Martell and Company S.A.

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Martell and Company S.A.

BP 21, 7 Pl. Edouard Martell
Cognac, France
Telephone: (+33 05) 45 36 33 33
Fax: (33 05) 45 36 33 99
Web site: http://www.martell.com

Wholly Owned Subsidiary of Pernod Ricard S.A.
Founded: 1715
Employees: 400
Sales: EUR 178.14 million ($222.66 million) (2006 est.)
NAIC: 312130 Wineries; 424820 Wine and Distilled Alcoholic Beverage Merchant Wholesalers

Martell and Company S.A. represents the oldest cognac brand, with a history stretching back to 1715. In the mid-2000s, Martell is also one of the fastest-growing brands in the Pernod Ricard group. In the 2005–06 year alone, Martell's sales grew by some 11 percent. Much of the company's growth comes from early entry into the Asian region, and especially China, with a cognac-drinking population estimated at some 200 million. Martell's share of the Chinese market is estimated to reach 24 percent. Nonetheless, the United Kingdom remains the brand's primary export market in terms of volume, followed by the United States, where the cognac market has been boosted by its embrace by the rap/hip hop music scene.

The travel/duty-free market is also a major market for the company's cognac sales. Martell's cognac brands include its traditional VS (Very Special) and VSOP (Very Superior Old Pale), Extra, and Cordon Bleu varieties. The company also has been developing new cognac labels, including the high-end Noblige, positioned above the VSOP label, launched in 2006. At the same time, in November 2005, Martell has re-launched its oldest label, XO, with a new blend of "eaux de vie" (literally "waters of life"). Martell and Company also serves as the umbrella for two other cognac houses, Bisquit, founded in 1819, the leading cognac brand in Belgium and the number three in France; and Renault, traditionally sold almost entirely in the Scandinavian market, where it claims a 45 percent share of the premium quality cognac market. Martell itself is part of Ricard Pernod's Champagnes Mumm Perrier-Jouët business unit, formed at the beginning of 2006, and led by former Martell & Co. chairman and CEO Lionel Breton.

FOUNDING A COGNAC DYNASTY IN 1715

The practice of distilling heated or "burnt" wine originated as a means of preserving wine for the long transport by Dutch traders. The resulting alcoholic beverage was called brandewijn (literally "burnt wine"), which later became more widely known by its English variant, brandy.

In France, one particular region, centered around the village of Cognac along the Charente river, became particularly prized for the quality of its brandy. Cognac, which was also a major producer of sea salt, used for preserving fish, had by then long been involved in international trade, starting as early as the 5th century. The region's soil proved especially beneficial for the growth of certain types of grapes, especially the Champagne white wine variety. The region's wine trade started from around the 11th century, and grew in popularity especially with the developing brandy trade. Indeed, while the region's grapes produced an inferior quality wine, they proved excellent for distillation. In contrast to most brandy distillates, which were generally flavored with aromatic herbs to make them more palatable, the Cognac region's grapes provided a distillate that was immediately drinkable, if crude.

Cognac's true fame stemmed from the development of the double-distillation method, invented by one Marron seigneur de la Croix, later known as the Chevalier de la Croix-Marron, who retired from military service to his property in Segonzac, in the heart of the Cognac region, in 1610. Croix-Marron came up with the idea of reheating the brouillis, which was then distilled a second time. According to legend, the inspiration for the new method came from a nightmare during which the devil, in an attempt to steal Croix-Marron's soul, had him boiled. When that failed, the devil declared that he would have Croix-Marron's soul by boiling him a second time. Croix-Marron made the connection with his wine—and after experimenting with heating times, succeeded in creating a whiskey considered by many to be the finest in the world.

Yet this quality was not discovered until more than a decade from when Croix-Marron produced his first batch of double-distilled brandy and delivered two casks of the beverage to the monastery at Renorville. One of the casks was stored away and only tapped on the occasion of a visit to the monastery by the Bishop of Saintes some 15 years later. The monks discovered that a significant part of the brandy had evaporated, while, at the same time, the normally colorless brandy had taken on an amber hue. The resulting brandy proved to have gained smoother, more subtle palate than typical brandies. The discovery of the effects of wood-barrel aging played a key role not only in the development of the cognac industry, but in the wine and whiskey industries as well.

