Sparkling Wines of the World
There are serious challenges facing the Champagne industry.
What are they and how should they be addressed ?
April 2005
Sigbert Hiss
Table of Content
Table of Content 2
Quotes, Tables and Graphs 3
1 Introduction 4
1.1 Champagne - Definition & Market Position 4
1.2 Scope 5
1.3 Champagne Industry 5
2 Key Challenges And Options How To Address Them 6
2.1 Decision About Vineyard Expansion 6
2.2 Protection, Maintenance and Optimisation of the Champagne Brand 9
2.3 Consistency in Value for Money 10
2.4 Grape Prices 13
3 Conclusions 14
3.1 General 14
3.2 Shortterm (1-2 Years) 14
3.3 Midterm (2-5 Years) 14
3.4 Longterm (5-10 Years) 14
Quotes, Tables and Graphs
Estimated world quality sparkling wine production 4
Quote Tom Stevenson: Champagne’s Position 4
Quote Claude Taittinger: Vineyard Expansion 6
Quote Tom Stevenson: Vineyard Expansion 6
Worldwide Sales of Champagne 7
Yields - Champagne & Still Wines from Champagne "Coteaux Champenois" 7
Quote Alain Fion: Vineyard Expansion 8
Weinwirtschaft, Meininger Verlag – Germany 8
Quote Claude Taittinger: Elite 8
Quote Purchasing Manager of CITTI / Germany, Wholesaler…………………..………………...10
Tasting Notes 11
Table Cava Production 12
Quote Tom Stevenson: Transfer Method 12
1 Introduction
1.1 Champagne - Definition & Market Position
Champagne is lifestyle, image, brand. Its level of popularity is unique. The brand “Champagne” is defined through exclusivity, glamour and luxury. It is one of the most important ambassadors of the French vine culture and undoubtedly the world leader in terms of market position amongst sparkling wines.
Estimated world quality sparkling wine production[1]
Including Methode Champenoise, Methode Transversage, Transfer Method, excluding Cuvée Close
Rest of world not listed as the data is unreliable and quantities are negligible
Quote Tom Stevenson: Champagne’s Position
“... Champagne's premier position (both reputation and price)…… no other region in the world that can produce that type of quality in any volume whatsoever….” [2]
1.2 Scope
This document discusses challenges facing the Champagne industry as well as options how to address them. The key challenges are:
§ Decision about vineyard expansion
§ Protection, maintenance and optimisation of the Champagne brand
§ Consistency in value for money terms
§ Grape prices
The focus will be on the impact of the above challenges on Marketing activities. Additional challenges amongst others are production of grapes, vinification, and climate. These will not be detailed here.
1.3 Champagne Industry
The Champagne industry consists of négociant-manipulants, cooperatives and wine-growers. To be able to compete successfully on the world market, forces were consolidated in 1941 under the umbrella organisation C.I.V.C. (Comité-Interprofessionnel-du-Vin-de-Champagne).
Market data (1993—2004 average) [3]:
§ Domestic market 59% ↔ Export market 41%
§ Top 5 export countries are
1. UK
2. USA
3. Germany
4. Belgium
5. Italy
Champagne’s share of the world market is approximately 1/3 (not including Cuvée Close).
2 Key Challenges And Options How To Address Them
This section details the challenges – as mentioned in the scope – facing the Champagne industry and possible ways to address them.
Based on facts, data, quotes and personal business experiences arguments will be supported or questioned.
2.1 Decision About Vineyard Expansion
Currently 100% of the available vineyards are being used. The delimited vineyard area cannot be expanded. Nevertheless, parties in a position of responsibility are controversially discussing a potential expansion.
On the one hand, an expanded vineyard means more wine and hence more profit in the short term. An increase in the quantity of Champagne, especially in the lower segments would drive prizes into a downward spiral. The reputation of Champagne as a rare and exclusive product would be jeopardized.
Quote Claude Taittinger: Vineyard Expansion
”… there are colleagues who are dreaming about a vineyard expansion in Champagne….” [4]
Quote Tom Stevenson: Vineyard Expansion
”…the most important issues facing the Champagne industry, they are:….Vineyard expansion (to or not to); ….” [5]
On the other hand, worldwide sales are increasing – excluding the “year 2000 hype” this is the case even consistently since 1993 – 2003. Hence, there is a risk, that market share may not be gained or even lost because of restricted availability.
