Champagne report 2014: Seizing the initiative

Champagne faces genuine pressure from rising costs, the popularity of sparkling wines and sur latte trading but Project 2030 aims to rectify the situation by reaffirming the image and quality of the region.

This time last year, in the pages of our 2013 Champagne Report, we became the first drinks publication to announce a major new initiative in Champagne. Called Project 2030, it had been launched locally in December 2012, and was instigated to improve the long-term health of the region.

At that time, then president of the Union des Maisons de Champagne, Ghislain de Montgolfier, told the drinks business that the project would see the growers and houses “improve Champagne together”, having set “communal targets”. He added that they planned to “protect the image of Champagne” both by “increasing the knowledge of the product as well as the quality”. It was powerful rhetoric, but back then, Montgolfier was unwilling to be drawn on the detail of how such aims might be achieved. Now, however, one year on, and following an interview with the two leaders of Project 2030, new UMC head Jean-Marie Barillère and Pascal Férat, head of Champagne’s Syndicat Général des Vignerons, it’s clearer how the plan intends to improve Champagne for all involved in the region.

As for why it’s necessary, that too is more evident. Indeed, before considering what the initiative hopes to achieve, it’s important to ponder why Champagne has instigated such a project, and for that, one has to consider the emerging power of Champagne’s competitors: sparkling wines from outside the famous region.

Not only has the number of traditional method sparklers from around the world increased significantly in the last few years, but so too has their quality. Competitors of note come from Australia, New Zealand, the US, South Africa and South America, as well as England, and Italy, with its strictly controlled Franciacorta DOCG.

Then there’s the tank method sparkling success story that is Prosecco, which, while undoubtedly a very different product, has enticed a significant number of potential Champagne consumers in the important UK and US markets. Aware of the quality progression among its competitors, and booming Prosecco business, Champagne has decided to consider further measures to make sure its output is better than sparkling wines from other parts of the world, as well as set about communicating Champagne’s superior attributes.

Outlining the threat to Champagne is Andrew Hawes, managing director of Mentzendorff, importer of Bollinger in the UK, the largest export market for the famous brand, but also the region. In this key market for Champagne, he states: “The strongest trend is the growth in sparkling wine.” Figures reveal that in the past year volume sales of sparkling wine in the UK off-trade rose by 8%, while Champagne sales decreased by 2% (Nielsen, MAT 04.01.14) (see chart, page 6). It’s a similar story in the on-trade too: although Champagne is slightly up 2.4% in volume, sparkling wine has grown over 10% (CGA, MAT 28.12.13) (see box, page 8).

Strong competition

While the economic environment in the UK might favour a temporary shift from Champagne to cheaper sparkling alternatives, Hawes is concerned that drinkers might not come back to Champagne when times are better. Looking back to the recession of the early ‘90s in the UK, he says that there was “a boost in sales of Australian sparkling”.

However, he remarked: “after that recession, people traded back up to Champagne.” Now he says: “While there appears to be an economic upswing [in the UK], there are also more quality alternatives, so Champagne shouldn’t take it for granted that the past will repeat itself.” What does he propose? “Sparkling wine is a real trend; it’s here, it’s massive, and we need to accept that and look for the positives. It’s a massive opportunity for Champagne, an opportunity to communicate to the new consumer what’s so special about Champagne.”

But Project 2030 is not just a question of ensuring Champagne’s output is superior to the competition, and promoting the region’s quality credentials. In fact, there’s a third reason for instigating the initiative, and that’s a threat from within Champagne. This comes from the supply of inexpensive bottles to major retailers where they are sold at very low, even below-cost prices under buyers’ own brands or exclusive labels, damaging the upmarket image of the appellation. For example, Fabrice Rosset, chairman and CEO at Champagne Deutz records Champagne on sale in France last year for the equivalent of E7.78 a bottle.

Although selling alcoholic drinks below cost is against the law in France, retailers circumvent legislation using coupons to reduce the cost of groceries bought in a store along with any booze.

Such a technique was used in 2012 too, allowing retailer Leclerc to sell Champagne in a half price loyalty card deal which allowed shoppers to effectively buy a bottle for E5.45. While E10.90 would buy them a bottle of Champagne, they received a E5.45 voucher to spend on food in-store the following day. The Champagne for this offer, the Laurence D label, was supplied by Nicolas Dubois of Pressoirs de France, which was declared bankrupt later that same year, before being bailed out in August 2013 by Michel Reybier, a Swiss-based French businessman, and owner of Bordeaux second growth Château Cos d’Estournel. Furthermore, because such low-priced deals are commonly fuelled by sur latte trading, these inexpensive labels may have multiple sources, and as a result, a single label may contain wine of different quality.

