In focus: The relationship between supply and demand in Champagne
Thanks to more environmentally friendly practices and a change in the law in France about discounting, the amount of Champagne that producers are making has fallen. But if they focus on quality, this could be a good thing. By Phoebe French.
Faced with a challenging economic climate, the growth of the global sparkling wine market and the pressure to safeguard the environment, a decade ago the leading powers in Champagne decided to focus on promoting value sales and controlling volume. Capping yields and regulating the amount of stock released is nothing new in the region, however, the Comité Champagne and the Union des Maisons de Champagne (UMC) decided subtle changes were required.
Since 2013, the yield limit, not including réserve individuelle, has been set at under 11,000kg/hectare. This year it fell to just 10,200kg/ha, and it is believed that growers may not even reach this reduced level because of the summer heatwave.
Shipments by volume have also been declining, from a spike of 339 million bottles recorded in 2007 to 301.9m in 2018.
By contrast, in most years between 2010 and 2018, shipments by value have increased, up from €3.73 billion (£3.32bn) in 2010 to €4.89bn in 2018 – a rise of over €1bn in eight years. This has been combined with a year-on-year rise in the average price of grapes, from €4.81 per kilo in 2006 to €6.20 in 2018.
But why is value prized over volume? Stephen Leroux, managing director of Charles Heidsieck, explains how the sparkling wine landscape has completely changed over the past hundred years. He says: “Champagne used to represent close to 100% of the sparkling wine business at the turn of the 20th century, even if some fizz could be found in other regions of France, Germany, and eastern Europe.
“A century later, Champagne now accounts for around 10% of global sparkling wine production. For Champagne, trying to win the battle of volume is totally pointless.”
Jean Marie Barillère, president of the UMC, adds: “At the end of 2007 we were at almost 340m bottles (shipment volume), and the total production capacity of Champagne was around 10% more than that. It meant that the days of augmenting your turnover by increasing your volume were behind us. The only way to continue to increase turnover and profit was to increase the value perception. You need to change your price to do business.
“Since 2011, we have seen a fall of 40m bottles on the French domestic market, and this volume decrease has been much more marked for the big discount brands than for the prestige brands – the latter are doing very well in France.
“This process has also been accelerated by global environmental issues. The impact on the industry, if you take into account how we farm our vineyards, means that we now use as few chemicals as possible. By farming differently, we have decreased our production capacity.”
The pattern of Champagne sales is also intrinsically linked to the global economic environment, believes Andrew Hawes, managing director of Mentzendorff, the UK agent for Champagne Bollinger.
“At Bollinger we have tracked UK market shipments for as long as the CIVC has recorded them, and since the 1950s, the Champagne market has closely followed the economic cycle, with the most significant variation from this strong correlation being the period following the global financial crisis of 2008, when previous experience would have suggested that the market would fall in volume far further than it in fact did,” Hawes says.
Referring to the UK market, he says: “The availability of supply at keen prices coincided with a commercial strategy among the multiple grocers that favoured the development of retailer exclusive brands that were strongly featured in store and heavily promoted – thus creating strong growth in this large sector to offset what was the usual trend of falling on-trade demand.
“What is finally happening now, eight to 10 years later, is that these medium-term factors have run their course and the situation is returning to what we would normally expect 10 years after a crisis period. We have had rapidly falling volumes of retailer-exclusive labels, the on-trade has stabilised following the ‘Prosecco boom’, and the premium brands are in a strong position across all market sectors.”
Champagne, like every wine-producing region, has also felt the effects of falling per capita alcohol consumption. As Barillère notes, in the French market, the largest single consumer of Champagne, volumes have fallen.
Thibaut Le Mailloux, communications director of the Comité Champagne, says: “We’ve come from an extremely high per capita consumption level in France, which reached as high as 3.5 bottles per capita, per year. Last year we sold 147m bottles in the French market, roughly equating to two bottles per capita.
“A key reason for falling volumes therefore is the slow decline in overall wine consumption in France at the moment.”
This has been exacerbated by the effects of a new law implemented in France at the start of this year. Affecting food and drink products sold in supermarkets, the so-called Egalim law limits discounting to 33% of the original retail price, effectively banning buy-one-get-one-free promotions. The aim is to achieve a fairer price for the nation’s farmers and industry workers.
“The French are drinking less Champagne, but what they are drinking is more expensive,” Le Mailloux says. “Since the law came in, ‘Champagne’ and ‘discounting’ are two words that no longer go together. Champagne used to be the star, and was used by retailers to drive footfall into stores – it was used as a promotional product.”
