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CHAMPAGNE: GROWERS: Balance of power

Who wields the greatest influence in Champagne, the growers or the houses? Michael Edwards investigates the evolving dynamic between these two sectors

At the latest count, 2,200 growers farm, produce, bottle and market Champagne under their own label. Of course for a very large number of these vignerons, their holdings are less than one hectare – essentially  garden allotments that they tend at the weekend. And even for those established, internationally celebrated récoltants-manipulants with sizeable domaines of 15-25 hectares, a good proportion of their grapes are still sold to the great houses for reasons of cash flow. The vignoble and the négoce have always needed each other, and do so more than ever if the continuing  strong demand for Champagne on most world markets is to be intelligently managed in both parties’ interests against a background of the vineyards reaching the ceiling of production by 2013. Until very recently, in what has been a bull market, has the balance of power shifted towards the growers, and how important is this dynamic to the category?

Harder times?
I spoke first to Bruno Paillard, an influential négociant and the president of  the communication commission and the Appellation Champagne at the CIVC. In his view, after the 2006 harvest, the balance of power tilted towards the growers reflecting the huge demand for grapes in a boom market. Since the 2007 crop, and turbulence in world financial centres, the market has cooled a little but still presents a positive picture with the pendulum swinging back, reestablishing a better balance of supply and demand and a more even relationship between growers and houses.  For Paillard, “Houses are still doing very well and the growers have good revenues. Comparatively speaking, the relationship between the vineyard and the trade is healthier than in any other wine region in France.”

Does the current climate, in which added value is increasingly important, favour growers and less corporate houses? “It depends. For my own house, Bruno Paillard, we’re a bijou maison seeking top quality, which always means working at the high end of the market – we’re at the same price level as Veuve Clicquot or Roederer. And at this top end of the market, we’re doing fine. But with my hat on as chairman of the BCC group there are big differences of experience between the seven houses in a group that is the second  largest in Champagne with a turnover of e21.7 billion. Certainly Lanson, De Venoge and Philipponnat, which have great strengths in vintage Champagnes still achieve good sales at the high end.” However, Paillard then delicately implied that for BCC’s more middle market houses like Chanoine and Boizel, trading may be more difficult. As for Alexandre Bonnet, which is as much an excellent domaine of fine Pinot Noir as a négociant, it suffered a hammer blow with the loss of much of its crop during this summer’s hail storms that hit 1,000 hectares of Les Riceys, Bonnet’s home appellation.

Paillard is sanguine about the new interprofessional contract  between houses and growers, which centres on a joint push by the vignoble and the négoce to increase the fluidity of grapes to the houses to replace their sales. And Patrick LeBrun, president of the Syndicat General des Vignerons, confirms that the SGV is looking to make representations to government to ease the fiscal rules on sales of grapes for older growers nearer their retirement. However, as Daniel Lorson, the communications director of the CIVC, says, any change in French tax laws are very much an aspiration rather an reality, for the fiscal authorities may well continue to look sceptically on the claimed plight of Champagne growers who achieve higher prices for their grapes than in any other wine region of France. The old joke about Champenois growers driving the latest Mercedes still has some resonance.

For Ghislain de Montgolfier, president of the Union des Maisons de Champagne and chairman of Bollinger, the real issue is finding enough grapes to satisfy the intense long-term demand for Champagne. In 2006/7 the market grew too quickly (+5%). In 2007/8 the market dropped to 2% growth. With a tough 2009 in prospect, de Montgolfier thinks that a further fall of 3% would restore a balance between the parties and health to the market. “Growers though still have the whip hand long term: they really cultivate the top grandes maisons who want to buy the best grapes for their prestige cuvées; they need them in the finest years – this is where the profit is. The growers’ union needs to flex its muscles – and some co-ops and the occasional grower do just that. But in any power contest, it’s smarter not to show all your power at once.” May and June ‘08 have been quiet, July much better, perhaps as a result of the new interprofessional contract.

Jean-Hervé Chiquet, PDG of the bijou house of Jacquesson, straddles the world of merchant and grower, with the family’s superb holdings in Avize, Aÿ and Dizy. He is less optimistic about the balance of power. “Many people in Champagne say that if this is recession, we are happy to live with it. Demand remains stronger than the available supply of grapes and prices are going up. As a result, the tensions between the vignoble and the négoce are not easing at all.” One can certainly observe rogue players among the houses and co-ops who are willing to go to any length to get more grapes and  market share. The LVMH group market leaders Moët and Veuve Clicquot have been very responsible  and restrained – until now. But it’s an open secret that they are fed up with being stymied by the antics of the mavericks and are putting more pressure on the growers to secure exactly what grapes they want to fuel the growth of sales. The market post-2007 does show signs of becoming quieter as recession looms not only in the USA and UK, but also in Spain and Germany. Sales volume growth is generally marginal, though value has increased. The most changed and active sector, albeit a very niche market, is the presence of prestigious crème de la crème growers’ Champagnes on great restaurant lists across the world.