Taking action

Due to this, not only is the image of the region affected by the low price, and inconsistent character of the product, but also, potentially, a lack of transparency: the consumer isn’t always told who actually made the wine, or bottled the Champagne. Consequently, Project 2030 is primarily a response to three major challenges: a desire to distance Champagne from the increasing number of high quality sparkling wines; a need to advance the understanding of Champagne’s key attributes, and an attempt to eliminate the damaging effect of sur latte trading. So how will the initiative tackle such issues? It should be noted that nothing definite has yet been agreed, but proposals abound.

As a result, firstly, regarding the issue of quality, Project 2030 hopes to address this through tougher regulations. And it appears that the focus will be on winemaking. Rosset at Deutz says that new rules should raise the length of time the wine ages on its lees, up from 15 months to 18, but he also suggests more heavily regulating the pressing process. He states: “We need to take decisions to bring better quality, for example, by changing the amount of juice we can extract from a tonne of grapes.” He continues: “If we were to go from 160kg o 170kg of grapes for 1hl (of must), then there would be better juice across the whole appellation, and it would have a significant impact on quality.”

For Charles Philipponnat, president of Champagne Philipponnat, the emphasis should be on tightening up viticultural rules. “Thirty years ago the CIVC (Le Comité Interprofessionnel du vin de Champagne) guidelines for viticulture were the strictest in the world but they haven’t changed, so we are no longer ahead of others.” Similarly, Cecile Bonnefond, president of Champagnes Piper-Heidsieck and Charles Heidsieck, would like to see a focus on improving the quality of the region’s raw material: the grapes. “Changes need to be made: the houses need to run the image part, and the wine growers need to move up the excellence of the grapes,” she says, adding, “We don’t want OK grapes, we only want top grapes, and with the price we pay for grapes today, it is fair that everyone be on top of excellence.”

A further aspect to the advance of quality in the region centres on protecting the long term viticultural health of Champagne’s vineyards. UMC president, and director of Champagne resources at Moët Hennessy, Jean-Marie Barillère says “a new acceleration of sustainable viticulture” is “one example” of Project 2030’s missions, because, he says: “We need to think of the quality of the grapes and respect for the terroir.” Already, the CIVC has pushed more ecologically sound approaches, assisting growers in the preservation of biodiversity, reduction of harmful inputs, and control of waste. Summing up this aspect to Project 2030, Barillère comments: “There is a lot of discussion about how to increase the quality of the grapes, and the quality of the juice, and the length of ageing.”

Hard sell

But what about the issue of marketing: promoting what makes Champagne inimitable? This too will be key to the project, although deciding which attributes to communicate is yet to be decided. “There are times when it is not the same to have sparkling wine, and the reasons for that we need to promote: what makes Champagne different and superior, what makes it unique,” says Bonnefond.

Hawes at Menzendorff agrees, and believes Champagne should articulate its regional distinction. “Champagne doesn’t speak enough about where it is,” he says, explaining that the region should stress the fact it’s a designated area with strict quality controls. It’s a view echoed by Pol Roger managing director Laurent d’Harcourt who says, “It’s very important that we protect and promote the specificity of Champagne.” He then jokes, “And what’s specific about Champagne? We have bad soil and bad weather, which are very difficult to imitate.”

Aside from site specifics, a further differentiating aspect to Champagne is the widespread use of reserve wines, which, due to the time and investment necessary for their creation, mean they are far less commonly employed in the production of sparkling wines from outside Champagne. Furthermore, the use of reserve wines is key to the development of a house style in Champagne: the consistency of a brand’s brut NV is dependent on the blending of a base vintage with stock from previous harvests. Hawes says: “The role of reserve wines is massively important… You couldn’t say there is a consistent Bollinger NV taste without them; the wines would vary every vintage.”

Then, in terms of the Prosecco threat, it’s felt that Champagne should tell consumers about how it’s made using a secondary fermentation in the bottle. “Champagne should articulate that every bottle goes through the Champagne method; it should communicate the fact that 300 million bottles are essentially hand made,” says Hawes, adding, “Champagne has fantastic assets as a region and a generic brand… the industry should do more to communicate what makes Champagne so special.”
UMC president Barillère too stresses the need to address the issue of promoting the region’s characteristics, and says, “We want to enhance the perception of Champagne around the world, and we are just thinking which are the main points we want to communicate, and where,” before stating, “this is critical.”