As a result, volume-driven brands have taken a hit, while those sold through specialist retailers or via their own distribution channels remain untouched.
Like France, the UK, Champagne’s top export market by volume, is also witnessing a fall in the sale of own-label and discount branded Champagnes, with the lower tier replaced by other sparkling wine alternatives.
Hawes of Mentzendorff says: “The additional impact of a falling pound after the 2016 Brexit referendum has exacerbated the impact on retailer exclusives, own-labels and house Champagne that are usually sold to the UK in euros,” he says. “Major brands often manage the currency risk themselves to better manage the stability of consumer pricing.”
James Simpson, managing director of Pol Roger Ltd, explains how the house has avoided discounting by keeping a tight control on its distribution.
“Our Brut Reserve Non-Vintage has been on a tight allocation for the past few years, so we have not had the stock to supply the major multiples in the UK,” he says. “This means that there has been no deep discounting, thus ensuring that the perceived value of the brand and product has not waivered. We have never compromised on the price point of Champagne Pol Roger in the market, and have always focused on increasing value sales in line with the quality of the wine.”
Lynn Murray, marketing director of Hatch Mansfield, the UK importer of Taittinger, also shares Hawes’ views.
“One of the key drivers in the market around the value increasing and the volume decreasing is the polarisation in the market,” she says. “Consumers are either buying well-known brands like Taittinger or lower-priced Champagnes. We can see that the middle market or ‘soft’ brands are losing share.”
As Leroux notes, the global sparkling wine market has changed, with the Prosecco boom and rising sales of New World fizz.
In 2017, Guillaume Deglise, the former CEO of Vinexpo, noted how sales of Prosecco were expected to surpass 412m bottles by 2020, effectively “taking over from discounted Champagne” in the UK, with the same trend happening in Germany and the Nordics. He predicted that total sales of Champagne would grow by just 1% in volume during the same period.
Jean-Noël Pfaff, director general of Champagne Pannier, believes trying to compete on volume would damage the region’s reputation.
“We have no choice but to stay in the premium sparkling segment,” he says. “Other producers of sparkling wine around the world are better equipped to produce large volumes at low prices, while copying our marketing. As a result, we must continue to premiumise our offer.”
Laurence Tellier, marketing and communications director for Champagne Henriot, agrees: “We are now looking at increasing value sales through more focus on our higher tiers beyond our Brut Souverain Cuvée as well as contributing more to the Champagne category growth in export markets rather than mature markets like France.”
Bertrand Verduzier, director of international business at Champagne Gosset, adds: “Our strategy, as a small to medium-sized maison, is to develop networks wherever hedonists and wine lovers can be found. We have space to grow especially in export markets, with a good volume of stock for long-ageing wines in our cellars.”
Outside of Champagne’s traditional channels, markets are displaying preferences for certain styles and expressions of Champagne.
Le Mailloux explains: “Eighty-five per cent of volume in the UK is non-vintage brut, but the further away you go from Europe the more open-minded the consumers are. And in countries where non-vintage brut makes up only 66% of the volume, it does not mean that consumers are only drinking NV and prestige cuvées, but that they’re drinking more of all the different styles.
“For example, in the US, rosé Champagne constitutes 20% of volume sales, which is particularly high compared with other markets. In Japan, rosé Champagne makes up 11% of volume, and demand for both prestige cuvées and vintage wines is high, representing 10% and 2% of volume sales respectively.”
Michel Drappier, however, warns that it is important not to be swayed too much by the figures.
“We are all led astray by statistics,” he says. “If you look at the US you might see there’s a big proportion of sweet Champagne sold, but that’s because of just one brand. However, it is true that we sell more expensive Champagne in the US, because when they want something more affordable, consumers are more likely to buy a local sparkler.
“I believe in the globalisation of consumption. Take Russia as an example – 10 years ago we did not sell a single bottle of brut nature there. People in Russia used to drink sweet wine, brut cuvées or very expensive prestige cuvées. Now the younger generation are travelling and visiting wine bars in cities across the world, and will happily drink styles such as brut nature.”
While larger Champagne houses can tailor their approach to specific markets to drive value growth, smaller producers must focus on individuality and quality to distinguish themselves, believes Bruno Paillard, CEO of Lanson-BCC and owner of Champagne Bruno Paillard.
“I’m making wines to my taste, in French we call them vins d’auteur,” he says. “I wouldn’t compare myself with Picasso, but I don’t think he would have done different types of paintings for different markets.”
Paillard believes the Champagne industry should focus less on depicting the Champagne lifestyle and more on the place where the grapes are grown.
