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A couple of months back, a team of divers stumbled across a shipwreck at the bottom of the Baltic Sea. Dating roughly back to the 18th century, the sunken vessel’s cargo, sealed in the dark, cold and velvety embrace of the oceanic abyss, had miraculously survived.
Identifying the cache as a batch of champagne produced by Veuve Clicquot house back in 1785, a bottle was triumphantly brought back to the surface, ceremonially popped and the sound seemed to echo across media newsrooms around the globe.
Drawing parallels to the beleaguered international champagne market and its ascent out of the depths of the recessionary pit should be fairly straightforward for both manufactures and the fizzy tipple’s aficionados. As the familiar, reassuring popping sound starts being heard once again, Spiros Malandrakis, alcoholic drinks analyst at Euromonitor International, investigates.
Champagne is indeed a unique drink. This is by no means a reference to its romantic associations but rather a nod to the category’s functionality as an inimitable barometer reflecting the fortunes and aspirations of a given market. The reasoning is simple; Generically associated with ostentatious consumption, luxury and celebratory occasions, the category thrives in times of economic booms while its sales plummet in times of financial hardship. Entering the tsunami sized ripple effects of the Great Recession into the equation could provide the industry with nothing less than absolutely dismal figures. And so it did.
According to Euromonitor International global champagne sales tumbled by more than 5% in 2009 as the industry’s top core markets faced strong declines that mirrored the gloomiest consumer sentiment in decades. France, the UK and the US, controlling more than 67% of global volumes between them, witnessed drops of 6%, 10% and 5% respectively. As middle classes were forced to dramatically retrench and high-earners temporarily battened down the hatches, the previously bullish champagne industry found itself in a state of shock and eventually, utter disarray.
The apparent gap in the market proved to be a godsend gift in the hands of sparkling wine in its many –previously largely ignored- guises. Cava, Prosecco as well as other lower-end, generic varietals did not exactly have a field day but nevertheless managed to reassert their positioning both in the shelves as well as in consumers’ minds. And while other sparkling wine’s performance in 2009 might be considered unimpressive or downright negative at first glance, it should be remembered that the category proved to be a reliable trading down option for cash-strapped audiences, partially being the culprit behind the extensive discounting that champagne was reluctantly forced to adopt.
As destocking, economising and the tidal wave of consumers switching from the on-trade to the off-trade took hold, price erosion proved to be a one way road- exemplified by the deep discounting tactics witnessed in the UK. Leading champagne companies were quick to subscribe to the -previously snubbed- special discount strategy, a consequent uptick in sales mitigated their collapse and the tide was stemmed- albeit with a cost for brand equity and the bubbly’s hard earned premium credentials.
Now, as the dust from the carnage that was 2009 begins to settle, affordable indulgences and familiar luxuries seem an appropriate companion to a relatively more upbeat, if still far from rosy, economic outlook. And while the horizon might still be dotted with fiscal hazards and a looming sense of uncertainty, champagne appears to be currently riding the wave of optimism once more as signs of its new found buoyancy are coming in from every direction.
According to trade body CIVC, worldwide Champagne sales volumes rose by nearly 40% in the first half of 2010, further building on growth recorded in the first quarter. While figures for shipments to specific countries were not yet available at the time of writing, the stronger US dollar and UK pound in relation to the Euro apparently served to stimulate consumption in these two key markets. Furthermore, the price mix that took a severe battering during 2009 started showing signs of stabilisation.
Additionally, the recent, sharp resurgence in sales is loudly touted by a rising number of key players. Laurent-Perrier has reported a revival in Champagne sales in its fiscal first quarter, LVMH saw significant signs of improvement and Vranken-Pommery Monopole toasted the H1 rebound.
At the same time, fresh data from Sainsbury’s published in August 2010, suggest that shoppers are apparently not prepared to sacrifice their favourite luxury tipple even in the toughest times while they are increasingly opting for supermarket brands. The retailer claims to have enjoyed its strongest ever year in the category with its private labels thriving, despite (or perhaps because of) the down-turn.
According to Euromonitor International’s preliminary research, champagne sales in the UK are set to post low single digit growth in total volume terms for 2010, a development that seems to be replicated across the pond as well. Meanwhile, sales in the industry’s French bastion are set to essentially flat-line. All in all marginally positive news that are nevertheless bound to prompt a collective sigh of relief considering the free fall that the industry had to withstand over 2008 and 2009.
So far, so good, then. However, deciphering the recent surge of generically upbeat company results statements and CIVC’s ecstatic announcement, the repeated use of a certain adjective is softening the impetus ; The short term outlook remains optimistic indeed, but- and there is the catch- cautiously so.
With key Champagne markets ready to make ritual sacrifices to the altar of austerity, public finances under intense scrutiny and facing drastic cuts, the establishment of the jobless recovery as the new norm and the steadily rising possibility of a double-dip scenario, cautious is the new optimistic for an industry that is over reliant on stalling western mature markets for its survival.
Meanwhile, The Comité Interprofessionnel du Vin de Champagne (CIVC), has set a maximum yield of 10,500 kilograms per hectare (4.7 tons per acre) for 2010’s harvest, in an attempt to avoid the glut that has been chronically plaguing the wine industry.
Looking ahead manufacturers could hence continue enjoying the nascent recovery in the hope that the still lingering socioeconomic obstacles will be overcome, signalling the ‘full sail ahead ‘for the industry.
However, according to Euromonitor International, global volume CAGR for the category over 2010-2015 should be expected to be anaemic at best, a fact that will continue taking a toll on profit margins and positioning. Any possible upsurge is expected to be very limited, flirting with outright stagnation and postponed for the latter part of the next five year cycle. Diversification beyond its traditional bastions of the western world and into still burgeoning emerging markets will increasingly surface as a necessary choice for Champagne; After all, it works wonders for Cognac.
The category succeeded in escaping the abyss, is currently blissfully floating on the surface but the waters are still troubled as far as the eye can see – getting prepared and moving ahead will be the deciding factors if it is to avoid yet another shipwreck.