The third and final aspect to Project 2030 is perhaps the most controversial and hard to control: attempting to eliminate the supply of extremely low-priced stock, above all Champagne sold sur latte to supermarkets. As Charles Phillipponnat says: “Anything that can play down vins sur lattes and the uncontrolled internal market of Champagne is a good thing.”

In essence, Project 2030, along with its aforementioned aims to raise quality and enhance marketing, wants to ensure the finite supply of grapes from the delimited appellation goes towards “enhancing the value of Champagne”. Phillipponnat asks: “Why are we selling Champagne generically when ambitious brands are lacking grapes?” He adds: “There is something wrong, the grapes are not going into the right hands.”

Price of success

Nevertheless, change is already occurring to reduce the supply of cheap, generic Champagne, and this is due to market forces. With the price of grapes at its highest level ever (see box, right), it is now extremely compelling for growers to sell their raw material to the houses, and earn a guaranteed (and good) yearly income, rather than making wine and bottling Champagnes themselves, particularly if they don’t have a confirmed buyer for their produce.

“Growers have never sold such a high proportion of grapes to the negociants, and at such a high price,” records Phillipponnat, noting that in 1990, 41% of growers’ grapes were sold to the houses, and in 2012 it was 58%, up from 55% the year before. “This move is extremely positive: the growers are getting more money and the negoces are getting more grapes,” he adds. Indeed, it’s a situation that prompts Barillère to comment, “Today more than ever before the relationship between the growers and the houses is very professional, and it has to be as tight as possible with a clear objective: the sharing of the value between the growers and the negoces.” For this of course, the houses must continue to increase the shelf prices of Champagne in order to pay for the increasingly costly grapes.

However, there are still people in the region who are supplying low-priced Champagne to the market, evident in the very cheap labels seen in UK and French supermarkets in the run up to Christmas. Much of such stock is sourced sur latte, disgorged, labelled and then immediately sold on in large quantities at low margins to major retailers. Rosset reports that the Champagne could be consumed just 10 days after disgorgement, in some cases.

New laws

As a result, one measure proposed by the houses, and being considered as part of Project 2030, is a rule to enforce a three-month maturation period post-disgorgement. This would give the Champagne the chance to fully absorb and integrate the dosage, but also, importantly, hinder the speculative buying and selling of Champagne sur latte. Another approach however, is to alter the labelling rules for Champagne. Currently, the label must feature the person who disgorged the Champagne, but new proposals being considered would insist that the bottle should also bear the winemaker’s name.

This would not stop the creation of buyers’ own brands or exclusive labels, but increase the transparency and traceability of Champagne. As Phillipponnat stated in last year’s report, “You should say if a Champagne was made by, bottled by and disgorged by the same entity, or if not, who made it, who bottled it, and who disgorged it.” Under no illusion that this will prevent sur latte trading, this year he adds, “Nothing will stop it, but it will help differentiate quality Champagne makers, as well as stop serious brands buying sur latte.”

Barillère adds: “A key point on the table for 2030 is a change to things inside the business – that is the trading of vins sur lattes and vins clairs. We are looking at how to give authenticity to the consumer, but at the same time give growers some flexibility to manage their finances.”

Meanwhile, Bonnefond is confident of imminent change on this issue. “We will find a way to end trading sur latte and that will come quickly, we are near the end and that is good news.”

Taking all three aspects of Project 2030 together – increasing quality, improving Champagne’s image, and preventing sur lattes trading, the entire plan has been devised to do one thing: increase the region’s profitability. And one can see why. Although the region is approaching a production limit of 370m bottles (based on an average yield of 12,400kg/ha), margins for many houses are declining. Indeed, figures show that between 1971 and 2011, the volume of Champagne produced has increased by 28%, but the value has only risen by 4%.

In particular, the average price for a bottle of Champagne has remained almost stable during the last four years, while grape prices have consistently increased. As Bonnefond points out, “One in 10 sparkling wines is called Champagne: we need to ask how do we keep the distance and increase it again, because we won’t compete on volumes.” Bonnefond then sums up: “I think the key will be how we move from creating value from volume growth to creating value from value growth.” And for that, the elements to Project 2030 discussed above need to become more than just proposals, and quickly.