Sparkling Opportunities

As Champagne turns away from deep discounting, alternative – and cheaper – sparkling wines will certainly feel the benefit, says Chris Orr

FOR THE sparkling wine trade in the UK, 2004 has been a pretty good year overall, especially in the off-trade.  Total volume sales went up by 8.1% – significantly higher than other sectors in the alcohol trade which saw a total of 3.2 billion litres sold in 2004.

Total light wine, by comparison, rose only 5.1% overall (MAT GB off-trade to w/e 25.12.04), while Champagne actually lost volume of 2.1% in the offtrade.

Even lager, that perennial overachiever, only rose 6.6%, while FABs, once the darling of the markets, saw 8.8% shaved off their total.  As it stands that leaves sparkling wine with a 4% volume share of the UK wine off-trade, compared to Champagne’s 1% and light wine’s 87%; along with a 4% share of value, compared to Champagne’s 6% and light wine’s 82% share.

Delicious launch

With such high growth figures and yet such a relatively small share of the total wine market, it should come as no surprise that many of those involved in selling sparkling wines believe there is enormous potential for expansion.

This appears to be borne out by the number of new product launches planned for 2005.  For example, fresh from the success of Banrock Station’s Sparkling Shiraz, Hardy’s Crest will be launching a new sparkling Shiraz around the £9.99 mark later this year.

Codorníu has re-thought its entire offering – following a phenomenal growth of 142 in total case sales over 2004 – and plans to launch not only a repackaged and refocused offering this year, but also new products in the £7-£10 range in the off-trade, along with a £20 bottling for the on-trade.

Likewise, Allied Domecq, owner of Lindauer and Mumm Cuvée Napa is also planning to invest heavily in the development of the sector with new product launches in the pipeline.  The list goes on.

"We genuinely believe there is a huge opportunity in the UK market," says Jo Maclean, marketing manager for Codorníu in the UK.  "We’ve done exceptionally well over the last year and have grown consistently since 2002, but when you analyse the market there is tremendous potential for expansion of the UK sparkling wine market."

"There are definitely opportunities out there," says Jacqueline Wilson-Smith, marketing controller for Constellation Brands, owners of Banrock, Hardy’s and a host of other Australian sparkling wines.

"I think Banrock’s Shiraz is pretty much proof of that, but the market as a whole is up for a pretty big boost.  Our projections for sales next year are pretty robust, with a 10% rise in cases moved in the category predicted. It’ll be tough, but we’re pretty sure we’ll realise that figure."

The challenger

So why should the main players in the sector have such high hopes for the future? Well, first, and perhaps most obviously, the Champagne sector is changing. 

Compared to five years ago, shipments of Champagne are not only at an all-time and, importantly, consistent high, but supply is in danger of being  outstripped by demand, as this year’s record sales have confirmed (see this month’s Champagne Report for full details).

And it’s useful to look at the hard data for shipments over the last five years.  In 1999,  32,261,232 sparkling wine bottles were shipped to the UK – the year of the millennium celebrations.  The previous year just 24,247,123 had been shipped, and in 2000 only 20,433,640. 

It doesn’t take a genius to match these figures with the rampant Champagne discounting that occurred in the sector during that period and come up with the conclusion that for many sparkling wines competing with deeply discounted Champagne was going to be a tough challenge.

Hence there was a fairly static period during the first half of the new millennium.  Now, however, the situation has changed. 

In the years 2000, 2001 and 2002, Champagne brands made it exceptionally difficult for sparkling wine producers to maintain a profile in the market by reducing prices to as little as £12 in many cases, sometimes as low as £9.99 – or in the famous offering from Sainsbury’s, even £6.99 for branded Champagne.

But the main Champagne players, with supply short and demand strong, are realising that they are underselling themselves and their product.  Hence both 2003 and 2004 have seen a rise in the value of Champagne shipments as well as volumes.

Essentially, the big brands are pulling back from deep discounting, with £14.99 and £15.99 being more realistic and profitable promotional price points.  This leaves the lower price bracket between £7-£10 a much more feasible market for New and Old World sparklers.  And no one is in a better position to take advantage of this than Cava. 