“The only thing that other sparkling wines have in common with Champagne is the bubbles and the shape of the bottle,” he says. “Champagne is unique in three key areas: its soils, its climate and its know-how.”
Christian Holthausen, export director of AR Lenoble, agrees: “People are interested in where the foods they eat and the wines they drink come from.
“Twenty years ago, people used to come to Champagne and sit in a sterile room in Reims and talk about the 18th century and caviar. Now they want to come to Champagne and visit actual vineyards and touch the soil and ask about farming practices.”
Holthausen believes Champagne can no longer rely on its name to prove its worth, but instead must demonstrate its quality.
“The generic name ‘Champagne’ or ‘Bordeaux’ is not an automatic guarantee of quality anymore for the average global consumer,” he says. “There are great and mediocre producers everywhere in the world, and consumers are more aware of that than ever. Personally, I’d rather have an outstanding bottle of sparkling wine from Franciacorta or from Tasmania than a mediocre bottle of Champagne.”
Producers must learn how to better communicate this quality and individuality in a way that the trade can easily feed back to consumers.
One way to do this, Michel Drappier, president of Champagne Drappier, believes, is to travel and make the effort to engage with potential customers in person.
“For some houses it will be pure publicity, but there are few who can afford to do that. For Champagne producers like Drappier, it’s about travelling and meeting people, making contact with our customers, inviting them to visit us – you’ve got to make Champagne sexy,” he says.
Belinda Stone, head of marketing at Castelnau Wine Agencies, agrees. “The Champagne industry could do with re-engaging with the wine trade itself,” she says. “There are so many categories of sparkling wine that are vying for buyers’ attention, Champagne prices continue to rise, and customers want ‘new, new, new’. But disappear from the trade’s eye-line and buying patterns are likely to evolve to the detriment of the region.”
Champagne was one of the first wine-producing regions to collectively promote sustainable vineyard practices. But are the efforts made in the vineyard always reflected at the point of sale, and could more be done?
Barillère of the UMC recalls how the viticultural landscape in Champagne has been transformed in 20 years, moving from spraying chemicals as an insurance policy to only applying them if they are needed.
“The quality of the spraying machinery is roughly 50% more efficient than it was,” he adds. “Moreover, every time we have an alternative to using chemicals, we’re doing it, such as using sexual-confusion techniques to fight insects.”
In the winery and packaging side of the business, environmental concerns are also at the forefront. In 2010, the Comité Champagne introduced a lighter Champagne bottle for non-vintage cuvées, weighing almost 60g less than the original. The industry body estimated that the new bottle would save the equivalent of 8,000 metric tons of carbon a year.
Producers are also implementing recycling- and waste-management practices, such as Pol Roger, which has installed a filtration system that recycles water from its winery.
Michel Drappier, however, believes that other investments are often prioritised over those that achieve a longer-term return. “The problem in Champagne is that there are shareholders and you want to please them and make them money rather than investing in things that can take decades to get your money back,” he says.
“We are carbon neutral and we’re still the only one in Champagne. I would have thought many more people would have done it – it’s not out of reach, and I’m surprised we’re still the only one.”
Champagne has reduced the volume of fertilisers used on its vineyards by 50% in the past 50 years, while organic certification is one the rise. But being green means that sacrifices must be made.
Drappier adds: “Yields decrease when you initially convert to organics, and while they will go up again, we are never going to achieve the yields that my father did in the 1960s and ’70s when the land was permanently pushed by fertilisers.”
Yields could rise, however, if the vineyard area of Champagne is increased. The AOC boundary was set in 1927 and covers 130 square miles.
“A movement that has its roots in the 1980s and 1990s aims to revise the boundary to potentially include up to 45 districts that once grew grapes before the ravages of phylloxera and the destruction caused by World War I. The vineyard area in Champagne was once twice the size of what it is today,” says Paillard. “It was decided that those villages that can prove historical evidence of quality grape growing could be reintroduced into the AOC.”
Recent reports have indicated that a decision could be made by 2024, but producers remain unconvinced. Even if a decision is made in five years’ time to include, and also potentially exclude, some areas, it will not have any immediate impact.
Leroux adds: “If a decision is made, when will the first grapes be planted? Which villages/crus will benefit from the potential plantation rights? Which part of the newly authorised village can be planted? It will take at least 15 years before we’re able to observe the results of the potential expansion.”
Therefore, at least for now, there’s one less factor in the equation. The relationship between supply and demand, and volume and value in Champagne is a complex one. A concerted effort has been made to raise the average price of a bottle, and this appears to be paying off. But in an increasingly competitive market, the region can no longer rely solely on its name to deliver the goods.