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SPARKLING WINE: All that Sparkles

02 March 2007 By db staff writer

Bubbles are keeping the wine category afloat as consumer appetite for sparkling wine, driven by rosé and New World offerings, continues to grow. Fionnuala Synnott reports

Good news for those depressed by the static still wine market: the sparkling category is growing. In fact, according to ACNielsen, sparkling (excluding Champagne) is the fastest growing wine category and continues to outperform the rest of the market by 12%. The increasing popularity of rosé wine and a number of strong New World brands are largely responsible for driving this growth and have led to an off-trade sparkling wine market worth £241 million.

UK consumers cannot get enough of still rosé wine and this trend has filtered through to the sparkling wine market. The sparkling rosé market has grown by 93% and now accounts for 18% of total fizz sales in multiple grocers (ACNielsen MAT 30.12.2006). It seems that everyone is jumping on the pink bandwagon with an increasing number of producers launching their own rosé. Fosters launched Pink in October of last year. According to Naomi Coles, NPD concept leader for Fosters EMEA, Pink is aimed at “people looking for something that is more accessible, with a more fun and feminine label” and has sold almost 130,000 bottles since it launched. Constellation has also launched two dry sparkling rosé wines from the Yarra Burn and Bay of Fires wineries, largely on the back of the growing popularity of pink Champagne. Clare Griffiths, VP of brands marketing at Constellation Europe, explains, “Rosé Champagne has been growing steadily in popularity since 1996 (+303% in the UK to 2005) and is now seen as fashionable and accessible, particularly among younger consumers. We aimed to capitalise on this growth with the launch of dry sparkling rosés from Yarra Burn in the Yarra Valley and the Bay of Fires winery in Tasmania.”

New World order
Three of the top 15 sparkling brands in the UK off-trade are Australian, with Jacob’s Creek leading the total UK off-trade. Griffiths says, “Spain and Italy are still number one and two in the sparkling wine stakes but Australia’s impressive 23% growth is outstripping that of Spain and Italy (4.2% and 13% respectively) and suggests that it is catching up.” Rather than taking market share from the Old World, New World sparkling wines are driving growth in the category. Coles at Fosters says, “New World sparkling wines are growing faster than Old World wines but, at 55%, Spain still has the lion’s share of the market whereas Australia only has a 16% share.”

According to Adrian Atkinson, wine development director at Pernod Ricard, it is difficult to identify exactly what the drivers for growth in the sparkling wine category are. He says, “Strong, premium-orientated brands and wines from Spain are doing well. But it is not a simple picture. Some styles and countries are proving popular, whereas others are not. For instance, own-label wine in Spain is flat whereas own-label Italian wine is growing 14% year-on-year. There are some losers in the category but this is due to a lack of brand strength and not to an Old World/New World divide.” Phillipa Allenby, senior brand manager for Freixenet says, “The increasing number of promotions and features in the multiples are also driving the growth of the sparkling wine category.”

According to Atkinson, there is enough room in the market for both New World and Old World sparkling wines and market statistics appear to back this up. With a value of £23.6m, Jacob’s Creek leads the total UK off-trade but Old World cava CodornÃu is first in multiple grocers (ACNielsen MAT 30.12.2006) and is second in volume and value in the total off-trade. According to Lynn Murray, marketing director at Hatch Mansfield (which distributes Grant Burge Wines and Domaine Carneros sparkling wines), Old World and New World sparkling wines appeal to slightly different consumers, “Cava has a more traditional consumer base whereas New World wines bring new consumers into the category with very good quality wines, clever marketing and packaging.”

Branded wines are also adding value to the sparkling category and account for over 50% of sales in the UK off-trade with brand extensions of still wines such as Campo Viejo proving popular with UK consumers. The Spanish brand, which has recently launched a rosé wine, is worth £1.8m in the UK off-trade. According to Lisa McGovern, business development manager, UK & Ireland, Graham Beck Wines, consumers are reassured by a strong still parent brand. She says, “The brand provides additional awareness and endorsement.”

Not a penny less

Getting the price right is crucial for growing the sparkling category but the deep discounting taking place in the Champagne aisles could be the glass ceiling that stops sparkling wine producers from raising their prices. However, it appears that consumers are not choosing a discounted Champagne over a bottle of sparkling wine. Hatch Mansfield’s Murray feels that promotions are not driving growth in either categories. “I don’t think that promotional activity in Champagne limits the pricing of sparkling wines. After all, there are also a lot of cava promotions.” In fact, some feel that ongoing promotions have led the cava category to become devalued. But, Freixenet’s Allenby disagrees, “Rather than devalue the cava category in the UK, ongoing promotional activity has introduced new consumers to the category and offered fantastic value for money to existing consumers.” However, Jo Maclean, marketing manager at CodornÃu, would like to see UK consumers value cava more. The Spanish brand is moving to a £6.99 entry-level price point and plans to introduce a £10 plus wine. She says, “Spanish consumers think nothing of spending €20-30 on a top cava. I would like to see the same happen in the UK but, at the moment, people don’t understand the difference between cava, sparkling wine or Champagne. We are working to educate the consumer about cava.”

Maclean is more concerned about the price pressure in the UK market than the pricing in the Champagne category. She says, “Sparkling wine has a more realistic and accessible price ladder than Champagne but the demand on price in the UK is a big worry.” According to Coles, New World sparkling wines are trying to differentiate themselves by targeting the middle ground between own-label cava and the more aspirational Champagnes. She explains, “Most Australian sparkling wine is priced at £5-£7 while the Spanish average varies from £3 to £6. Cava has a 43% share of the sparkling wine market (including Champagne) but only 23% of the value market.”

