Ben Cooper

Report in Focus - Champagne sales in tune with the times

By | 13 February 2009

It was hardly a huge surprise when the Comité Interprofessionnel des Vins de Champagne reported a decline in Champagne sales for 2008 last week. And the announcement coincides with publication of a new just-drinks/IWSC report on the Champagne market which forecasts more tough times to come. Ben Cooper reports.

The news last week that Champagne sales were 5% down in 2008 was troubling if hardly surprising for marketers of France's premier sparkler. Last year was, after all, not one where the celebration and conspicuous consumption with which Champagne is virtually synonymous were much in evidence. And when looking to drown their sorrows, few bankers would have the sense of ironic whimsy to turn to the drink so closely associated with rather better times.

Last week, the Comité Interprofessionnel des Vins de Champagne (CIVC) reported that volume sales slid by 4.8% in 2008 to 322.5m bottles. Sales in France, which represents 50% of the Champagne market, fell by 3.6%, while exports to EU countries and non-EU countries declined by 6.5% and 6.2% respectively.

Even though the CIVC put a brave face on matters by noting that 2008 volumes were still slightly ahead of those in 2006, this will be scant comfort, especially as Champagne sales are likely to suffer further declines in the coming year.
Moreover, according to a new just-drinks/IWSC report, the relatively lean times for Champagne may well continue for at least the next three years. The report, Global market review of Champagne - forecasts to 2012, forecasts that sales will decline further to 301.1m bottles in 2009, remain more or less stable in 2010 and only recover to 323.5m bottles by 2012.

"As Champagne's major markets slide into recession, the sector's fortunes are taking a turn for the worse, with key markets like France, the UK and the US particularly badly affected," the report states. "The decline will only be arrested during 2010, and the global market will struggle to return to 2007 levels within the lifetime of this report."

However, the current gloom should be qualified a little. To begin with the slump in 2008 followed two years of strong growth. Total shipments had grown from 307.7m bottles in 2005, to 321.8m in 2006 and further to 338.7m in 2007. So last year's figures had some tough comparisons to follow, even before the financial crisis bit.

As the report points out, Champagne is now facing a critical period as soft sales and rising costs combine to threaten the kind of severe collapses seen in the market in both the 1990s and during the fuel crisis in the 1970s.

"Part of the problem for Champagne is that prices have risen recently as costs have escalated - everything from the price of grapes to salaries, interest rates and energy costs," the reports states. "Consumers are currently more aware of price than at any time since the early 1990s, so further increases must be resisted at all costs."

However, in spite of the problems created by the current market conditions, the report does not forecast the kind of major slump seen during previous international economic crises. "Several factors - the size and diversity of the industry's global markets, relative stability of supply and grape prices, and a more thoughtful reaction to the downturn - encourage the belief that a crisis will be avoided," the report predicts.

That said, companies with high levels of debt face the same problems in Champagne as they do in virtually every sector. If sales fall faster and the decline lasts longer than expected, the report warns, companies with high level of debt could be plunged into trouble.

Looking further ahead, there are some positive factors to brighten the current gloom. For example, the report suggests Champagne's supply side reforms are "moving in the right direction".

Consumer markets may be mired in a global economic downturn, but the Champagne region has always taken the long-term view, the success of which appears to be borne out by its image and the wealth of many of its companies. So even while in the short term sales are contracting, the region is expanding its total vineyard area in anticipation of long-term market growth.

But there is no danger of excess capacity being generated while the market is in its current parlous state. Indeed, to describe the process through which this is being achieved as long-winded would be something of an understatement. But France's appellation system requires a rigorous approach to the addition of vineyards, and once again Champagne's record for quality and prestige suggests a careful approach to expansion has worked well so far. There are 635 villages in the geographical area of Champagne, of which 319 are currently in the Champagne appellation. As part of the expansion process, independent experts have considered the merits of all the villages, and have put forward 40 new villages to be included in the appellation.

Appeals from villages omitted in the process should be heard by June 2009, after which more independent experts will decide precisely which parcels of land within the villages should be planted with vines. Once that has been done, those judgments go to France's national appellations organisation, the Institut National des Appellations d'Origine (INAO), for approval, which is then followed by a public inquiry and more appeals.

That part of the process should be completed by around 2015, with the final delimitation of the land and passing of the necessary legislation coming in 2017. After that, planting can finally begin, with the first grapes likely to be harvested in around 2020.

In the meantime, however, the Champenois have some rather more immediate concerns in the marketplace. As the report solemnly states: "The industry is used to planning for the distant future - but it must just hope that more immediate economic concerns do not undo too much of the good work it has accomplished in recent years."

Expert analysis

Global market review of Champagne – forecasts to 2012

After a few years of turmoil, with major houses like Mumm/Perrier-Jouët, Lanson and Taittinger all changing hands, the period from 2006 to 2008 has been a relatively quiet one for the Champagne industry. But the peace has not lasted long. This 2009 edition of just-drinks' popular global market review of Champagne outlines the issues facing the industry and we completely revise and update our market estimates - taking into account the recent downturn and likely continuation into 2009. How will Champagne fare over the short-term future? Find out with this 2009 edition - the most up-to-date source on what's happening with the sector on a global basis.

Sectors: Wine

Companies: INAO

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