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Why is one of Champagne’s biggest groups breaking up?

One of Champagne’s biggest groups is breaking up, but is this a sign of wider problems in the sector or a case of excessive spending within one business? We look at the situation.

COGEVI produce Champagne Collet

Earlier this month it was announced by cooperative group Alliance Champagne – which is one of Champagne’s biggest producers and landowners – that part of its three-pronged business was breaking away, taking with it around one third of the group’s combined vineyard holding and therefore potential grape supply.

Indeed, the leaving-party represents 800 growers spread across 810 planted hectares, including some prized premier and grand cru plots, with vineyards and facilities capable of producing around six million bottles.

To explain further, Alliance Champagne comprises a triumvirate of cooperatives across the region, uniting over 1,700 grower members representing more than 2,500 hectares of vineyards, producing 25 million bottles of Champagne annually.

These come under the acronyms COVAMA, COGEVI and UAPVC, and you can read about the history of the Alliance leviathan below, including the Champagnes produced by the group and its component cooperatives.

As for the part of this group that’s leaving the mothership, that’s the Coopérative Générale des Vignerons de la Champagne Délimitée (COGEVI), which, like most cooperatives, sells grapes, wines and bottled Champagne, as well as producing its own brand, which in this case, is called Champagne Collet.

Bearing in mind the troubles faced by Champagne over the past six months due to Covid-19 – which means that year-end shipments are expected to fall by at least 20% overall – one might assume that this split was a symptom of a downturn in demand for this luxury fizz.

However, one insider has made it clear that the reason for the break up is connected with past over-spending, rather than any issue with incomes during the present downturn in Champagne consumption.

Despite the quality of its vineyard holdings in Champagne, and the good standard of COGEVI’s output under the Collet brand, this particular part of the group has run into financial troubles, and it is believed that it has requested a bailout from the Alliance Champagne board.

With the heads of the group apparently deciding not to provide such assistance, it appears that COGEVI has had to withdraw from Alliance, a split that was agreed to by the parent group on 10 September, and finalised earlier this week, marking the end of a 23-year union.

As db has been assured, this separation will have no immediate effect on Alliance Champagne, which has, as its flagship brand, Jacquart, as well as a further label, Montaudon – which tends to be used for selling large volumes of fizz in the major multiple retailers.

Together, Jacquart and Montaudon account for around 5m bottles in annual sales for Alliance, or one fifth of the group’s output – it produces 25m bottles each year.

Such assurance that any impact from the break won’t be felt in the near future can be given because COGEVI growers have already supplied grapes to Alliance from this year’s harvest, which will be used to make Champagne that will not be seen on the market for several years, during which time Alliance has stocks in its cellars based on previous supply arrangements with COGEVI to meet Champagne demand from its customers for the next 4-5 years.

So, as db has been also told, not only have the Montaudon and Jacquart Champagnes co-produced by COGEVI been made this year, but Alliance has enough of its branded Champagne stocks to keep supplying its customers for the next few years.

Furthermore, it has been said that where necessary, Alliance will retain its grape supply contracts with COGEVI grower members.

Indeed, the change is really at the top – COGEVI directors will no longer be involved at board level at Alliance. So, in effect, the development means that COGEVI has moved from being an Alliance shareholder to becoming a preferred supplier.

In terms of how much COGEVI has been supplying to Alliance for its branded Champagne needs, this is said to represent grapes from across around 100ha (from COGEVI’s 810ha total).

Furthermore, db has been led to believe that COGEVI managing director, Olivier Charriaud, has already left the organisation, along with the financial director.

So why have these senior figures left COGEVI? While this is speculation, it appears that COGEVI may have spent too much money, with db sources citing a number of major investments, with a couple of capital-intensive ones mentioned in particular.

These are the construction of a new, large production centre in Oger and an impressive wine museum in Aÿ, called ‘La Cité du Champagne’, which are in addition to what is reputed to have been extensive spending on marketing its Collet brand, which totals around 500,000 bottles in annual sales, less than 10% of the cooperative’s 6m bottle output.

While such investments may have seem justifiable in a growth market for Champagne, the trajectory for Champagne in recent years has been a downward one, when looked at in terms of volume sales alone.

Furthermore, the primary sector of decline in Champagne has been among less well-known brands, including those closely tied to the declining French market, as well as those classified as supermarket own-label or exclusive brands, which, in the majority of cases, are supplied by the cooperatives.

In other words, while Champagne Collet has a strong reputation for quality, it does not have the awareness or margins of a Grand Marque such as Pol Roger, Bollinger, or Veuve Clicquot, making funding big capital investments, particularly in a contracting market for Champagne, a challenge for COGEVI.

Meanwhile, the unbranded sector of Champagne, often supplied by cooperatives, is declining in terms of sales and profitability, which may mean that another source of COGEVI business is in decline.

And finally, exacerbating the situation is something that’s become a more recent issue for the region, and particularly the cooperatives, and that is a shift from a shortage of grapes, to, potentially, an oversupply, as annual production in recent harvests has exceeded current demand.

As noted above, cooperatives, which are owned by their grower members, have a number of income streams, from supplying grapes and wine to other houses, to bottling Champagne for their grower-members, or making a finished product for selling under their own brand – in COGEVI’s case, Collet.

