Cheap champagne threatening brand

Vintners say the tide of cheap product is devaluing the champagne market. Photo / Supplied

After almost a decade of raising prices and cultivating the champagne brand to fend off sparkling wines such as prosecco and cava, some producers including premium champagne maker Laurent-Perrier are flooding French supermarkets with young bottles priced at less than €10 ($20).

"We haven't seen such aggressive discounting since the big champagne crisis in 2000," when prices fell after the millennium celebrations, said Francis Pretre, an analyst at Paris-based CM-CIC who has followed the industry for a decade. "If it continues next year, it will create a real image problem for the champagne brand."

The value of champagne sold is set to fall at almost twice the rate of volume this year in France, the drink's home and its biggest market, as the recession causes consumers to pare spending, according to an industry report by just-drinks.com.

The trend threatens the prospects of champagne titans including LVMH Moet Hennessy Louis Vuitton SA, as well as the US$4.4 billion ($6.1 billion) global industry, Pretre said.

Producers including Vranken Pommery-Monopole and Boizel Chanoine Champagne are also "very aggressive" in selling cheap bottles for €13 or less at French superstores like E Leclerc and Auchan, according to Pretre. Boizel's upscale labels include the €110 Lanson Noble Cuvee 1996. Both companies confirmed that they sell less-expensive bottles in selected venues.

Selling off young vintages cheaply is a value-destructive, short-sighted strategy, according to Carole Duval-Leroy, who chairs the region's quality-monitoring committee and runs vintner Champagne Duval-Leroy.

"It's a big problem because once our prices fall we need years to repair the damage done to the brand," she said. "Those who are selling their champagne cheaply are producers with a cash-flow problem so they need to sell now. This hurts us a lot."

Champagne makers are more used to raising prices than reducing them. The value of champagne sold almost doubled in the two decades to 2007 while the number of bottles produced rose by about 20 per cent.

LVMH and other makers of premium labels like Bollinger have slashed prices of some bottles by as much as 50 per cent in the UK, the largest market after France, said analysts.

Champagne has also lost out to other sparkling wines such as Spanish cava and Italian prosecco, revenue of which increased by 1 per cent in 2008 as consumers in Germany and other export markets switched to cheaper alternatives, according to Euromonitor. Global champagne revenue fell 2.6 per cent in 2008.

LVMH, whose champagne brands include Dom Perignon and Ruinart, said wines and spirits revenue dropped 14 per cent in the first nine months. Champagne revenue at Vranken, whose less expensive bottles go for an average of €17 a bottle, fell 3.2 per cent in the period while Boizel reported a 12 per cent decline.

As consumers shun $200 bottles of Laurent-Perrier's Grand Siecle champagne, the Tours-Sur-Marne, France-based company has promoted its Jeanmaire brand to sell off stock of younger grapes and raise cash.

While Jeanmaire has gone from "almost zero" of Laurent-Perrier's sales by volume to 10 per cent in the past six months, the brand isn't enough to offset the decline in the company's total. Revenue, which fell in 2008 for the first time in seven years, isn't expected to match 2007's level in the next five, estimates compiled by Bloomberg show.

- BLOOMBERG