Champagne Lures Big Spenders Even Amid Low-End Discounts

As New Year’s revelers ring in 2011 with a bottle of bubbly, the makers of the most expensive champagnes are celebrating a return to favor after two years of decline while cheaper brands continue to battle on price.

“The market is polarizing,” said Andrew Hawes, managing director of Mentzendorff, the U.K. distributor of Bollinger, and chairman of the U.K. Champagne Agents’ Association. After discounting across the board in 2009, “we’re seeing this year that certain brands aren’t involved in it. We’re seeing a parting of the ways, and that trend is going to continue.”

Sales of the most expensive wines including those made by LVMH Moet Hennessy Louis Vuitton SA are bucking the industry trend as the wealthiest drinkers shell out more than 100 euros ($133) a pop for a bottle of champagne again amid a revival in luxury spending after the credit crunch. Sales dropped in 2008 and 2009, when conspicuous consumption was “seen as virtually socially unacceptable,” Hawes said.

Champagne sales as a whole are set to post a decline of 0.9 percent by value this year, the third straight drop, according to Euromonitor research. Volume of the highest-priced champagne segment will continue to grow at a compound annual growth rate of 1.8 percent from 2009 to 2015, according to a report by market researcher International Wine and Spirit Record.

Photographer: Thierry Stefanopoulos/Bloomberg

Sales of the most expensive wines including those made by LVMH Moet Hennessy Louis Vuitton SA are bucking the industry trend as the wealthiest drinkers shell out more than 100 euros ($133) a pop for a bottle of champagne again amid a revival in luxury spending after the credit crunch. Close

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Photographer: Thierry Stefanopoulos/Bloomberg

Sales of the most expensive wines including those made by LVMH Moet Hennessy Louis Vuitton SA are bucking the industry trend as the wealthiest drinkers shell out more than 100 euros ($133) a pop for a bottle of champagne again amid a revival in luxury spending after the credit crunch.

The fall in sales “can pretty much be traced back to Lehman,” Hawes said, referring to the collapse of Lehman Brothers Holding Inc. “At the back end of 2008, if you were going to be drinking a premium brand of champagne you’d better have been doing it on your own in the garden shed.”

Louis XIV

Champagne is produced from grapes grown only in the Champagne region of northeast France. The drink is made from three primary grapes: Pinot Noir, Chardonnay and Pinot Meunier, and gained favor with French kings including Louis XIV, according to Laurent-Perrier’s website, giving it the cachet of being an exclusive, luxury drink.

Paris-based LVMH, the world’s biggest maker of champagne, reported a 22 percent increase in sales in the first nine months of 2010 at its spirits and wine unit and said there was a “good return” of consumer demand for the drink in the third quarter.

The company generates about half of revenue at the unit from sales of champagne brands including bottles of Moet & Chandon and Veuve Clicquot, the bestselling champagnes in the world, according to Euromonitor. The drinks range from about $46 for a bottle of Moet & Chandon’s Brut Imperial non-vintage to $346 for Veuve Clicquot’s 1998 vintage rose “La Grande Dame,” according to thedrinkshop.com.

‘Brand Builders’

Pernod Ricard SA’s champagne unit expected to have a “pretty good Christmas” season after a revival in demand in the third quarter, said Lionel Breton, chief executive officer of the Paris-based maker’s Martell Mumm Perrier-Jouet division. Sales of Perrier-Jouet, which retails for about 32.90 euros in a Paris store, soared 36 percent in the three months to Sept. 30.

“We took a decision not to discount during the crisis,” Breton said in an interview. “We consider ourselves as brand builders and not volume pushers.”

Lanson-BCC, the maker of the Boizel and Lanson brands, reported an 8.5 percent increase in sales excluding a brokerage unit in the first half of 2010, outpacing a 6.7 percent increase in volume. The company, which says it’s the second-biggest champagne producer globally, reported “superior vintages such as champagne Lanson” and export sales had performed better than its secondary brands.

Premium Labels

Laurent-Perrier is selling more premium champagnes, increasing the ratio of those wines sold to 35.1 percent in the first half of its fiscal year from 33.8 percent a year before, it said Dec. 7. Vranken-Pommery Monopole said that the phenomenon of trading down during the recession had faded in the first half of the year, and that the company was seeing a return to big-name brands and prestige cuvees.

That’s in contrast to the lower end of the market, where consumers can find 10-pound ($15) bottles of Charles de Villers at the U.K.’s William Morrison Supermarkets Plc stores and half- priced bottles of Louis Chaurey for 17 pounds at Marks & Spencer Plc.

“It hasn’t really been the Veuve Clicquots, the Laurent- Perriers and the Perrier-Jouets” which have been discounted this year, said Simon Hales, an analyst covering the drinks industry at Evolution Securities in London. “It’s those brands where consumers don’t take any notice of the name on the bottle, and just say ‘buy that because it’s cheap.’”

Firmer Prices

Some champagne producers are still struggling. Remy Cointreau SA, the maker of Piper-Heidsieck champagne that retails for about $30 on wine.com, said Nov. 15 it hired bankers to sell the unit, which is unprofitable even after a 12 percent increase in first-half sales.

Producers are hoping for strong volume sales over the holiday season to give them greater leverage to increase prices in 2011, according to Trevor Stirling, an analyst at Sanford C. Bernstein in London. Champagne may show “more firmness in pricing” if volume improves.

The full effect of the rebound remains to be seen and may not be sustainable, said Spiros Malandrakis, an analyst at Euromonitor. “I don’t think the bounceback is either so solid or has massive potential for growth moving forward,” he said. Discounts on champagne in years past may also have damaged the champagne brand, which may lead consumers to trade down to sparkling wines like cava or prosecco, he said.

That said, “I don’t think it’s necessarily going to cannibalize champagne,” said Evolution’s Hales. Champagne’s “mystique is not going to go away.”

“There’s a kind of magic in champagne,” Breton at Pernod said. “It’s not just sparkling wine; it’s champagne.”

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.

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