Is Champagne Still Sparkling?

First published in the print edition of Good Wine Magazine, 2013.

The end of the year is coming and there is almost nothing that reminds me more about the festivities than Champagne. Champagne has ever since it’s invention in the 17th century been associated with joy, luxury, and prestige. But is the wine still sparkling, or is it losing its regard?

It is often said that Champagne sales are an indicator of economic growth. The more Champagne is consumed the better the economy. If this is true; has Champagne then been suffering from the recent worldwide economic crisis?

Before we are able to answer this question we need to understand some of its background. In order to be called Champagne the sparkling wine has – without any exception – to be produced in the so called region. Champagne is a wine region in the Northeast of France characterized by chalky soils and a cool continental climate. Champagne can’t thus be made in any other region in the world. Only 33,000 hectares are denominated to produce this divine sparkling wine. As a result of its scarcity the vineyards are the most expensive in the world, with an average price over one million euro per hectare of vines. No wonder that the average price of a bottle of Champagne is way above what you pay for any other bottle of sparkling wine.

What is it that justifies the price of Champagne? The answer is relatively simple – supply and demand. Champagne is a worldwide highly demanded wine and because of its scarcity highly priced. Does this also means that when the consumer’s buying power decreases – due to an economic crisis for example – the price drops? If we look at the average selling price of a bottle of Champagne in the recent years we notice that the price dropped in 2009 and 2010 with an average of about -6%. In 2011 the price increased again to its level of 2008, but then in 2012 due to the economic slowdown the price fell again to the crisis level. Another interesting fact is that since the economic crisis the number of bottles that are sold in promotion has almost doubled to about +10% of the total production. These figures show that Champagne indeed is an indicator for the economy.

Does this downward trend then means crisis in the Champagne industry? Not really. If we look to the causes of these fluctuation we notice that the downturn in volume is mostly situated in Europe with about -9% decrease in the total consumption. Luckily export outside the European Union is rising. Especially in Asia assures the future of Champagne with about +26% increase in sales. The consumption of Champagne is just shifting to new markets, with a new consumers discovering the sparkling wine.

Another reason not to panic is the market structure of Champagne. Unlike any other wine region in the world it is dominated by brands. Despite almost 5000 Champagne producers and 300 million bottles produced the top 10 houses are responsible for about 45% of the sales. The LVMH group with their key brand Moët et Chandon accounts for about 21% of the total sales. In Champagne a well-positioned brand is key to success. Consumers like to associate themselves with the luxury and prestige of Champagne by buying those brands which distinct themselves in terms of quality and status from others. There are a number of large houses with a wide range of brands such as LVMH or Vranken, but you can also find Champagne houses which focus on one or two brands. An example is Louis Roederer with the so named Champagne and its prestige cuvée Cristal. At the same time Roederer also owns the Deutz. Another example is Taittinger. Taittinger is a family-owned house with only one brand. Despite this focus Taittinger still accounts for about 1.5% of the total Champagne market. No matter whether a producer focuses on a number of brands or just holds on to one brand the challenge is to market the Champagne as a luxury commodity.

Based on these examples I conclude that Champagne will keep on sparkling. It is true that Champagne has been an indicator of economic activity. What we don’t know, however, is whether this indication will still hold in the future. The incredibly smart marketing of the producers makes Champagne more to be experienced than consumed. This trend together with the rising demand from the East secures the production of Champagne and as such confirms its position as a luxury product in such a way that I’m confident that it will withstand every crisis.