Whereas the Croix-Marron property continued to produce cognacs into the 21st century, the development of the region's major cognac houses began only at the beginning of the 18th century. The first of these was created in 1715, when Jean Martell came to the village of Cognac and built his own distillery on the banks of the Charente river. Born in Jersey, in 1694, Martell was marked by the region's reputation as a center of the European smuggling trade. Nonetheless, Martell himself established a successful and legal trading house in Cognac, trading a variety of items, such as groceries, seeds, and knitted goods. Martell also married into two of Cognac's leading brandy-producing families. Martell himself entered the trade, at first exporting non-aged brandies, and by the early 1720s the company was shipping more than 40,000 barrels each year. Germany was an important early market for the company, although by then the United Kingdom was already Martell's top customer.

Although Martell initially shipped young brandies, he also began developing his own cellars, allowing his brandy to age. Before long, Martell's brandies became recognized for their distinctive flavor and qualities. This was due to the company's preference for the use of grapes from the Borderie subregion, as well as its insistence on the use of Tronçais oak, as opposed to Limousin oak, for its casks. Martell's choice of establishing his warehouses along the river also proved beneficial to the quality of his brandies, with the dampness of the air further introducing a smoothness to the flavor.

COGNAC SPECIALIST IN 1815

Martell soon became the leading producer of brandy in the Cognac region. By 1783, the special nature of the Cognac brandy had led to the creation of a new brandy category, called cognac. During this period, the cognac makers also began developing a classification system for the different types of cognacs. As such, an XO cognac was required to have aged at least five years. The VSOP (Very Superior Old Pale) had a four-year minimum aging requirement, while the VS (Very Superior) was aged just two years. Other categories also were created, such as the Extra Perfection, with an average age of 35 years, and the Louis XIII, with an average age of 50 years. The use of English in the region's labeling system also reflected the English-speaking origins of the leading cognac houses, which by then included Martell's chief rival, Hennessy.

COMPANY PERSPECTIVES

Founded 1715. Since then, Martell has carefully preserved the integrity and reputation of the cognacs that bear its name, remaining loyal to the inspired and independent spirit of its founder: Jean Martell.

England also remained the primary market for brandy, and for cognac in particular. Martell took steps to solidify its own sales to the United Kingdom, signing an exclusive agreement with England's Matthew Clark in 1810. The Clark company helped build Martell's position in the United Kingdom, and by the late 20th century, Martell claimed some 40 percent of the total brandy market in the United Kingdom.

As it developed its cognac house, the Martell family maintained its other trading activities into the early 19th century. By 1815, however, the company had decided to concentrate solely on the production of cognac. Martell then began investing in expanding its infrastructure, adding warehouses and new cellars, buying vineyards and building its own distillery operations. Nonetheless, the company continued purchasing from the region's vineyards, building up a network of some 2,500 grape growers. The company's expanded cellars also gave it a broader and broader assortment of eaux-de-vie—that is, distillates aged for a greater or lesser period. These were then blended, as much as 3,000 times to produce the final blend, which was then aged further before being labeled. The company's growing stock of eaux-de-vie enabled it to develop a new cognac label in 1819, Martell Extra.

Whereas exports had played an important part in Martell's business from its origins, the company's international activities took off in the late 19th century. From 1868, Martell began developing new export markets, including the British-dominated Chinese and Hong Kong markets. Toward the end of the century, Martell also developed a new labeling system, in addition to the standard labeling, using stars to further distinguish the quality levels of its cognacs.

A new cognac joined the Martell family in 1912, when the company, then under Eduoard Martell, developed the Cordon Bleu. That cognac remained a key fixture in the company's cognac portfolio, and became prized worldwide by cognac connoisseurs.

NEW OWNERS IN 1988

The Martell company continued to develop its international reputation throughout the 20th century; the group's cognac was served at the signing of the Armistice of 1918 and was served on the first voyage of the Queen Mary in 1936, among other notable events. Martell also continued to expand its holdings in the Cognac region, which had received the AOC (appellation d'origine controlé ) in 1938. Throughout this time, the company, known as J & F Martell, remained controlled by the Martell family—and then by the Firino-Martell family.

In 1964, Martell deepened its presence by acquiring another noted cognac house, Jules Robin. Founded in 1782, that company had been the first cognac producer to ship its cognac in bottles, instead of in casks. The use of bottles enabled the company to develop its own labels—and inspired other cognac makers to follow suit. The Robin purchase also brought Martell the Briand brandy brand. Martell also went public, listing its shares on the Paris Stock Exchange.

