Champagne Had Been Booming

Judging
by aggregate sales figures for the first 7 months of 2OO6,
Americans are doing a lot of celebrating. Whereas imported
wines in general keep creeping higher as a percentage of the
overall US wine market, Champagne has always constituted a
category unto itself. Sales trends in this unique segment
tend more to reflect optimism versus pessimism about the
future, and they have tracked fairly consistently with
purchases of other luxury goods, such as gold jewelry,
designer clothing and sports cars. For instance, strength in
the stock market, as well as real estate and other hard
assets, coupled with favorable employment and income
prospects among the most affluent demographic of the
population generally correlates closely with increased
Champagne-buying. This is one of the reasons why the
category has shown strength despite stagnation the last few
years in overall French wine imports to the US.

The Champagne
industry has over the years done a fabulous job of
differentiating their products in the minds of consumers
worldwide. For a long time Champagne itself has constituted
a strong “brand” within which there are many powerful
internationally marketed “sub-brands” that have been
instrumental in driving sales growth. Collectively the
category has shown incredible pricing power, largely because
its image, and the mystique surrounding it, remains unique.
Few industries can boost sustained double-digit growth over
the most recent multi-year period despite real price
increases that have raised by about 33% the cost of their
products – yet today a Brut Non Vintage from one of the
prestige houses costs closer to $4O than the $3O average
retail price of 4 years ago. There has also been virtually
no aggressive discounting of the well-known brands during
the last few years. And the cheaper “buyer’s own brand”
Champagnes – so significant on the British retail market –
still remain invisible in the US. Together this all
represents true brand appeal, which is even more impressive
considering the dramatic fall of the dollar’s value in
comparison to the Euro since 2OO1. So whereas many wine
lovers have little difficulty substituting Pinot Noir from
California or Oregon for wines from the Cote d’Or, or
Australian or Californian Cabernet Sauvignon for red
Bordeaux, and are not troubled in the least abandoning
Sancerre for lesser-priced Sauvignon Blanc from Marlborough,
it’s a completely different matter when it comes to
Champagne alternatives. Buying anything else with bubbles,
even a fine traditional method sparkler produced by a
respected Champagne company in another part of the world,
often seems to constitute a step down, a concession to
economic reality at a time that should be devoted to
celebration. This continues to be the case despite
substantial price advantages in favor of the wines from
everywhere else that, incidentally, have not been successful
growing sales while increasing costs to the consumer. “Real
Champagne”, as it is sometimes rather redundantly called,
has been an exception to the overall rule of consumer
versatility because of its perceived uniqueness. Somehow, by
osmosis perhaps, consumers have absorbed the “Champagne
story”. For example, many restaurants that serve only
American wine as a matter of policy make an exception in
stocking several Champagnes. Retailers who accord minimal
shelf space to France because, they report, demand has
dwindled still experience strong Champagne sales during the
all important holiday season. The justification in both
cases: many consumers show unshakable allegiance to Veuve
Clicquot or Moet or Taittinger or Perrier Jouet or one of
the other global brands and they will either express
disappointment or go elsewhere if the bottle they want is
not available for purchase.

This year,
interestingly enough, Champagne’s impressive record is not
bucking yet another year of lackluster interest in French
wine overall, but is actually right in line with the
resurgence of many of the other most significant AOC
regions. For example, in 2OO6 the volume of Champagne sold
in the US has increased a chart-busting 2O.23% versus 2OO5
(which was actually a year of flat sales after outstanding
growth in 2OO3 and 2OO4), but this impressive performance
lags behind even more substantial increases for wines from
Bordeaux (+33.98%), Burgundy (24.85, not including
Beaujolais) and the Rhone Valley (+3O.3O%), all of which,
not surprisingly, are primarily red wine regions. (The
picture has been less rosy in classic districts focusing on
white wine, such as the Loire, which is -1.42% and Alsace,
-2.83%, and it is even worse for the lower status wines of
the Midi, -6.2%, or for basic undifferentiated table wine,
-22.65%) The composite total of French non-sparkling wines
have been increasing in the US at a rate of 16.46% in 2OO6,
which is within hailing distance of Champagne’s sales.
Interestingly, it also comes at a time when Australian wine
imports (which surged past France a few years ago and up
until this year had been growing for several years running
at a compound rate of close to 3O%) are essentially flat.
Why the seemingly newfound interest in French wines among
American consumers? Some of this reversal undoubtedly has to
do with cyclical factors such as the availability of highly
regarded and well-promoted vintages (never the case in the
Champagne story, as the vast majority of sales are in the
Non Vintage category) in 2OO6, and some of it may be
attributable to increased marketing expenditures which are
better targeted to consumers and the trade than they have
been in the past. But there is another factor in the
Champagne equation which effects the rising fortunes of
other French fine wine regions as well: supply. As with the
Champagne region as a whole, which cannot produce
significantly more wine than it currently does because its
delimited acreage is entirely planted to vineyards and
yields are controlled by law (although AOC authorities are
considering serious proposals to increase maximum yields by
1O% and to include 25OO acres that were historically
considered outside the zone), the other classic districts
each contain specific properties or brands that are image
and sales leaders but also severely limited in availability.
These wines are known and considered desirable among luxury
consumers on every continent and in virtually every country
that imports. Americans, in other words, are not buying
generic Bordeaux, they are buying their favorite Chateaux
and they are competing with customers worldwide. The health
of French wine exports to the US in general therefore
reflects the degree to which individual producers, or entire
regions such as Champagne, have successfully stimulated
demand through brand differentiation of what is essentially
an agricultural product of relatively limited
supply.

