thus avoid this tariff policy.
Negotiations still underway
The tariffs on brandy are already underway but negotiations on their continuity 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 trust that agreements can be reached between the European and Chinese authorities to prevent this situation from harming both consumers and businesses on both sides,” said the director. of Osborne international, Jaime Fernández, after the imposition of the tariffs, in statements collected by Europa Press.
At the moment, there has been no talk here of moving production to China, but rather of continuing to try for a diplomatic solution to this trade battle where brandy manufacturers see themselves as a collateral victim. “We call on the European Commission to redouble its efforts to find a negotiated solution with its Chinese counterparts, as a matter of urgency, and to ensure that tariffs on EU brandy arising from a conflict that nothing It has to do with our sectoral nature,” criticized the sector’s employers, Spirits Spain.
The Minister of Agriculture, Fisheries and Food, Luis Planas, has also called for dialogue to continue. “We all know perfectly well what is on the table, but we have to 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 seeks to remove the brandy of this French region 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 avoid the fact that the final bottling can fly to China. “The BNIC does not intend to comment on the individual strategies of the companies, nor on the social movements that could be linked to them,” he justifies. “However, it should be noted that, pending a negotiated solution, and given the deterioration observed, some companies could be forced to explore all avenues that allow them to maintain the presence of the denomination in the Chinese market to limit the negative impacts.” throughout the sector and the region.”
This fight of interest between one party and the other has also reached the presidency of the French Government. Emmanuel Macron assured a few days ago that he spoke about cognac with his Chinese counterpart, Xi Jinping, during the last G20 meeting and assured that the dialogue was aimed at a “favorable result” for the interests of his country. Also, the French Prime Minister, Michel Barnier, will travel to China to try to get tariffs on all European brandies eliminated.
Setbacks for Bernard Arnault’s fortune
This tug of war has hit LVMH squarely 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 positions on the list of great European fortunes. According to Forbes, exceeds 230,000 million dollarsmore than 220,000 million euros.
But the last few months have not been good. The French multinational sees its business suffer because the Chinese market is not doing as well as it did in previous years. A situation that is affecting several companies in the luxury sector and that has been reflected on the Stock Market. So far this year, LVMH stock has lost 20% of its value.
In the first nine months of this year, LVMH’s sales have fallen by 2%, although they are still above 60.75 billion euros. This setback is much greater in the wine 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 was held back by weak local demand in the Chinese market,” as acknowledged in its presentation to investors. The tariffs have not come at a brilliant time and now, if it does not avoid those trade barriers, it could see its position in the Asian giant reduced even further.
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