This means that COGEVI, due to the split, could lose a customer in Alliance Champagne at a time when it might be seeing sliding sales of wine and Champagne to other parties, such as supermarkets, as well as seeing a falling demand for grapes from the négociants.

As mentioned earlier, COGEVI only supply around 100ha worth of grapes to Alliance for its branded Champagne production, representing around 20% of COGEVI’s turnover, but, bearing in mind the current situation, sources suggest that COGEVI don’t want to lose Alliance as a customer – and hence the likelihood that COGEVI will remain a supplier to Alliance.

What about the situation when viewed from Alliance’s perspective? Well, while COGEVI’s withdrawal represents a potential loss of 30% of the Alliance supply base, as it has been said to db, if Champagne volume sales are down by 20% in 2020, then the amount needed to make up for COGEVI’s departure is not so great at just 10% in volume terms.

However, it’s not that simple. While it is likely that COGEVI will continue to supply Alliance’s needs for its brands, should it choose not to do this, Alliance would lose access to some prime vineyards in the Montagne de Reims and the Côte de Blancs.

Indeed, COGEVI, as a newly independent entity, may choose to use its prime vineyards to expand its own branded Champagne production or supply Grandes Marques in need of high quality grapes.

But there’s a bigger problem for Champagne makers, whether they are growers who bottle under their own label, cooperatives who make their own brands, or houses who buy grapes to produce globally distributed marques.

And that concerns the fact that Champagne is sitting on an increasing amount of high-value stock.

That’s because, until this year, prices have been increasing for grapes, (despite a volume decline in overall shipments), and, due to the Champagne ageing process, everything being sold now has been made from grapes bought at least two years ago.

Bearing in mind the challenge in selling Champagne during the pandemic, it may be tempting to shift stock by dropping prices – but, should producers choose to do this, they risk selling at a loss.

Furthermore, producers have a contractual obligation to buy grapes at a pre-agreed price, meaning that even during our current coronavirus-affected times, producers won’t be paying a reduced fee for their grape supply. (Any reported grape price reduction tends to represent just the small amount sold on the free market).

So, for Champagne producers, the dilemma comes with selling high-cost wines at a time of oversupply and low consumer confidence.

The hope is that the sharp sales setback seen in March to June is restricted to just that period, while the worry is that there will be a series of lockdowns following a second wave of Covid-19 in the run up to Christmas – when most Champagne is sold.

After all, as much as 60% of Champagne’s annual business is done in the last three months of the year.

On the other hand, should Covid-19 be brought under control, then consumers will have a two reasons to drink Champagne: they will be celebrating Christmas and an end to the pandemic.

Inside COGEVI’s Cité du Champagne

Alliance Champagne: a potted history

As covered by db back in 2007, the two largest cooperative groups are the Centre Vinicole Champagne Nicolas Feuillatte (CVC) and Alliance Champagne.

Alliance Champagne was formed in April 1998 by three major cooperative groups – the Coopérative Vinicole de la Vallée de la Marne (COVAMA) which makes Champagne Pannier, the Coopérative Générale des Vignerons de la Champagne Délimitée (COGEVI), which sells Champagne Raoul Collet and the Union Auboise des Producteurs de Vins de Champagne, owner of the Veuve A Devaux brand. These three co-ops were joined later in the summer of 1998 by the Coopérative Regionale des Vins de Champagne of Reims, better known as the producer of the Jacquart brand, which dates back to 1962. Jacquart then became the main brand promoted by Alliance Champagne, although the Reims co-op subsequently left the organisation and now has its own brand De Castelnau.

Jacquart & Associés Distribution (JAD) is a wholly-owned subsidiary of Alliance Champagne which was set up by the three remaining co-ops both to handle the distribution and marketing of the Jacquart brand, wine made under the Champagne Ritz licence and all the BoB production for COVAMA, COGEVI and Union Auboise.

This BoB business is significant and JAD has become a major supplier of own label Champagne to UK supermarkets including Tesco, ASDA and Sainsbury’s. Between them the three cooperative groups that promote the Jacquart brand have 1,700 grower members who own 2,620ha of vineyards which are spread across the appellation in 130 different villages including 10 grands crus and 22 premiers crus. This area of vineyard represents just over 8% of the entire Champagne AOC. Currently about 30% of this volume is sold and marketed by Alliance Champagne, the rest by the other three individual cooperatives that formed Alliance.

Meanwhile, the Centre Vinicole Champagne Nicolas Feuillatte (CVC) began life in 1971 as a union of 41 wine producing co-ops seeking to pool their resources – like vineyard management expertise – and have wine made centrally by qualified winemakers in a specially created modern facility. It was one of the very first wineries to have automatic gyropalettes installed to operate the remuage process. In 1986 the CVC reached an agreement with Nicolas Feuillatte to market his eponymous brand (originally created back in 1977 when Feuillatte inherited a 12-hectare vineyard at Domaine St Nicolas in Bouleuse near Reims).

Since then the CVC has grown rapidly and it is now made up of 80 smaller co-ops, which between them have nearly 5,000 grower members who send to the Chouilly co-op for processing, the crop from the equivalent of 2,200ha of vineyard spread right across the appellation.

They actually own an area of vineyard far greater than this, but their total crop is shared between three major destinations: local co-ops, contracts with the négociants and the CVC. The CVC in turn divides its volume of roughly 22m bottles between the Nicolas Feuillatte brand and Buyers’ Own Brand (BoB) business.

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