Champagne Business

Question 1

STRUCTURE OF THE INDUSTRY

Answer 1

• more than 15,000 growers
  
  • own around 90% vineyards
• 360 Champagne houses
• vast majority of growers sell to Champagne houses or to co-operatives
• some growers keep their grapes (or a proportion) to make their own wines (grower Champagnes)
• Co-operatives:
  
  • bridging growers and houses who sell most of the Champagne but only own about 10 per cent of the vineyards
• brokers, too, play an important role in finding wine for the houses, acting as a go-between

Question 2

Codes on the label

Answer 2

NM: Négociant manipulant
* commonly referred to as ‘houses’
* buy grapes, must or wine to make Champagne on their own premises and market it under their own label
* all big Champagne houses belong to this category.
* often called by the abbreviation négociant / the group as a whole the négoce.

RM: Récoltant manipulant
* commonly referred to as ‘growers’
* make and markets their own label from grapes exclusively sourced from their own vineyards and processed on their own premises

CM: Coopérative de manipulation
* co-operatives
* market Champagne under their own label from members’ grapes

Question 3

Major groupings of the houses

Answer 3

• LVMH, the largest of the groupings, owns Moët & Chandon, Dom Pérignon, Mercier, Veuve Clicquot, Ruinart and Krug
• Vranken Pommery Monopole owns Vranken, Pommery, Monopole Heidsieck, Charles Lafitte and Bissinger.

The top five of these groupings account for two-thirds of all sales by value.

Question 4

Market situation/players’ situation

Answer 4

Just under half of sales to domestic market -rest exported.

Total shipments: around 300 million bottles per year in the decade to 2019

The houses:
* have the biggest sales
* relatively strong in export. markets
account for 73% sales and 88% exports
* large houses moved to buy their grapes directly from growers or via agents, and deal less with the co-operatives

co-operatives:
* bottles sold volume small and evenly split between home/export
* Nicolas Feuillatte third biggest Champagne selling brand on its own
* Recent years: diversifying their businesses
* selling base wine to the large house
* also making and promoting their own brands

Growers:
* sell most of their wine in the home market.

Comitee Champagne
* manage the relationship between the Champagne houses, the co-operatives and the growers
* Each of these have one or more organisations that represent them

Question 5

Supply control in Champagne

Answer 5

• setting the maximum yields of grapes (number of kilos per hectare) that can be made into Champagne in the coming harvest.
• grape yields for base wine for the coming year
• allowance for wines to go into reserves
• In the light of current stocks, world demand and the progress of the season until the decision is made in late July
• average yield over the last decade is 10,500 kilos/hectare
• 10% variation makes significant difference

If:producers need additional stocks for sale, they can take wine out of their reserves.

Also conducting review possibilities of additional land to be available for the production of grapes around the perimeter of the appellation (ongoing).

Question 6

Demand for Champagne

Answer 6

• domestic market consumes half of all Champagne produced
• avg price is low, due to the volume of inexpensive Champagne sold in supermarkets in France
• % of the cheapest wines (under €12) has dropped steadily recently, while the percentage of wine over €20 has risen steadily.

main export markets:
* UK, USA, Japan, Germany and Belgium in that order (by volume, 2018 figures)

2 most valuable markets (highest price paid per bottle)
* USA and Japan
* UK - biggest market by volume and the lowest average per bottle price in the top ten export destinations

Champagne re-positioning itself away from volume market:
* (growth of mid-priced sparkling wine, especially Prosecco)
* less use of chemical fertilisers for environmental reasons than in the past
* lower maximum yields are being set
* focus is now wines at higher price points
* Volume dropped by 10 per cent but value has risen by a 25% in the decade to 2018.

Question 7

Cost of Production in Relation to Price Sought

Answer 7

Grapes:
* €6.10 per kilo,
* around 1.2 kg of grapes needed to produce one 75 cL bottle of Champagne - large proportion of the cost of the product
* grand cru or premier cru grapes even more expensive
* Vintage Champagne more expensive to produce than non-vintage
* made from higher rated (i.e. grand cru and premier cru)= more expensive grapes
* cannot be sold for 3y, vs 15 months for NV,
* delays the financial return = can lead to cash flow problems for new businesses.

• Rosé Champagne - marginally more expensive
  
  • red wine is required - typically more expensive to produce than white base wine
    
    • generally lower yields in the vineyard needed to achieve the required ripeness, concentration levels of flavour and colour.
• oak for primary fermentation or base-wine ageing in any style of Champagne is also likely to increase costs.
• costs are for the grapes (50 per cent)
• total production costs (30 per cent)
• commercialisation (20 per cent).

Question 8

ROUTE TO MARKET

Answer 8

Here are the key points in short bullet format, with all original information retained:
• Large Champagne houses spend heavily on marketing/advertising—around 20% of the bottle price.
• Bottle cost breakdown: grapes (50%), production (30%), commercialisation (20%).
• Many large houses manage their own distribution, often via in-house companies in key markets.
• Major brands often part of conglomerates—shared distribution systems across multiple brands.
• Trend among large players toward increasing control over distribution.
• Only way to control pricing effectively.
• Crucial to limit grey market trading (unauthorised reselling of products).
• Some large houses use agents for distribution, providing budgets for promotion and marketing.
• A small number of growers sell internationally across several markets.
• Typically use specialist agents who promote their wines in small wine shops, to private clients, and in hospitality.
• These agents usually represent multiple growers’ Champagnes.
• Due to limited marketing budgets, growers often promote wines through personal visits to key markets.

Question 9

NEW PRODUCTS AND TRENDS

Answer 9

Brut Nature wines:
• Small, niche market focused on specialist wine shops and restaurants with extensive Champagne selections.
• Dry styles gaining popularity:
• Brut Nature and Extra Brut sales grew by over one-third in the decade to 2018.
• Growing interest in these styles in the domestic hospitality sector.

Sweet Champagnes for cocktails:
• Major houses launched sweeter wines meant for drinking over ice and in cocktails.
• Moët & Chandon’s Ice Impérial (a Demi-Sec) pioneered the trend, heavily promoted in the upmarket travel sector.

Rosé Champagne in higher demand:
• Follows general rosé wine trend.
• Big brands like Moët & Chandon and Veuve Clicquot investing in red wine production facilities and marketing.
• Rosé Champagne shipments rose from 3% to approx. 10% since early 2000s.

Single-vineyard Champagnes at the premium end:
• Increased interest in these higher-priced wines.
• Not a new concept: Philipponnat’s Clos des Goisses (launched 1935), Krug’s Clos du Mesnil (first vintage 1979).
• Trend has grown this century, enabling producers to command higher prices.

Rising interest in grower Champagnes:
• Entire winemaking process done by the grower, often small-scale producers.
• Allows flexibility in style (varietals, blends, vintage or non-vintage) year-to-year.
• Key examples from all subregions:
• Domaine Jacques Selosse (Côte des Blancs)
• Champagne Jacquesson (Montagne de Reims)
• Champagne Drappier (Côte des Bar)