CHAMPAGNE – OVERVIEW: No burst to the bubbles

Champagne raises the bar yet again as higher yields provide a comfort zone for further growth. Pat Straker reports

Despite some alarmist reports in the British national press during the August “silly season”, to the contrary, there is no crisis in Champagne at the current time and the UK market will continue to be sufficiently supplied in the foreseeable future. Although

a report in The Times on August 13 hinted at the probability of the UK being sidelined in favour of the new emerging markets of Russia, China and India, the Champagne region continues to walk a highly delicate path between supplying the current global demand for its highly prized product and controlling the quality production of the Champagne appellation. Luckily, the region has been able to harvest four plentiful crops in a row, although this year’s vintage has tested to the limit the will of many farmers in the region.

A year to remember
To say the least, the current harvest in Champagne has not been easy and it has reflected the extraordinary climatic conditions experienced in northern Europe so far this year. A mild winter was followed by a burst of summer weather throughout April and early May, only to be followed by the wettest June and July on record. With the sun returning sporadically in early August, only to be followed by a week of non-stop rain from August 15, the vintage began in earnest on Monday 27 August – one of the earliest ever dates in living memory – as the skies cleared and the dry and sunny conditions returned to the region. Surprisingly, rot was confined to a minimum (around 5% of the crop) and yet another large crop was eventually safely gathered, giving the Champagne trade much needed grapes to secure its future.

Raising the yields
The key to the adjustment of producing enough quality wine within the Champagne appellation in the last seven years to cope with rising world demand for Champagne, has been in raising the yield rather than extending the area, since the current appellation area in production is just 32,378 hectares, and delimited area is set at 34,000 ha. A look at the increased permitted yields within the Champagne area since the beginning of the new millennium shows exactly how effective this policy of securing more prime material has been, thanks to better vineyard management, a more benign climate – attributed to global warming – and a strong industry approach to the Institute of Appellation d’Origine (INAO) and the Ministry of Agriculture for the official raising of the production limits. Infact, such has been the size of recent harvests in Champagne (2003 being the only disappointment) that trade fears of being able to cope with world demand for upwards of 320 million bottles have been eased – at least for the time being. A look at the recent rendements will show why.

Weights and measures
In the year 2001, for example, the maximum permitted yield for Champagne was set at 11,000 kilos of grapes per hectare, of which 10,400 kilos were permitted to be used by the trade for making into Champagne (the rest being put aside as reserve stock). In 2002 the maximum yield was set at 12,000 kilos of which 10,400 kilos were used immediately and the rest put into reserve. 2003 was a short vintage due to drought conditions and 2004 was granted a special rendement of 14,000 kilos. In 2005 and 2006 the limit was set at 13,000 kilos while the new permitted yield for the current 2007 harvest in Champagne has been increased to a maximum of 15,500 kilos of grapes per ha (well in excess of 400m bottles) of which 12,400 kilos are immediately available for Champagne production. While this maximum yield will probably not quite be realised in the current vintage (final figures have not yet been released), it is evident that a substantial reserve stock will be available to the trade. So it is quite understandable how the stock position in Champagne has been dramatically improved through the introduction of these higher permitted yields.

Comfort zone

Translated into actual bottles, it has meant that in the spring of this year the industry had sufficient wine in the cellars to put 360m bottles into the Champagne system and that the projected tirage for next spring is no less than 400m bottles (thanks to the release of certain reserve stocks which have already been approved). Thus it is obvious that a comfort zone currently exists in the Champagne industry – at least for the next three years. As the figures below will show, stocks and supply are more than adequate to cover the impressive progress of Champagne sales at the current rate.

At the very moment before this year’s harvest, the total stock of bottles lying in the cellars of Champagne was a massive 1,060 billion bottles, covering 12 month sales to the end of July of 328m bottles. This means that, currently, the ratio of overall stocks of Champagne to annual sales is 3.23 years. With the increase in annual sales of Champagne expected to be between 2% and 3% in the current year, the estimation is that stocks at the start of next year’s harvest will be around 1,130m bottles. This would be a ratio of almost 3.4 years to cover expected maximum sales of 333m bottles in the current year.

Global peak?

All this planning to provide such a healthy stock position takes the assumption that global demand will continue to be buoyant. So far this year the indications are very positive and shipment figures for the first half of this year show that overall sales are moving ahead by a little more than 2%, which would mean that shipments will probably top the 330m bottle mark by the end of December. Of course, shipment figures from the cellars of Epernay and Reims are not always an accurate indication of consumption, as was the case in the catastrophic years leading up the millennium party that never was. Then it took two full years before surplus stock was cleared. Today, this does not appear to be the case. But there is a feeling of uncertainty in trade minds about how consumers will react to the higher prices on the shelves that will be generally introduced this autumn following price increases levied by most Champagne producers earlier this year.

Consumer spending is certainly less conspicuous in most mature markets for Champagne (France, UK, USA, Germany and other leading European markets), and it must be remembered that they make up 85% of total Champagne sales. The line between “just affordable” and “too expensive” is wafer-thin and price sensitivity for the consumer is likely to become more acute as the winter months approach. Having said that, the very wide spread of Champagne demand in these large mature markets and the diversity of different brands and styles on offer will help to cushion the effect of higher prices in the shops.

Style trends take root

The most satisfying progression in the Champagne business since the dawn of the new century, particularly in the UK market, is the genuine success of different styles of Champagne and the acceptance of smaller individual niche brands. Of course, brand loyalty is still very strong, but regular consumers are now more prepared to experiment within the Champagne spectrum. Zero dosage Champagnes, blanc de blancs, demi-sec and, of course, rosé Champagnes have created new interest over these past years – and in the case of rosé it is no longer a fashion but a definite style that is now very much part of the Champagne offer.

It is these newly accepted styles of Champagne that have added value to the category and created a lively modern image for Champagne – unlike so many of France’s other appellation areas. The fact that young consumers in many countries are totally unattracted by the offer of most French AOC wines, the success of Champagne is all the more surprising. Bordeaux, for example, would give its back teeth to have the sort of supply problems that Champagne has. The lack of visible brands in the market and the lack of excitement in the claret sector (except for the en primeur demand for the chosen few) is probably why young consumers are turning their attention to the more market oriented approach of New World brands.

Market matters
While statistics show that the big percentage increases for Champagne (which grab the interest of the national press from time to time) are in the newer and less mature markets such as Brazil, India, China and Russia, the volume results are quite tiny in comparison. These four markets – all enjoying double digit growth right now – still only account for 2m bottles in total, which represents just 0.6% of all Champagne shipments. This compares with the amazing increase in the UK market since the beginning of the 21st century where Champagne demand has risen from 20m bottles to almost 37m bottles just seven years later. Traditionally Champagne’s number one international market, the UK used to have to struggle to maintain its leading position, fighting off the challenge from the USA and Germany less than 15 years ago.

A decade ago, the UK accounted for one out of every five bottles of Champagne shipped out of France (21% share of all exports). The latest figures show that, in 2007, the UK’s market share is now more than 26%, meaning that one out of every four bottles of Champagne shipped out of France comes to our shores. However, it will be surprising if the UK will maintain this same percentage share of the Champagne market in ten years time. 

© db October 2007