French Welcome 2010 with Deep Champagne Discounts

The biggest threat to champagne these days may be champagne itself. After almost a decade of raising prices and cultivating the champagne brand to fend off such sparkling wines as prosecco and cava, some producers, including premium champagne maker Laurent-Perrier, are flooding French supermarkets with young bottles priced at less than €10 ($14.40). "We haven't seen such aggressive discounting since the big champagne crisis in 2000," when prices fell after the millennium celebrations, says Francis Pretre, an analyst at CM-CIC Securities in Paris 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 amount of champagne sold in France, the wine's home market, is sliding, and the value of that champagne is falling twice as fast as the recession prompts consumers to pare spending, according to an industry report by just-drinks.com. The trend threatens the prospects of champagne titans, including LVMH Moët Hennessy Louis Vuitton, as well as the $4.4 billion global industry, Pretre said. Cheaper AlternativesFrench shoppers selecting a bubbly for New Year's Eve are increasingly choosing cheaper options, such as Laurent-Perrier's €10 brand Jeanmaire; Hubert de Claminger, which costs as little as €8.90 at Carrefour; or Champagne Paul Breteuil, which goes for €10 at Auchan stores. "This year is really extraordinary—I see discounts everywhere, so why not take advantage?" says Didier Campinar, 28, a Parisian who lost his job as a public relations assistant three months ago. He purchased four bottles of LVMH's Mercier for €15.70 apiece at an Auchan store in western Paris, where the cheaper Jeanmaire and Paul Breteuil were sold out. "We have less money now, of course, but we won't give up champagne." Such producers as Vranken Pommery-Monopole and Boizel Chanoine Champagne are also "very aggressive" in selling cheap bottles for €13 or less at French superstores, such as 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. Damaging StrategySelling off young vintages cheaply is a value-destructive, shortsighted strategy, according to Carole Duval-Leroy, who chairs the region's quality monitoring committee and runs Champagne Duval-Leroy, a family-owned vintner. "It's a big problem, because once our prices fall, we need years to repair the damage done to the brand," she said in a Dec. 1 interview. "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 accustomed 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 about 20%. LVMH and other makers of premium labels, such as Bollinger, have slashed prices of some bottles as much as 50% in the U.K., the largest market after France, say such London analysts as HSBC's Erwan Rambourg and Trevor Stirling of Sanford C. Bernstein. Cava, ProseccoChampagne has also lost out to other sparkling wines, such as Spanish cava and Italian prosecco, whose sales increased 1% in 2008 as consumers in Germany and other export markets switched to cheaper alternatives, according to Euromonitor. Global champagne revenue fell 2.6% in 2008. In France, where consumers prefer local vintages, a cheaper alternative to champagne is the sparkling wine called cremant, which retails for €5 to €8 ($7.20-$11.50). "I prefer to sell a customer a good cremant rather than the really cheap champagne," says Stephane Corazza, an owner of a wine shop in northern Paris. "Those €10 bottles really aren't worth buying. Champagne needs to be balanced, it needs to age, and there really is a reason why good champagne costs more than other sparkling wines." LVMH, whose champagne brands include Dom Perignon and Ruinart, said wine and spirit revenue dropped 14% in the first nine months. Champagne sales at Vranken, whose less expensive bottles go for an average of €17 ($24.45) a bottle, fell 3.2% in the period, while Boizel reported a 12% decline. Catering to the Low EndAs consumers shun $200 bottles of Laurent-Perrier's Grand Siècle champagne, the Tours-Sur-Marne company has promoted its Jeanmaire brand to sell off stock of younger grapes and raise cash. While Jeanmaire has gone from "almost zero" to 10% of Laurent-Perrier's sales by volume in the past six months, the brand isn't enough to offset the company's decline in total sales. 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. "Right now the French retailers are focusing on low-end champagne," Laurent-Perrier CEO Stephane Tsassis said in a Dec. 1 interview. "We had to address that demand."

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