Champagne - Part I: The Markets
As the holiday season approaches, consumers the world over will be stocking up on something fizzy. With this in mind, just-drinks' management briefing for November looks at the Champagne category. In the first part of his four-part briefing, Richard Woodard considers Champagne's consumer landscape.
The general pattern of trading for Champagne in the global markets is relatively straightforward: a slump in sales that began with the collapse of Lehman Brothers in September 2008 and continued deep into 2009, before Christmas trading (and some spectacular discounting) went some way towards rescuing the year.
Then, 2010 was a year of rebuilding volumes, if not value: globally, shipments recovered almost to their 2008 levels at just under 320m bottles, but revenues stubbornly refused to climb even to the levels of 2006.
In 2011 to date – bearing in mind that Champagne’s most crucial trading period, Christmas, is yet to come – the volume growth has generally decelerated when compared to 2010, but there are finally signs that value is returning and higher-margin products, such as vintages and prestige cuvées, are selling strongly once more.
In their financial results, leading players including Moët Hennessy, Lanson-BCC, Vranken-Pommery Monopole and Laurent-Perrier all allude to improvements to the price mix (see Part IV: The Companies). In some cases, physical volumes have even declined slightly, but revenues have still increased.
“The total market shipments are still growing at about +4% (12-month rolling basis), driven by the export both from the European Union including the UK, the US and overseas,” notes a spokesperson for Laurent-Perrier.
“Even in Japan, the market is now better orientated since June. The French market is stable. We need to wait for the end of the year to have more accurate data in terms of value, but we expect value to grow faster than volume: most houses have increased their prices at the beginning of the year and the price mix is improving.”
Regional trends are more complex, as Champagne Jacquart managing director Laurent Reinteau highlights. “Volumes are still tracking above last year with more dynamic sales in the US and Asia, while Europe remains fragile. Mature markets continue with aggressive pricing, making higher value creation difficult. As far as Jacquart is concerned, we are significantly above last year in value, with relatively stable volumes.”
The figures bear out this analysis. January to June shipments were up by just over 5% by volume (value figures are unavailable before the end of the year), with France up by 2% and exports rising by 9.7%.
Trends would be better still but for a poor performance from Champagne’s number one export market, the UK, which was down by nearly 10% in the period, offsetting increases in all other major markets – most notably the US (up 22%), Australia (up 44%) and a resurgent Japan (up 9.9%).
The half-yearly figures are even positive for Italy (up 15.4%) and Spain (up 18.1%), but longer-term trends suggest slower growth for eurozone countries in general – a phenomenon likely to be exacerbated by the Greek crisis gripping the region at the time of writing.
There is stil a lot of talk about the emerging markets for Champagne and, in particular, the BRIC economies. A near-doubling of volumes in Russia and China in 2010, coupled with a 70%-plus increase in Brazil, might at first glance justify the hype.
But, Lanson-BCC president Bruno Paillard offers a cold dose of reality. “It’s true that there is double-digit percentage growth, but in absolute value, the market is still small,” he says, calculating that the four BRIC markets will account for less than 1% of global volumes this year (although the final figure may be slightly higher).
Nicolas Feuillatte CEO Dominique Pierre agrees. “With regard to the emerging markets, the growth will not come in months but, according to all the evidence, in years. To take China as an example, we’ve talked about opening up the market for two decades, but Champagne sells 1.3m bottles there – tiny compared to the 330m total Champagne sales.”
In the shorter term, the bigger questions revolve around Champagne’s performance in its existing core market during the crucial Christmas and New Year period. Here, cautious optimism is the trend, tempered by concerns over the ongoing impact of the eurozone crisis.
Alexis Petit-Gats, marketing director for Champagne Thiénot’s Canard-Duchêne brand, reports: “Sales of our most premium Champagnes, including the newly relaunched Charles VII Champagnes, are experiencing good orders for this important fourth quarter.”
Similarly, Pierre – while noting that half Nicolas Feuillatte’s sales, unusually, occur in the January to June period – finds the early trends “encouraging – and without destroying value”.
This is the crucial distinction between Christmas 2011 and the discount-driven fire sale that occurred two years earlier: Companies, while braced for the usual round of promotional deals, are nothing like as desperate to pursue volume at all costs.
“While sales volumes are a factor in our tactics at this crucial part of the trading year, it is important to consider the brand’s long-term future,” says a spokesperson for Laurent-Perrier, with regard to the UK.
“Given our commitment to the on-trade, we will aim to promote responsibly to avoid a negative impact on the brand within the on-trade. If, as a result of this strategy, we lose some off-trade volume sales, it is an acceptable consequence of maintaining brand integrity.”
For part two of this briefing, click here.
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