The 1970s marked an important period for Martell. The arrival of a new generation, led by René Firino Martell and Patrick Firino Martell, into the group in the late 1960s had important consequences for the company. Firino-Martell immediately set out to boost the group's presence in the Asian region, establishing through the 1970s a strong distribution network. In this way, Martell positioned itself as a pioneer in the region's cognac market, enabling the company to capture a leading position in markets such as Malaysia, Singapore, Thailand, and Hong Kong. By the 1990s, the group successfully expanded this leadership into the fast-growing mainland China market.

KEY DATES

1715:: Jean Martell, a native of Jersey, Channel Islands, founds a trading house in Cognac, France, and begins sales and exports of cognac.
1815:: The Martell family decides to focus exclusively on cognac, adding its own distillery and vineyards, and adding warehouses and cellars.
1868:: Martell begins developing an international distribution network, including markets in the Far East.
1919:: The ultra-high-end Martell Cordon Bleu label is launched.
1964:: The Jules Robin cognac house and its brandy-producing subsidiary Briand is acquired.
1988:: Seagram acquires Martell; the Augier Robin Briand subsidiary is created.
2002:: Pernod Ricard acquires Martell as part of its acquisition of part of Seagram's drinks portfolio.
2006:: Martell becomes the cornerstone of Pernod Ricard's new luxury products division, Martell Mumm Perrier-Jouët.

Martell sought another means of cementing its brand—in part in reaction to the growing restrictions on alcoholic beverage advertising in the late 1970s and 1980s. In 1984, the company launched its own leather goods line. Martell then expanded that range into the retail sector, launching its first stores in the mid-1980s, including a store in New York City in 1987.

By then, however, Martell was faced with the growing consolidation of the global drinks market. The development of a small number of large-scale groups placed the independent houses under enormous pressure. This became particularly true for Martell as it saw most of its major rivals, including Hennessy and Courvoisier, align themselves with the major drinks groups.

By 1987, Martell had chosen to ally itself with the Seagram group, which bought out the Firino-Martell family's 40 percent share in the company. Martell soon found itself the target of a takeover battle, as Grand Met (later Diageo) attempted to wrest control of the cognac brand. In the end, Seagram acquired full control of Martell. Patrick Firino Martell nonetheless remained with the company through the end of the 1990s.

Following its acquisition by Seagram, Martell was expanded with the addition of Seagram's existing cognac brand, Augier Frères, founded in 1643 and part of Seagram since 1966. Augier was placed under Martell, and merged with its Robin and Briand operations to form a new subsidiary, Augier Robin Briand.

FAST-GROWING COGNAC LEADER IN THE NEW CENTURY

Martell's tenure under Seagram proved disappointing, however. By the early 2000s, the company's sales volume had dropped by more than one-third. The company's market share had slipped dramatically, dropping back from number two cognac brand worldwide to just number four. Described as "dusty," the company's operations had also become overstaffed and inefficient, amassing an enormous surplus.

New life for Martell came in the early 2000s, when Seagram, in the process of merging its media interests with Vivendi to form Vivendi Universal, decided to sell off its drinks portfolio. France's Pernod Ricard teamed up with Diageo to launch a bid worth $7 billion in 2000. Initially, neither group appeared interested in acquiring Martell, announcing that the cognac producer, along with a number of other Seagram brands, was to be placed in a new company to be sold separately. By the time the purchase agreement was completed at the end of 2001, however, Pernod Ricard had agreed to acquire Martell as well.

The decision proved fortuitous for Pernod Ricard. After a somewhat painful restructuring of Martell's operations, the company's cognac sales took off again: The brand achieved impressive year on year sales growth into the mid-2000s, including an 11 percent boost in sales volume in the 2006 year. Martell's strong position in the Asian region, and especially in the fast-growing Chinese market, accounted for a significant part of the group's newfound expansion. At the same time, the U.S. rap/hip hop culture's adoption of cognac as a status-symbol drink of choice also had helped the company recover much of its lost ground in that country. By January 2006, Martell had become a cornerstone of Pernod Ricard's new luxury products division, Martell Mumm Perrier-Jouët. After nearly 300 years, Martell remained one of the world's leading cognac brands in the new century.

PRINCIPAL COMPETITORS

Bourbon; Rémy Cointreau; Société Jas Hennessy and Co.; Moët Hennessy Diageo; SMV Paris; Castel Frères; Rémy Martin and Cie S.A.; Bacardi Martini France.