Is This The End For Grower Champagnes?

 

First a little history and a few revealing figures…

It used to be the case that the price of a kilo of grapes in Champagne was announced each year (or at least strongly recommended), just before the harvest, by the CIVC after much debate amongst the various players in the industry: from the big champagne houses, to the small grape growers.

The benchmark for prices was always the 17 Grand Cru villages which are rated as 100% on the quality scale and for which one would have to pay 100% of the market rate. If your vineyard was rated at 89% for example, you would expect to be paid 89% of the benchmark price and so on and so forth.

In 2000, under pressure from the EU which had forbidden this practice of ‘fixing prices’ as they saw it, the price of grapes was left to be determined by market forces – the price at which people were prepared to buy and sell.

As far as I can see however that hasn’t resulted in a huge hike in prices; even before 2000 prices had been on a long-term upward trend

 

Price per kg in Euros

Increase per decade

1973

1.28

 

1983

2.37

85%

1993

3.13

32%

2003

4.39

40%

2013

6.00

37%

     

As you can see, this year’s average price hit 6 euros /kg making grapes in Champagne the most expensive in the world. (n.b. these prices are for grapes from Grand Crus vineyards, but even grapes form lesser vineyards are not far below these levels and the fixed percentage calculations no longer apply)

Just to put things into perspective the cost of grapes for Cava is between 0.30 and 0.40 euros per kilo and for Prosecco the average price is about 0.65 euros.kg and that has fallen 7% since last year.

So why might this be a bad thing for the small champagne producers and why is there a risk that these prices increases might break the delicate balance between large brands and small family enterprises that has served Champagne so well for many years?

Not surprisingly it all comes down to the price at which you can sell the finished bottle of champagne, or to put it another way , can you raise your selling prices enough to compensate for the increasing costs of grapes?

This is where the big brands score and the small guys lose out.

The large and the small of it

Bottles-ageing225Take the case of Perrier-Jouët for example. According to Michel Letter, the Directeur Général, they are pretty bullish about the future. 85% of their sales are made in export markets, at good prices. What’s more M. Letter sees huge potential in new markets and believes that prices will keep on going up. That’s why, even though times are a little tough right now, he is happy to invest in large stocks ageing in the cellars so that they are ready to sell in a few years’ time when the expected growth in demand materialises.

Perrier-Jouët’s example is not the exception. Most other big houses have a) the financial resources to put stock in the cellars ready for the upturn in sales and b) the marketing clout to persuade consumers to pay a little more each year for their champagne.

What about the small producers?

They are at a double disadvantage.

A) Many of them have yet to develop any sizeable presence in export markets where they can secure better selling prices. The reverse is in fact the case. Most of their sales are in France, or other mature markets, where sales are sluggish and prices are very competitive.

B) They don’t have the marketing resources or skills needed to add value to their champagnes so as to convince consumers to pay a little more.

So they are being squeezed in between rising costs, stagnant sales and an inability to raise their selling prices.

Where is all this leading?

Some of the leading players amongst the grower champagnes have already made a name for themselves in France and around the world so they can command good prices. They will be fine, more or less, however high the price of grapes goes, but what about the others?

Well I can tell you that there are a lot of small producers who are waking up to the fact that the French market, where their dad and granddad used to sell, is a hard struggle at the moment: soft demand and low prices. So they know they have to export to grow, perhaps even to survive.

However, it often takes many years to build up export sales and what do you do in the meantime if you need cash?

Well if you are a récoltant-manipulant ( using grapes from your own vineyards to make your champagne) you can sell part of your crop of grapes to the big houses. As we read above, the big houses are getting ready for an upturn in the market in a few years so they are in the market for grapes – at least the small guys can generate some cash.

The big downside for the RM is that once you have sold your grapes you can’t use those grapes to make your own brand of champagne. What’s more, if I were the buyer for a big house I’d want to do a deal for several years instead of just one, so the small producers will have fewer grapes for a few years to come yet.

If push comes to shove, and they can’t break into the export markets and get better prices for their champagnes, some of the RM may simply decide just to sell grapes and forget the production side altogether.

Let them go out of business

So that is what lies behind the headlines about the rising price of grapes and why some sense that there is a shift in power right now in favour of the big-name brands.

The possibility is that the big brands will capture an ever growing share of the grapes, particularly in the prestigious Grand Cru villages which are in high demand and which are what they really need.

Conversely there will be fewer grapes left for the smaller concerns with the result that their production may be cut back, or that a few may even disappear.

Personally I really hope this doesn’t happen because I think that the Champagne region and consumers worldwide would be the poorer for having less choice and missing out on some fabulous grower champagnes. Having said that I can only repeat to you what the export director of one large producer said to me not long ago “If the small producers can’t add value to their product and sell at good prices they should go out of business and sell their grapes to the people who can. That way the economy of the entire region would be better off”

It’s a tough assessment of the situation, but he may have a point.

What do you think?