Worldwide the
Champagne market is estimated at $17 billion annually and if
the proposed expansion of production takes place alongside
projected price increases this total could grow by 25% in
the next 5 years. The US market (second in volume behind the
UK) and Asia are expected to contribute the highest
increases. These projections may reflect undue optimism but
given the price elasticity that Champagne has shown in the
recent past, they are probably realistic. It seems unlikely
that Champagne will relinquish its marketing advantage short
of an overall economic catastrophe as quality is impeccable
across the board now and promotional budgets designed to
keep the product foremost in the minds of consumers remain
lavish. In terms of overall average pricing per bottle
Champagne is far and away the leader among any regional wine
segment in the world. But as the fashionability of the
category expands and Champagne continues to be consumed as a
cocktail at ultra-trendy bars from Hong Kong and Tokyo to
London to cities throughout the US, there is little
likelihood of prices moderating.

What are the
other trends going forward beyond firm pricing? Expansion of
the market beyond the dominance of the traditional Brut NV
category; increased use of Champagne as a lifestyle
statement; including meal accompaniment, rather than simply
as a celebration beverage; increased consolidation of
production and marketing in the hands of fewer international
drinks business giants; and continued dominance of the
market by the strongest positioned quality brands. Rose,
Vintage dated and Prestige Cuvee Champagnes are each poised
for growth as the category itself expands. Rose represents
only a fraction of the overall Champagne market and while it
may be the most cutting edge of the region’s sub-categories
it is also the least likely to grow in dramatic fashion
because of the negative association too many Americans have
with any pink colored wine. Prestige Cuvee Champagne, such
as Dom Perignon, Roederer Cristal or Veuve Clicquot La
Grande Dame represents a bit under 5% of overall sales
volume but constitutes between 9 and 12% of the total sold
annually in the US, which is by far the largest market for
this category. Despite accounting for less than 1O% of the
Champagne region’s exports, the US buys between 25 and 3O%
of all exported Prestige Cuvee Champagne each year, so it
seems unlikely that this category has room to grow. The
regular vintage Champagne category, on the other hand, is
the one that the US market seems to almost completely ignore
and it would seem to represent the greatest opportunity.
Where it might be a real stretch for a $4O a bottle Brut NV
buyer to trade up to their favorite producer’s Prestige
Cuvee for well over $1OO, a Vintage-dated Champagne is
generally not higher than 1/3 more expensive than the NV.
Aged substantially longer on average and reflecting the
unblended product of a single high quality harvest, vintage
dated Champagne is often a bargain, with higher quality,
riper, more flavorful grapes going into the mix although it
is not marketed particularly well so relatively few
consumers are aware of it. Vintage Champagne generally
constitutes only about 3 to 4% of the US market and is often
completely invisible even in restaurants and stores that
specialize in Champagne. Wherein lies an opportunity: If
Americans are to view Champagne as a very special wine with
unique flavor and aroma attributes, rather than simply as a
branded product, demand for vintage Champagne should grow.
One of the best venues for this experimentation and learning
is in the restaurant sector. The opportunity to market
glasses, or even comparative flights, of Champagne, so that
a consumer can contrast different brands or different wines
within a brand range, would provide a wonderful way of
raising awareness. Aggressive glass or flight programs are
gradually making their way into the restaurant scene, but
this is still a sector where Champagne sales lag. Pricing is
one of the issues; consumers often complain that they don’t
order Champagne in restaurants because of the hefty mark ups
– preferring instead to drink it at home. On the other hand
there are chic and trendy bars and night clubs in every
major American city that sell disproportionate amounts of
Champagne as they cater to a clientele for whom price is
apparently not a deterrent. This latter group is
particularly brand-oriented. The multi-year trend of
increasing consolidation and sales being concentrated in the
hands of fewer players appears to be inexorable. While
“grower’s Champagnes” seemed to be making slight inroads in
the US a decade ago, the growth today is all in the big,
well-financed brands with strong media exposure, virtually
all of which are now owned by global companies. Marketing
and image, more so than other attributes, seem to influence
the sales of these brands in a manner closer to the way
spirits and beer are sold rather than most other wines.
Regardless of critical acclaim for more obscure Champagnes,
or even for those which are well known and firmly
established in France but historically less visible in the
US, the same brands dominate sales every year.