Growers conquer London
Nick Brookes, managing director of the Vine Trail Bristol, importers of Larmandier-Bernier,a top-flight Champagne grower, believes that it is an interesting junction at the moment as regards the sales of growers’ Champagnes. “As a first base, I think that interest in top growers’ Champagnes has never been higher – the top growers are all selling their Champagnes easily throughout the world.” Brookes added six new growers’ Champagnes this year and all have been taken up by his trade  customers enthusiastically –  Selfridges, for example, is making a real push with its selection of growers’ Champagnes. Generally speaking, Brookes thinks there is a real vibe for this dynamic, both in the specialist retail trade and in fine restaurants.

As regards Champagne-by-the-glass sales, the picture is more mixed. Inevitably, at this difficult economic moment, price has become more important than ever for these slots. Here the négoce, with much more volume at their disposal, have been able, for the moment at least, to gain a larger slice of the market by aggressive sales pricing. Ayala is a case in point: it gained many listings by fixing its price at the start of the year when the euro was at 1.35 to £1. But there will be a sting in the tail when rates are adjusted at the start of next year. Take up for Ayala has been so strong that pressure on stocks must soon mean it may be released onto the market earlier than ideal.

  A WORK IN PROGRESS By Fionnuala Synnott

> The relationship between the houses and the growers lies at the heart of the Champagne region and has evolved in tandem with market fluctuations. Terence Kenny, at Pannier, thinks the current high demand for Champagne puts the growers in a strong position. “For every kilo of grapes for sale there are three people who want to buy. So grape supplies are an integral part of the equation and dominate decision-making in any discussion involving a long-term aspect. Here the growers and cooperatives hold major trump cards.”

As there is a risk of inflation of the cost of grapes, the CIVC and the majority of producers are trying to maintain some limits to what Daniel Lorson calls “pure liberalism”. “But we haven’t seen many growers try to take advantage of the situation and ask for ridiculous prices. Among approximately 20,000 growers, there will always be some exceptions, but as a rule they are loyal to the house. The situation could be a lot worse.”

Roederer’s Frédéric Rouzaud agrees: “Although the growers could look to sell the most kilos of grapes possible, on the contrary, there is a desire among growers to deliver very good grapes to the houses.” He believes the relationship has evolved in the right direction for producing high-quality Champagne and is optimistic: “The spectre of a crisis has led those who have been leading the charge on prices to calm down. There is a real desire to build a partnership with the houses. In fact, it is rare for a grower to change allegiance, there is a great loyalty to the houses among the growers.”

According to Patrick le Brun, president of the SGV, the relationship between the growers and the houses is not a taboo subject. “The two families respect each other; their common goal is to produce good grapes to make good Champagne. Where there are a few tensions is between the people selling grapes and some of the houses as demand for grapes is greater than supply. Some of the houses compete with one another but this is not the OK Corral, it is all done with courtesy.”

In the past, some of the houses have expressed concern about the region almost permanently being on the brink of a grape shortage, allowing the representatives of the vineyard (either voluntarily or involuntarily), to ask for a greater share of the houses’ “added value”.

But this year has seen a significant development in the relationship. In May, the growers and the houses came to an agreement whereby the growers will supply the houses with sufficient quantities of grapes for the next six years, while the houses have agreed to share the added value from the grapes with the growers. But as le Brun warns: “For the first time, all the parcels in the aire de production are planted. This means there will be no new grapes until 2020. Between 2008-2020, nature will dictate. This means that everyone, both vignerons and houses have to be careful.”

However, he still thinks there is room for careful growth: “The 35,000ha planted can produce 400m bottles; at the moment we are selling 340m. The growers don’t want to engineer a shortage, instead, they want to ensure that we do not break the machine [by growing at an unsustainable pace]. The growers have understood that it isn’t in their interests to push up the price of grapes as it puts up the price of the bottle and risks endangering the whole business.”

Stock control
Pressure on stocks caused Larmandier-Bernier to increase its ex-cellars price for its blanc de blancs by 13.5% at the start of the year. “Allied to the fall of the pound, the UK on-trade market was not prepared to pay 25% more for this wine and their pricing decision effectively killed off their ex-cellar sales to top restaurants like London’s Chez Bruce, who had worked with them for over seven years,” says a realistic Brookes. “Badly timed, greedy price increases are never going to win over customers.”

But there’s a positive lesson here. For growers who practice good viticulture, control their stocks well by keeping their Champagnes in their cellars post degorgement, and who pass on realistic price increases see ever increasing demand for their product. The names of the top Champagne growers are known by typical discerning customers in the best restaurants – certainly much more so than 10 years ago. This is largely thanks to the powerful support given to this niche category by Jancis Robinson MW, who has introduced her Financial Times and website readers to the generally superb value for money offered by the best Champagne growers – or rather those who continue to keep a lid on price increases. We live in tougher times.

A last word to Laurent Gillet president of Champagne Devaux and The Union Auboise, a super cooperative. “I believe that the diversity of Champagne illustrated by the success of growers’ Champagnes gives a good natural image to the whole community. We do face problems of price inflation but they are not as severe as in the last crisis of 1991/2. Quality has never been higher.” Amen to that.

  db © October 2008

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