With a total volume share of 54.6% (ACNielsen figures to 06.09.04), Cava has always been the big daddy of the sparkling market and it grew 12% by volume on 2003.  It is also one of the few consistent growth areas for Spanish wine in the UK off-trade sector at the moment.

But it has always been criticised for the large percentage of cheap ownlabel that goes a significant way towards making up its market share.  Figures from ACNielsen indicate,  however, that this tide may be turning.

Value was up 13% for Cava over 2004 and own-label sales fell by 2%.  Small in percentage terms, but potentially valuable for the big two, Codorníu and Freixenet. 

Value over volume

"We’re finding that the amount of own-label Cava sold in the UK is falling," says Cordorníu’s Maclean.  "And conversely the branded sales are rising.

And from a value point of view, certainly, we are experiencing good growth too.  "Obviously it’s impossible not to be in the market and take part in discounting.  It’s just a reality of dealing with the supermarkets and building volume.

What’s important is building added value through things like competitions, consumer events, advertising etc.  If you don’t build added value, then price is your only selling point and when it comes to price, you’re competing with a broad market," he says.

"I think what would be difficult would be if we were doing lots of promotions but not actually achieving growth in value.  We’re certainly looking to build a ladder of price points, but it’s difficult to jump from £7.99 to £12 or £13.

The consumer needs stepping stones, which we are carefully building one by one."  "The market is buoyant," says Jill Taylor, of Freixenet, the UK’s number one brand in the sparkling wine market. 

"Sparkling wine is accounting for a greater share of consumers’ alcohol spend and more new users are coming to the market. We’d like to to see the price bar raised and are actively offering premium Cava at higher price points.

A good example is our Cordon Negro Vintage Cava which weighs in at around £8.99-£9.99, depending on the retailer."  Freixenet, grew by 3% in volume terms last year (ACNielsen MAT to w/e 04.09.04), which was not as strong as others during the period, but it saw an ressive boost in value terms with a 9% rise during the same period," she says.

Next to Spain and Cava, the second biggest country in terms of sparkling wine in the UK is Italy with 21.7% of the market.  Although Italy saw only marginal growth in 2004, its strongest brand, Martini Asti, saw a boost of 17% in volume terms during the year and a 14% rise in terms of value.  In terms of average price paid, however, Italy comes second to bottom in the top 10, with an average £4.26 paid. 

Meanwhile down under

Australia comes in third place in country terms with 12.4% of volume share during the period – a relative underperformance compared to the country’s dominance in the still wine market where it has more than 24% of total volume share in the country.

However, last year Australia saw a healthy 13% rise in terms of volume and a 10% rise in value terms.  It has the fourth highest annual average category price, pegged at £6.42, just behind Argentina (£7.21), New Zealand (£7.49) and the US (£7.50).

If you compare the average price across the top 10 sparkling wine producing countries exporting to the UK, it’s at the lower price points – the likes of Spain (£4.57), Hungary (£4.84), France (£5.22) and South Africa (£5.26) – that have all seen rises in average category price over the last year.

Meanwhile, the US and Argentina, both at the upper end of the bracket, have seen a reduction in the average price.  Australia has remained at £6.42. 

"We feel there is a lot of potential to expand price points," says Wilson-Smith, "and we are planning to build on the work we’ve done over the last two years – especially with the likes of Banrock’s Sparkling  Shiraz – to take advantage of that potential."

Shake the mantle

The story is very similar for Allied, owners of Lindauer and Mumm.  The latter dominates the US sector of the market, while the New Zealand-based Lindauer brand accounts for almost two-thirds of all the sales of New Zealand sparklers in the UK. "It’s been a great year," says Sally Walmer, marketing controller at Allied Domecq Wines UK.

"I think the real challenge for us now is to educate the consumer into spending more on sparkling wine, and develop the category and its unique offerings.  While there is some cross-over, the person who drinks sparkling wine is very different from the person who drinks Champagne, and I think we have to pay attention to that and market accordingly with our different brands."

Not only is sparkling wine coming into its own right as a category and shaking off the mantle of an "alternative" to Champagne, but also – if the companies have their way – it won’t necessarily be a "cheap" alternative either.