Bubblemania

The Champenois are seeing steady growth, but the latest harvest has put supply issues sharply into focus. Michael Edwards reports from Epernay

DESPITE A GENERAL coolness in international business and almost daily reminders that the world is not a safe place, the Champagne market in Britain continues to grow.  The current resilience of the market stems from the boom times of the late 1990s when a host of new customers discovered the Champagne habit.

"There’s been a big role change for Champagne from being the wine for a special occasion to becoming the wine making the occasion special," says John West, managing director of Veuve Clicquot UK.

"When people go to a dinner party," he continues, "instead of being asked do you want red or white, they’re often asked would you like a glass of Champagne? It is now seen as a normal purchase, not just an aperitif, as a wine that can be drunk right through a meal."

The perception that there is a diversity of styles, allowing one to select good fizz for dishes as different as veal chops and raspberries and cream, has certainly triggered a revival in rosé and demi-sec cuvées.

A close look at Champagne’s performance so far this year is cause for both satisfaction and vigilance.  From January to May this year, 11 million bottles were shipped to the UK compared with 9.5 million in 2002, an increase of 16%.

However, the MAT (Nielsen) forecast for 2003 is a relatively modest 33 million bottles, up just 5% from 2002’s total shipment figures.  Though the off-trade is still a positive and healthy market, it is clear that growth has slowed down.  UK Champagne agents are not short of opinions why.

Vincent Gillet, senior brand manager at Moët & Chandon, thinks that this is due to less price promotional support than in 2002. Many brands are now looking at "value strategy" with a price rather than volume increase.

As the market leader, Moët was the first to put up its price for Brut Imperial nonvintage after the devastating 2003 spring frosts in the Marne.  This now looks a very shrewd move in light of further freak weather conditions this summer, a very small crop and a muchstrengthened euro.

Yet Moët’s acute awareness of the need to protect and project Champagne’s image as a luxury product will also be realised this month (October) with the re-release of  some of its old vintages – 1961, ‘73, ‘82 and ‘88 – positioned in a realistic £35 to £80 per bottle price range.

These look something of a bargain in admittedly small quantities, but all part of a grand strategy to offer the customer added interest and value.  Mark Wallace, Mumm’s manager at Allied Domecq, believes that the slowing in growth is explained by fewer big deals with supermarkets.

"There’s an increasing reluctance among the big Champagne houses to be involved in heavy discounting," he says. But he can be well pleased with Mumm’s UK performance so far this year; the brand overall has increased by 24% in volume and 25% in value. For Wallace, corporate and function business is much better.

"I detect a bit of conspicuous consumption out there. It’s as though the customer is saying the world’s a dangerous place, so I’m going to enjoy life while I can and I’m not going to indulge my pleasure with something ordinary, but in good Champagne."

Peter Ferguson, vice-president of Marne Champagne Diffusion, reports: "At Lanson we’re up on last year but there have been some big changes in the retail trade which may explain the easing of growth. In particular the multiple specialist chains have faced the onslaught of overwhelming competition from the multiple grocers and three leading specialist chains have seen new owners or radical restructuring.

The main effect of Castel’s takeover of Oddbins was that initially all buying of Champagne had to go through France.  For a while we had no contact with Oddbins, but recently trading has reconnected with the British market.

At Unwins they’re redefining what they’ll be; there’s talk of a complete change from being multiple specialists to becoming convenience stores.  While Threshers is on record as saying that in future 70% of their wines will be own-label. Which invariably means less shelfspace and fiercer competition for what room is left for independent brands, including Champagnes."

A bright new prospect for Lanson this year has been the development of trade with British soccer clubs.  Lanson’s president, Monsieur Mora, is a great football fan who made sure that Lanson was the official Champagne when France hosted the World Cup. Mora is also a close friend of Gerard Houllier, Lanson now being the house Champagne at both Liverpool and Fulham FC.   "Football long ago lost its cloth-cap image," comments Ferguson.

"The opportunity for corporate entertaining in the directors’ dining-room at these clubs is immense."  It must also offer a wholly new Champagne market in the sports arena, very different from the traditional hoofing ground of Ascot, Newmarket and Goodwood.

Although there are never reliable figures for the on-trade beyond the colourfully anecdotal, the signs are that this sector is at least as buoyant as the off-trade for Champagne.

Occupancy in hotels has risen since June, though August is said to have been very quiet in London owing perhaps to a combination of the intense heat and the renewed bad news of soldiers and diplomats being killed in Iraq.

Billecart-Salmon is one quite small but highly regarded grande marque that has reaped the benefits of quietly focusing on the top end of the restaurant trade since the early  1990s.

Colin Palmer, Mr Billecart in England, reports that his on-trade growth in 2003 is into double digits and his portfolio exceeds 40 prestigious accounts, several of which have remained extremely loyal to the brand.

