Is Champagne’s supernova over?

While Bordeaux bounds back from the global financial crisis, thanks largely to Asia, poor old Champagne, once the perennial success story, still feels the bite.

Nevertheless, the prospects for vintages 1996, 1999, 2000 of Dom Pérignon and Krug, and to a lesser extent Salon and Clos des Goisses, look increasingly attractive, writes Geraint Carter, investment analyst at Bordeaux Index.

As the financial markets continue their relentless rebound, and with it the prospects for a record-breaking bonus season grow, one might assume that the Champenois would be rubbing their hands with glee at the prospect of a celebratory holiday season. However, the reality is quite different.

The good denizens of Epernay and their brand chiefs in Paris are in uncharacteristically circumspect mood. As we reported last month, the strength of the fine wine market over the last several months has been driven in large part by Asian markets where the appetite for claret far outstrips that of Champagne.

In contrast, the Champagne houses are struggling to shake off a rather severe hangover induced by a decade-long party. A quick look at some headline figures reveals the extent to which the Champagne market has taken a beating; global Champagne sales are expected to fall as low as 260 million bottles in 2009 from a high of 339m in 2007; LVMH reported H1 sales volumes 35% down on 2008; and, according to Nielsen, the UK on-trade sold 16% less Champagne in the 12 months to September 2009 than the year previously, this despite heavy discounting.

Unsurprisingly this has led to heightened concerns that the ever-expanding reserves may be running out of control. The CIVC, Champagne’s governing body, has estimated that there are some 1.2 billion bottles of Champagne presently warehoused, an all-time record.

More troubling perhaps is the fact that not all of this excess stock can be attributed to the recent fall-off in demand as the Champagne producers have, if anything, created a structural oversupply during the last decade. In this context it is perhaps unsurprising that the CIVC has decreed that the 2009 vintage will see yields reduced by more than 30% on 2008.

This reduction will be combined with tough new limits on the proportion of harvested grapes that are to be held back for future ageing. All told, the restrictions will mean a 40+% reduction in total production, the largest of its type since 1956.

The rather unappealing dynamic of oversupply and falling demand for the mass-market product is, however, intriguingly at variance to that of the prestige Champagnes.

Here we have seen a strong recent rebound in prices of the most popular brands recuperating much of the 25-30% top-to-toe losses sustained towards the end of last year.

Indeed, with the continued strength of the euro, the imminent arrival of the much fêted 2002 vintage, the desperate need for the Champagne houses to protect their margins and a market-wide hunger for anything that appears to represent “value”, then the prospects for available vintages (1996, 1999, 2000) of Dom Pérignon and Krug, and to a lesser extent Salon and Clos des Goisses, look increasingly attractive.

As ever, there are potential flies in the ointment, as the price recovery has been achieved on very low volumes and concerns about the strength of the “real economy” persist. But those that see a time in the near future where optimism will trump pessimism and celebration outweigh despair could do a lot worse than cast their eye over the atypically bashful world of fine Champagne.

Geraint Carter, 12.11.2009