Exclusive: Champagne takes the fizz out of Sainsbury's Millennium profits?
The champagne market in the UK continues to be dominated by the surplus stock left over in the trade after the millennium. For although record amounts of champagne were consumed with the total UK off-trade recording a 19.2% increase in sales in 1999, this was a long way short of the 33.05% growth in shipments to Britain which saw imports rise to 32.26m bottles.
Back in January the stock surplus is estimated to have been at least 7m bottles, a figure which seems quite feasible given that Sainsbury's had close on one million unsold bottles of its own label Blanc de Noirs brand alone.
There was a large surplus in the on-trade too, as more people chose to celebrate the millennium at home or with friends than expected and many restaurants and hotels decided to close right through the Christmas period until the first week of January because their fresh food suppliers shut for the duration.
The main culprits in over ordering were, however, three major supermarket chains which hugely overestimated the amount of extra 'own label' champagne they would sell in the run-up to the millennium. So great was the problem at Sainsbury's the company took the unprecedented step of slashing the price of its biggest selling Blanc de Noirs champagne from £11.99 to just £5.99 in the run-up to the Easter Holiday weekend.
It has been suggested that this might signal the start of a new aggressive price cutting policy from incoming chairman Peter Davis. He may not have been amused, however, by the fact that the company was unable to alter its tills to remove the 5% reduction given as standard on all wine purchases of six bottles or more. As a result, customers buying at least six bottles of the Blanc de Noirs under offer only had to pay £5.69 a bottle.
Sainsbury's pre-millennium champagne order was so large they had to go to three different suppliers to source this wine. In addition to its usual producer, the co-operative of Chateau Thierry (known as COVAMA), Sainsbury's bought fizz from Duval-Leroy and Boizel and is said to have paid around Ffr65 a bottle. Even assuming the majority of sales were at £5.99 (although like nearly everyone else in the off-trade Sainsbury's has been giving a 20% discount on case sales of champagne it says it sells less than 10% of its total sparkling wine volume under this offer) it is estimated that Sainsbury's lost at least £4 a bottle at this selling price. And the deal was popular. In three days, Sainsbury's apparently moved 800,000 bottles under this offer, amounting to a substantial loss for the company during the festivities.
The rumours circulating that Sainsbury's still had substantial stock left of its own label Blanc de Noirs, even after the Easter sale, can now be laid to rest as the company is in the process or re-ordering for the first time this year.
Head of Sainsbury's wine category, Joanne Convert, however, told just-drinks.com that the company's champagne sales were on track during the millennium and for the first part of the year. "We are totally level on champagne stocks. There are no problems at all with availability either. We have been buying champagne in since the beginning of the year. We had some lines which we had stock post-millennium and others we needed to order.
"In multiple grocers the champagne market is growing at +43.7% (MAT weekending 29/04/2000) and Sainsbury's growth is 91.8% which is obviously a combined result of the millennium and the half price champagne offer."
When questioned about the amount of stock that Sainsbury's still had early in March, its champagne buyer Julian Dyer said: "Grandes marques sold through very well and we only have high stocks levels for some own label lines." He added that "these stock levels are well within forecast," so presumably Sainsbury's bought much more wine than it expected to sell, or perhaps it just didn't dare take the risk of running short. Dyer also claimed Sainsbury's to be "the largest UK multiple retailer of champagne, in the last 12 weeks of 1999 we captured a huge 28% share of the UK multiple market."
This last comment may surprise the marketing team at Tesco who introduced the 20% discount on all purchases of champagne of six bottles or more in mid-summer '99, an offer they are still running at Easter 2000, and having planned their millennium fizz purchases over 12 months ahead, had to buy in more stock for the last trading period before Christmas 1999.
In the UK the supermarkets own label brands of champagne didn't perform as well as hoped. Average MAT growth of 33.8% in 1999 was behind all but two well known international marques and one of these was on allocation (Veuve Cliquot) the other (Taittinger) not widely available.
Overall, the grocers didn't perform badly in the run-up to Christmas, they achieved year on year growth of 37.3% in 1999 (MAT to Nov/Dec '99, AC Nielson)and bi-monthly growth of 86.1% was also well ahead of the market average. As James Cockeram, Moet & Chandon's UK managing director notes, some major supermarket customers more than trebled their sales in between Christmas and the New Year compared with the same period in 1998. "In the week ending January 1, 2000, sales of all champagne through the grocers tripled (compared with the last week of 1998) to 542,000 bottles."
While Sainsbury's Easter sale has cleared most of its surplus stock, Safeway and Waitrose are still selling their main own label lines,
respectively Albert Etienne and Waitrose Blanc de Noirs, ordered for 1999 and are not expected to re-order until at least the second half of this year. The surplus stock in the trade is having a knock on effect in holding back orders for other champagne, including many well known grandes marques which performed strongly in 1999, as supermarket buyers are prevented from re-ordering any more fizz until own label stocks are reduced to a normal level.
The fact that nearly all the major champagne houses are trying to put through price increases of between £0.50 and £2 a bottle isn't exactly encouraging supermarket buyers sitting on stock to re-order. While neither Waitrose or Safeway are expected to seriously discount their own label champagne to clear their surpluses quickly, the consumer buying these wines will at least benefit from the additional bottle age of both brands.
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