Worldwide Sales of Champagne [6]
To satisfy the increase in demand through vineyard expansion is not possible, because the expansion is prohibited by law. Therefore an increase in production per hectare seems to be the obvious choice. However, the table below shows that the production per hectare as an average over 10 years already is in the upper region, at 71hl/ha. The permitted maximum is 81.25 hl/ha per year (including the plc), but this is adjusted every year. Even if the 81.25 hl/ha were fully exploited, the total increase in volume would still be small.
Yields - Champagne Still Wines from Champagne "Coteaux Champenois"[7]
Alain Fion from C.I.V.C. sees an option.
Quote Alain Fion: Vineyard Expansion
”The vineyard is limited .....economical growth is only possible through improved quality, as the vineyard cannot be expanded” [8]
The biggest potential is in quality improvements for bulk-produced Champagne retailed via discounters which would help increase the proportion of top quality Champagnes overall. Higher prices and hence profits would be the direct consequence. It would allow to open up new markets with high-level quality Champagnes without losing sight of the traditional ones.
A first step into that direction was being taken on the German market October 2003.
Weinwirtschaft, Meininger Verlag – Germany
„The long expected price increase for Champagne has now happened. Discounter Aldi Süd and Aldi Nord are increasing the price for Champagne from 9,99 to 11,99 Euro. It is expected that the other retailers will also increase prices. Based on information from Champagne, currently wholesale prices are between 9,- and 9,20 Euro ex-cellar excluding taxes and transport....“ [9]
Aldi is the biggest wine distributor especially for bulk-produced Champagnes in the German market accounting for approximately ¼ of total wine sales in the country.
On the other hand, a limited vineyard area can have quite positive effects as well. Economically, being able to sell more than one can produce, is a desirable position to be in. Additionally, being rare and in demand and hence not available to everybody is a priceless value enhancement for the Champagne.
Zitat Claude Taittinger: Elite
”…as part of an elite you need to be rare and precious. If we do not allow for this fact, we will be losing out against other sparkling wines….” [10]
Spiraling demands will follow almost automatically. If a wine-producer or a region is in such a situation, the desired price levels may be realised in the marketplace much more easily. The difficulty though is to manage the balance between on the one hand not losing customers by being too rare and precious and on the other hand maintaining the image as described above by Claude Taittinger.
Champagne-houses in favour of a vineyard expansion are those that are covering the lower price segments, capable of increasing profits only by increasing the available acreage. Against a vineyard expansion are those Champagne-houses focussing on the mid to top segment. They achieve higher profits through higher prices. They also have a stable and sustainable market position without the need to sell through price.
2.2 Protection, Maintenance and Optimisation of the Champagne Brand
The reputation and perceived value of the brand Champagne is extremely high all over the world. This unique position in the wine world needs to be protected and even improved. The protection of the brand is being pursued with a high level of financial and logistical effort. Systematically, the whole market of goods and services is being investigated for misuses of the words “Champagne” and “Methode Champenoise”. The court case with the Swiss village Champagne is an excellent example for this.
The USP (Unique-Selling-Proposition) is the strength of the brand as such as well as its market position, not its uniqueness in terms of quality or any other aspect. For this very reason a continuous investment is required into marketing of the brand. Sponsoring, promotions, participation in fairs, publications, advertising, labelling etc. need to communicate attributes like exclusivity, glamour and luxury.
Bottle decorations such as the Champagne with a straw (Baby-Piper), or wrapping in a leather cover - both from Piper-Heidsick as well as the Paint Box with the drink funnel on top of the bottle from Veuve Cliquot harm the desired image. The squirting of Champagne at sports events is also counterproductive - if Champagne is so precious and exclusive, would one not rather prefer to drink it?
LVMH and its business philosophy leads the way. The focus is exclusively on luxury products such as Krug, Chateau D’Yquem, Louis Vuitton, Dior, Dom Pérignon just to name a few. LVMH do not compromise their strategy with products or marketing activities that do not fit the luxury and exclusivity image.
As soon as image and value perception do not justify a higher price, the consumer will become more critical and will start to compare Champagne with other sparkling wines.
In addition, customer relationship management through the C.I.V.C. and its members is an important but mostly neglected aspect. A significant improvement in this area is urgently required. Some of the big houses restrict themselves to shipment and invoicing. The following quote doesn’t escribe an exception.