McGovern thinks that both Champagne and sparkling wine can thrive simultaneously in the market. She says, “While Champagne trades on exclusivity, heritage, and a unique geographic location, sparkling wine is accessible, inclusive and of no fixed address.” She believes that although Champagne continues to dominate the value sector of the market, other sparkling wines, such as Nyetimber, can achieve Champagne’s premiums. “Quality denoted by award success can impact on the market and enable sparkling wine to compete with Champagne,” adds McGovern.

In fact, some premium sparkling brands appear to have problems meeting demand. English wines such as Chapel Down and Nyetimber (see box, page 42) are having to increase production to meet rising demand. A number of sparkling wines associated with Champagne houses such as Mumm Cuvée Napa and MoÃ«t Hennessy’s Green Point are also priced at a premium. Maisons, Marques et Domaines distributes Louis Roederer’s Quartet sparkling wine, which sells for £17.99 at Majestic. Brand manager Jackie Brown, explains, “Quartet is not a standard New World sparkling offering as it is in an unusual price bracket. But the wine does need hand-selling at that price point. We do not go in for heavy discounting. This said, we have to take other producers’ promotions into account when dealing with the national accounts.”

Constellation’s Griffiths thinks that promotions in the Champagne category could be driving the growth of sparkling wine. She says, “It could be suggested that price promotion in the Champagne sector has made many savvy consumers turn to good value sparkling wines rather than Champagne on promotion.” Although consumption of Champagne is still occasion-based for most people, there is an overlap between consumers who drink premium sparkling wine and Champagne. But, according to Atkinson, this is not necessarily detrimental to either party.

He comments, “Some consumers drink Mumm, Veuve Clicquot, Perriet-JouÃ«t and Lindauer. The average price of sparkling wine is shifting up year on year and Champagne prices will continue to move up.”

On-trade opportunity

On the whole, most consumers choose to drink Champagne instead of sparkling wine when they are out, particularly when buying by the glass. Brown says, “According to the latest economic forecasts, consumer spending is set to fall. People are prepared to compromise by not buying Champagne but they still want to drink sparkling wine.” Fosters’ Coles says, “Although young professionals are likely to continue ordering Champagne in a bar, consumers with families are likely to be on a tighter budget and will only splash out on Champagne for a special occasion such as a birthday or a wedding.” Sparkling wine producers have spotted this gap in the market and are either trying to obtain by-the-glass listings or are introducing fractional bottles to their on-trade offer. Atkinson says, “Our fractional bottles of Jacob’s Creek and Lindauer are doing well in the on-trade.”

English wine producer Chapel Down has a significant on-trade presence. Frazer Thompson, CEO of English Wines Group, says, “We don’t have the volume to enter the multiple channels – our chosen channel is the on-trade.” Chapel Down wines are listed at a number of restaurants and hotels including Gordon Ramsay, The Savoy and Malmaison.

Meanwhile, Nyetimber has decided to follow the strategy employed by successful Champagne houses and is connecting itself with high-profile venues and events. CEO Eric Heerema explains, “Champagne is still better known among consumers. At the moment, there are hardly any places where Nyetimber is sold by the glass but we plan to change this so that consumers can familiarise themselves with the wine.”

There are still plenty of opportunities for growth in the sparkling wine category. Apart from the untapped potential of the on-trade, it appears that there are opportunities for premium sparkling wines priced between £8 and £12 as well as still wine brand extensions.

But, with the UK consumer’s appetite for rosé wine proving insatiable, pink is still the biggest opportunity in the sparkling category. According to Atkinson, the trend for all things pink is here to stay. He says, “The rosé phenomenon has been happening for some time – it is not just a fad.”

Bubbling Britannia
English sparkling wine is also growing in popularity and producers such as Nyetimber and Chapel Down are finding that demand far exceeds supply. Frazer Thompson, CEO of English Wines Group, producers of Chapel Down, says, “English wine production has improved but, more importantly, the improvement has been acknowledged with English wines winning awards over the past three or four years. Press coverage has also stimulated latent consumer interest.” Eric Heerema, CEO of Nyetimber, agrees and says, “English wines are winning major awards at international level proving that the English can produce world-class sparkling wines. Now, people want to try them for themselves.”

Both Nyetimber and Chapel Down are working to increase production. There has been a change in strategy at Nyetimber following Heerema’s takeover of the winery last year. He explains, “Nyetimber used to be cashflow-driven but we want to build a long-term brand.” Heerema has embarked on a long-term investment programme planting 142 acres last May, with plans to plant a further 70 acres this year. He says, “Production is expected to rise from 60,000 bottles to 500,000 bottles per year. This is the same level of production as a small to medium Champagne house.”

Thompson says, “We have made an economic virtue of the rarity of what we are doing. Our prices have risen in keeping with demand but it will take some years before we can satisfy demand with supply. The issue is whether we can sustain consumer demand/interest while filling the supply pipeline. Producing more wine requires a significant investment.” Unlike Nyetimber, English Wines – which produces 250,000 bottles a year – has taken a more phased approach to expanding its production capacity. Frazer explains, “We are adding steadily to our production and have increased our acreage under contract from 180 acres to 350 acres. Our wines will come to vintage at different times so we will be able to release the wines in an economic fashion. We are a public quoted company and want to grow in a structured way.” The company has also switched from using German varietals to traditional Champagne varietals. Frazer explains, “In 2004, we asked our suppliers to grub up and plant Pinot Noir and Chardonnay as a Pinot reserve is more likely to win awards than a wine made from German varietals.”