Amazingly, the fashionable and excellent River Café at Thames Wharf in London has stocked Billecart Brut Réserve as the pouring Champagne for nine years without a break. "We’ll continue to do so, as we love the wine," says buyer Ozzy Gray.

In the prestige cuvée market, Edward Penny, brand manager of Dom Pérignon, is planning a series of autumn on-trade seminars with Richard Bampford MW for 20 leading establishments based on a new release from Moët’s sonorously titled Oenotheque Dépositaire (wine library, to you and me).

"Showing Dom Pérignon classics from ‘59 and ‘62 through to the ‘88 gives us a chance to talk to the serious Champagne drinkers," comments Penny. Not specified as on- or off-trade, DP’s sales, at a very conservative estimate, also show most encouraging double-digit growth.

As a major supplier to hotels and restaurants, David Hesketh, managing director of Laurent-Perrier UK, comments that for the period April to August (2003) the on-trade has been fairly strong.

"It’s hard work but satisfying that we’re slightly up on last year. However, I do think that confidence is fragile.  It would only take a rise in interest rates or a terrorist atrocity to change the market completely."

Hesketh also shows a measured realism when the talk turns to the big twin issue of the moment for the Champagne trade – discounting and profitability. "Let’s be realistic, we all need to promote our product but we have to adopt a more sustainable stance. Offering three bottles for the price of two is not the right way. 

Retailers need to think of more imaginative ways of promoting a ‘known value product’ like Champagne."  Pol Roger also looks on heavy discounting as bad news.  In the words of James Samson, UK marketing manager:  "In the longterm it erodes the category value and it’s terrible from a trade perspective; loss of margins, damage to the brand’s image and, in the customer’s mind, confusion about the wine’s real worth.

It came to a farcical point this summer when a bottle of bubbly was being offered at the same price as a six-pack of John Smith’s! So we are very reluctant to follow the lemmings over the cliff."

While Pol Roger reports the sales of White Foil non-vintage up 21%, the more profitable Vintage Champagne market, the firm’s traditional forte, has been very quiet.  Such commercial concerns on this side of the Channel have been thrown into sharper focus by the triple whammy of frost, hail and heat in the vineyards.

With picking starting three or even four weeks early (August 21 to 25), it is now certain that the 2003 Champagne crop will be very small with minimal amounts of Chardonnay in particular.

The unique Champenois system of the qualitative reserve, in which wines are put aside each year to compensate for deficient harvests in the future, has been a godsend this year and has certainly prevented an economic disaster.

However, even with the qualitative reserve fully used, a simple bit of arithmetic shows that with a projected total production this year of 260m bottles, there will be a shortfall of at least 25m bottles compared with an average year’s production of 285m.

The shortfall could be even bigger, given the most recent news from the Aube that, due to infernal temperatures there in rainless August, the expected yields will be reduced from 9,000 to 6,000hl/ha.

Furthermore, if the 2004 harvest in Champagne is also small – a distinct possibility given the dramatic changes in 21st century weather patterns – there could be a real crisis of supply next year.

A few British Champagne agents talk lightly of this being a problem for them two or three years down the line, but it may be sooner than they think as all these factors are bound to have an impact on prices.

They already are. The current round of price negotiations between Champagne’s négociants and growers is predicted to show an increase in the prix indicatif for grapes this autumn.

And according to Jean-Marc Pottiez, DG of Champagne Jacquart: "The shortfall in grapes will probably lead to a stepby- step price rise in the premiers prix spot-market; the average price of a bottle of Champagne rising above €10 in France and €12 on export markets.

The knock-on effect could be a reduction in demand with two possible consequences – the consumer leaves Champagne for other sparkling wines or goes to brands like Feuillatte and Jacquart since the price differential between them and premiers prix Champagnes will be small," he argues.  Yet Pottiez is aware of the dangers here.

"There’s an old marketing adage that ‘the elasticity of prices for a brand always has its limits’. While we are not yet at US demarcation levels where you are in a completely different market at US$9.99 than you would be at US$7.99 a bottle, we have to be very careful to avoid blurring the image between Champagne and other sparkling wines.

Killing the brand hurts the retailer as much as the producer since the consumer thinks that if the retailer can afford to discount the brand by such big amounts, he must be making a lot of money."

Grandes marques of course take a longer term, less reactive view of price movements than the fighting brands do, but the Champagne trade should surely speak as one in saying loud and clear that crude, continuous discounting of its brands is ultimately self-defeating.

If anyone has any doubt about this, look no further than the Australian sparkling wine market in Britain or the Champagne trade in Germany.  Both are in intensive care after the onslaught of price slashing.

As Mark Wallace puts it, "Champagne houses really have to address their profitability as there are now fewer bottles to sell.  It’s a golden opportunity."