Quote Purchasing Manager of CITTI / Germany, Wholesaler:
„...we generate a business of 20.000 bottles of Champagne per year. Upon our repeated request a very well known Champagne house to provide us with some promotional material or help us with some resources to deal with customers directly, we didn’t even receive a reaction. Now, we are working together with a mid-sized winery via its import agent and have established an excellent mutually beneficial business relationship...... ” [11]
2.3 Consistency in Value for Money
More and more sparkling wine producers penetrate the traditional Champagne markets and compete through good quality in combination with a fair price. Overall, the quality of sparkling wines produced worldwide significantly improved beginning of the 80s. This was not least initiated through the business ventures of the big Champagne houses in foreign countries such as California, Australia, and New Zealand. Chandon in California and Australia, Mumm’s Napa Winery, Taittinger’s Domaine Carneros – just to name a few.
On the other hand, this clearly show the high level of oenological competence and created a marketing and logistics basis for future strategies outside of the Champagne. It obviously proves that sparkling wines in quality and style similar to Champagne can be produced in other wine regions as well, even much less cost intensive than the original. The uniqueness of the brand Champagne is being questioned through the value for money offered by non-Champagne sparkling wines – the Champagne itself copies its uniqueness and even much cheaper. This is a contradiction in itself.
Market shares are being taken away from the Champagne because of this. As soon as the consumers on a broader basis realise the situation, the Champagne will be facing a fundamental problem. In the press, even investments in south England are being discussed. The fact that qualities from there are competitive is shown through international wine tastings since a few years. The qualities are surprisingly good and are available for only a fraction of the price of Champagne.
Tasting Notes [12]
“…….Cuvée Merret Knightsbridge 1999 from RidgeView Wine Estate in Sussex recently won a silver medal at the Vinalies Internationales 2004 competition in Paris, sharing the honour with 23 Champagnes, including Mumm Grand Cru Brut, H Blin Brut Rosé, Lanson Brut Rosé and Pannier Brut Sélection……”
90 pts Nyetimber 1996 Classic Cuvée Sussex
This wine is a blend of 70% Chardonnay with 30% of the Pinots Noir and Meunier, is full on the nose and packed with toasted nuts and bread. The fruit is rich and apply but there is plenty of acidity to keep it fresh and lively. Drink 2004-2008. £19
96 pts Pipers Brook Pirie Vintage 1998 Tasmania
Deep yellow in the glass and bursting with apple and cinnamon crumble on the nose, this is a deliciously full and honeyed fizz. It’s impressively powerful yet fresh, with waxy mineral notes underlying and a rich brioche toast finish to the palate. Drink 2004-2010. £18.99
97 pts Röderer Estate Quartet California
This is where it really gets difficult to differentiate between sparkling wine and Champagne. Quartet really does dance on the tongue as it lifts you to new heights of sparkling wine enjoyment. It’s fresh, aromatic, peachy, biscuity and extremely stylish. Drink 2004-2014. £16
91 pts Deutz Marlborough Cuvée Brut Marlborough
Almost water white and brimming with frothing bubbles, Deutz shows great restraint with its tight, light minerality. The nose hints at white flowers and apple blossom, whilst in the mouth it exhibits good acidity and toasty (“Bready” existiert nicht) notes that are reminiscent of a good, young Blanc de Blancs Champagne. Drink 2004-2008. £10.99
Further sparkling wine producers with international reputation and economical relevance are Italy with its DOCG Franciacorta and Spain with the cross-regional DO Cava. The DO Cava produces excellent qualities in all price categories at a much lower retail price than Champagne. However, the style is different. The increase in the production of Cava shows though, that the DO Cava is on the right track.
Table Cava Production [13]
The much lower price can be realised through state-of-the-art technology, less restrictions and less marketing expenditure. The application of the Transfer Method for example allows to drive down production cost through a reduction in production times. Shorter production times equals lower production cost.
Quote Tom Stevenson: Transfer Method
” Australian fizz ….most premium sparkling wines are made by the transfer method & not by Methode Champenoise…who needs the Methode Champenoise ?” [14]
The intensely pursued development of the Cartridge System and the yeast capsule might prove Tom Stevenson wrong though. In the near future, these developments will be completed. The technology is already in use with a few wineries. This will diminish the advantages and time gains provided by the transfer method.