The end of Allied's Seagram race coincided with the announcement the company had acquired two Champagne brands, Perrier-Jouet and Mumm. Giles Fallowfield examines the purchases that were met with a mixed response from Allied investors.

The purchase of Mumm and Perrier-Jouet by Allied Domecq, which will take-over distribution of both brands from Seagram early in the New Year, has taken many people by surprise. It comes at the end of a difficult and disappointing year for the Champagne industry. As the year has unfolded it has become increasingly clear that the influence of the millennium was less significant than the Champenois had anticipated and far too much wine was exported in 1999.

The massive stock overhang sitting in most major export markets at the start of 2000 has understandably hit shipments this year. In the first three quarters to the end of September 2000, they were down almost exactly a third, returning to the level of 1997. Clearly actual Champagne consumption in 1999 was nowhere near the 325m bottles suggested by the shipment figures. As a result shipments in 2000 are unlikely to cross the 250m bottle mark and they may be substantially lower.

It is the major negociants who have borne the brunt of this drop. In the important domestic (French) market which accounts for around two-thirds of world-wide sales of champagne, their shipments were down 31.39% in the first eight months of the year, compared with the same period in 1999. That's nearly 15m bottles less. The big houses have also seen shipments to other European countries drop back by 33.45% or just under 11.5m bottles.

Exactly what will happen in the vital last quarter remains to be seen, although there is clear evidence the major brand owners are worried. In the UK market for example, the two biggest non-vintage marques Moet & Chandon and Lanson, are both involved in heavy discounting which has resulted in retail prices for each brand temporarily falling below £15 a bottle on multiple purchases of six bottles or more, compared with their theoretical full retail prices of respectively, £21.49 and £21.99. This is the first time that brand leader Moet has discounted in this way and it has done it with the largest UK retailer of Champagne the First Quench group.

With a substantial crop picked in September/October 2000, and a large amount of wine from the previous harvest put in bottle earlier in the year (around 300m bottles), a general fall in Champagne prices looks highly likely early in the New Year as supply outstrips demand. There is already talk of bankers putting the squeeze on companies whose stocks are building up at a faster pace than their rate of sale.

Against this background the purchase price paid for Mumm and Perrier Jouet by Allied Domecq looks on the high side, even if this time future profits will not be shared with a distribution company. Although both brands have been performing well in their key markets - the UK, France and the US, which between them account for over half of total sales - after years of neglect under Seagram, particularly in the early and mid-nineties, neither marque is as strong as it could be.

Mumm, the third biggest selling brand worldwide behind Veuve Cliquot and Moet & Chandon, has the potential to challenge for the number one slot, but will Allied have the patience and skill to achieve this. The company's lacklustre performance when distributing Lanson, which eventually resulted in an acrimonious falling out with the Mora family, which owns the Lanson brand, suggests only if its attitude to marketing Champagne undergoes radical change.

Seagram was never happy with the profit performance of the Champagne category compared with its spirits portfolio and the fact that so much capital was tied up in stock. And, the brands' neglect was largely due to their insignificance in terms of profit generation. It is hard to view Champagne's position within the Allied Domecq portfolio as much different, despite the company's stated aim of building "a global wine business".

However, in the UK, Mumm's distribution in supermarkets has been re-built since 1996 when it had almost no presence on the multiple grocers' shelves and much needed work has been done to improve the quality of the non-vintage wine. In the UK off-trade, Mumm has greatly improved its position, but the latest AC Nielson figures show it's only the sixth biggest brand behind Moet, Lanson, Piper-Heidsieck, Heidsieck Monopole and Veuve Cliquot, with a 3.2% share of the market, (Nielson MAT to September/October 2000).

Significantly both Moet and Lanson have lost market share (down to 15.2 and 7.3% respectively) to supermarket own-label fizz which has increased its share from 24 to 31.3% during in the 12 months to the end of October 2000. This is explained by the supermarkets desire to get rid of their massive stock overhang which was mostly own-label, but it shows how vulnerable even a brand with Moet's great image can be. Curiously enough the marque that has shown the most consistent growth over three years (Sept/Oct 97- Sept/Oct 2000) is Heidsieck Monopole owned by Vranken but also distributed by Seagram in the UK.

The question is where will Allied Domecq want to position Mumm. It doesn't have the brand strength of Moet, nor the quality image of Cliquot in either France, the UK or the US and it can't afford to take on brands like Piper or Heidsieck Monopole on price. If Allied is to have success with Mumm the re-building process will be a slow one.

Because the Bronfman family favoured Perrier Jouet it was always better looked after and it is the stronger of the two in the US market. Belle Epoque, its prestige cuvée, has been a star performer even if it has not shaken Dom Perignon's dominance of this sector which accounts for nearly a fifth by volume, and a lot more by value, of fizz sales in the US. In Europe however, Perrier-Jouet has never had the brand profile and strength of Mumm, but it has been one of the few Champagne companies to consistently make a profit, even in the early nineties when the last sales slump hit.