unit 5 - sparkling wines of the world - beepworld€¦ · web viewthe champagne industry consists...

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

© April 2005, Sigbert Hiss 2/16London, England

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 production1

Million Bottles

300; 31%

210; 22%150; 15%

100; 10%

100; 10%

36; 4%

20; 2%

58; 6%Champagne

Spain

Germany

USA

Rest of France

Australia

Italy

Rest

I ncluding Methode Champenoise, Methode Transversage, Transfer Method, excluding Cuvée CloseRest 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 Tom Stevenson, email contact, January 20052 Tom Stevenson, email contact, January 2005


http://dict.leo.org/sf?lp=frde&p=/Mn4k.&search=cuv%E9e

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. UK2. USA3. Germany4. Belgium 5. Italy

Champagne’s share of the world market is approximately 1/3 (not including Cuvée Close).

3 C.I.V.C. Epernay, May 2005


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.

4 Vinum International, December 2004 / January 20055 Tom Stevenson, email contact, January 2005


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

6 C.I.V.C. Epernay, May 20057 C.I.V.C. Epernay, May 2005


0

50

100

150

200

250

300

350 mio.

1994

1996

1998

2000

2002

2004

housesgrowerco-op'sco-op's & growertotal

5969 66

59

82 8379

6876

52

87

0102030405060708090

100

1994

*

1995

1996

1997 19

98*

1999

*

2000

*

2001

2002

*

2003

2004

*

hl/ha

Ø= 71

*= incl. PLC (Plafond Limite de Classement)soooooooooooooooooooosie alle platt gemacht.....wir knuppeln dich ganz arg und haben dich seeeeeeeehr liebn...die winzer kontak

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

8 Tom Stevenson, e-mail contact, January 20059 Weinwirtschaft, Oktober 2003, Meininger Verlag10 Vinum International, December 2004 / January 2005


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.

11 Interview Caterer, February 2005


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 SussexThis 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 TasmaniaDeep 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 CaliforniaThis 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 MarlboroughAlmost 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

12 Wine International Magazine, July 2004


http://www.wineint.com/popupRedirect.asp?URL=encyc_popup.asp?ID=175801

http://www.wineint.com/popupRedirect.asp?URL=encyc_popup.asp?ID=175459

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.

13 Regulator Council of Sparkling Wines, January 200514 World Encyclopedia of Champagne and Sparkling Wines, Stevenson 2003 Edition


0

50

100

150

200

250

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

domesticmarket

exportmarket

total

mio. btls.

2.4 Grape Prices

The winegrowers own 88% of the acreage in Champagne and 12% are owned by the Champagne houses, which in turn generate roughly 70% of sales.

Since 1990, the price per kilo has been freely negotiated on the basis of the standard price as defined for the Grand-Cru’s. Since 2000, negotiations between winegrowers and the Champagne houses are being held without any standard price.

Because of the limited acreage and the worldwide increase in demand, the grape price increased to nearly 5.- €/Kg in 2003 15. Increased production cost lead to

Lower profits,

Reduced availability of investment capital,

Lack of funding for Marketing,

Lack of investments in development and maintenance of vineyards, cellar technology and other new developments.

This can cause the loss of competitiveness and loss of market share and sales for the Champagne houses. As seen in the cases of Marne & Champagne or Bricout and Delbeck, this can end in serious financial problems or even bankruptcy as in the latter case. Only those in the top segment can cope with these grape prices, the lower and middle segments will lose out.

Only in the short term will the vintage 2004 with the biggest harvest ever stop the prices from spiraling further

For 2004, it is envisaged to negotiate a treaty between the growers (Syndicat-Général-des-Vignerons) and the Champagne houses (Union-des-Maisons-de-Champagne) that defines an upper price limit. To facilitate the purchase of acreage and hence decrease the dependence of the Champagne houses on the growers could be another alternative.

15 C.I.V.C., Epernay April 2004


3 Conclusions

3.1 General

The greatest asset of the Champagne industry is its reputation. Marketing, traditions and future changes in Champagne need to aim at maintaining and improving this reputation and will have to be evaluated against this goal on an ongoing basis.

Notions such as luxury, exclusivity and joie de vivre need to be cornerstones of this strategy. Together with a quality improvement in all price segments, this will ensure a sustainable future for Champagne. The one thing really unique about Champagne is that no other region in the world can produce such a high standard of quality in these volumes.

3.2 Short term (1-2 Years)

Grape prices need to stabilise quickly at a level that is sensible and beneficial for all involved.

3.3 Mid term (2-5 Years)

The discussion in the industry and the press about vineyard expansion damages the reputation of Champagne. Given this ongoing discussion, it will be difficult to explain exclusivity and limited availability. The expansion should not be agreed, it would only foster bulk production.

3.4 Long term (5-10 Years)

The key issue is to maintain the value of the brand Champagne as described above. This is an ongoing process and therefore requires short, mid- and long term strategic elements. This will be facilitated by a sensible value for money ratio specifically in the lower price segment. Better quality justifies higher prices and hence ensures long term price stability, which in turn helps to secure sustainable profit growth.

Total word count 1990


World Bibliography

1. Vinum International, December 2004 / January 2005

2. Telephone Interview with Alain Fion, C.I.V.C. – December 2004

3. C.I.V.C., Epernay May 2005

4. Weinwirtschaft, Oktober 2003, Meininger Verlag

5. Encyclopedia of Champagne & Sparkling Wines/ Stevenson 2003 Edition

6. Decanter, April 2004

7. Wine-International Magazine, Juli 2004

8. Tom Stevenson, email contact, January 2005

9. Regulator Council of Sparkling Wines, January 2005

10. Harpers, Newsreport, http://www.harpers-wine.com, Dezember 2004

11. Interview Caterer, February 2005


http://www.harpers-wine.com/newsitem.cfm?NewsID=1647

unit 5 - sparkling wines of the world - beepworld€¦ · web viewthe champagne industry consists...

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