Loi EGalim to be ‘softened’ after Champagne sales slide in France
A law restricting Champagne retail promotions in France is due to be “softened” just 12 months after its introduction, db can exclusively reveal.
As reported earlier this week, shipments of Champagne worldwide have dropped to their lowest level since the global financial crisis, following an estimated decrease of 4.5 million bottles in 2019, which has taken the total figure down to 297.4m bottles.
Singled out by the Champenois as the primary cause of this decline has been the introduction in France in January last year of a set of rules to restrict the nature of promotions on certain domestically-produced goods, from foie gras to Champagne, which are part of a wider government act called the Loi EGalim.
With the new legislation putting limits on the amount of Champagne that can be sold on promotion, and the extent of the price discount, consumers who are chiefly attracted to buy Champagne because of the deals in French supermarkets have not been tempted to pick up the product in the same quantities.
While the law was introduced to protect the livelihoods of French farmers by ensuring them a fair price for their products from the biggest buyers in the country – which are the major supermarket groups such as Carrefour, Leclerc and Auchan – the Loi EGalim has actually had a negative impact, as the lack of deals has reduced the volume of sales for key national products such as Champagne, particularly in the run up to Christmas.
As a result, Paul-François Vranken, who is chairman of Champagne’s second biggest group, Vranken-Pommery Monopole, told db last month that the rules were going to be ‘softened’, following discussions with the French ministers responsible for the act.
With his own group suffering a 10% decrease in Champagne sales by value during the last year, representing a drop of €23.2m, or a loss of 1.4m bottles of fizz in the French off-trade alone, he said that the Loi EGalim had taken away “the trigger to buy” among domestic consumers of Champagne.
For this year, however, he is optimistic, having told db that the French government was planning to remove the restriction on the amount of Champagne (and other goods) that can be sold on promotion – which currently is capped at 25% – although such a relaxation of the rules will only apply during “festive periods”
In other words, the limit on the amount French consumers can buy on promotion should be lifted at key Champagne-purchasing periods, such as Christmas and Easter and, possibly, Mother’s / Father’s / Valentine’s Days as well.
The limit on the price reduction will remain, which is presently capped at 34% of the product’s value – which has been set to effectively ban buy-one-get-one-free deals.
“Last year was the first negative performance of the group in 43 years,” said Vranken during an interview with db in Reims in January. “But it is not my fault, nor is it the fault of the commercial team of the company… it is entirely linked to a decision by the government,” he added.
Continuing, he said, “The Loi EGalim has completely changed the buying habits of consumers because it has completely changed their notion of value; so we lost 8.6% of turnover for the whole group, and this comes from the loss of 1.4m bottles in the French off-trade, compensated in part by an increase in sales in the French on-trade, and an increase in international sales.”
Then, revealing the nature of an expected change to law, he said that almost exactly 12 months since it was introduced, the French minister for agriculture was “softening” the rule that limits promotional sales by volume to 25% of the total.
“Now we can promote as much as we want during the festive season,” he said, “But the maximum you can drop the price will remain at 34% [of the product’s value].”
While Vranken expressed his relief at this potential change to the Loi EGalim, he did admit that there had been a positive outcome from the act.
He explained, “While I don’t agree with the fact that the economy can be constrained by a law, I do believe that the effects of the law are positive [for Champagne], because it has brought back the value of the product in the consumer’s mind.
“The consumer didn’t have the right value of the product with all the buy-one-get-one-free promotions that were running in France, so [the 34% limit on the price reduction] brings back the real value of Champagne,” he said.
However, he also said that it was “very important” to remove the “25% volume-maximum” because “you must allow the consumer the pleasure of a good deal, and if you don’t, then they might not buy the product, and choose something else.”
Finally, he said that the law “has forced us to change as a company… and we have made the decision to move from being a producer of an affordable luxury product to a producer of a premium international luxury product.”
Continuing, he said, “We have seen that where we have to go is the development of international premium sales; we are now split with 43% of our sales in France and 57% in export, but we will increase the proportion of sales in export.”
Noting that the Pommery Champagne brand owned by the group “had not been hit by the law because it is not off-trade focused in France,” he said that “the main focus of the group is to continue its internationalisation led by the winning brand of Pommery.”
Looking ahead, he said that he believed that the loss in volume sales in France due to the Loi EGalim would be reversed in 2020 “due to the modification of the law”.
As for his own group, when asked what his plan was for the unsold bottles from last year, he said that he was intending to increase the stock level of the group, rather than try and sell the bottles in other markets where retailing restrictions on Champagne promotions don’t exist.
“Our average stock level is 3.7 years, and the decision has been taken to improve it to 3.9 to 4 years of age – instead of clearing them – so the goal is to go to more qualitative juices for France and international markets,” he said.
With the group selling more than 17m bottles of Champagne annually, Vranken also played down the scale of the loss last year, saying “it was not a huge impact on the group’s finances.”
Concluding he said, “Of course our stockholding is going up, but this allows us to propose more qualitative juices and allows us to pursue our aim of internationalisation, so we are taking some very positive sides from a bad year.”
Quick facts: Loi EGalim
Having been proposed by Parliament on October 2, 2018, and approved the following month, the Loi EGalim was introduced in January 2019 on a trial basis.
There are many aspects to the law, which was instigated to help French farmers receive ‘a fair price’ for their produce, as well as protect the environment from harmful agricultural practices, such as the use of herbicides.
For the rules on retailing in French supermarkets, see below for the three key elements to the law that have affected Champagne sales.
- Supermarkets cannot move more than 25% of their sales on a promotional offer.
- There is a cap on price reductions at 34% of the product’s value – effectively banning buy-one-get-one-free deals.
- The retailer must apply a minimum of 10% margin to each product sold in their stores.
It is the first element that is due for change, but only during certain key sales periods, such as Christmas and Easter.