CHAMPAGNE BULLETIN NOVEMBER 2022
Supply and demand
In previous Champagne Bulletins, I’ve often touched on the fact that stocks in Champagne are running low because of two consecutive small harvests in 2020 and 2021 followed by a large and unexpected increase in sales of champagne as many aspects of life returned to normal at the end of that pandemic.
The latest shipment data from the CIVC show just how strong the rebound in sales has been.
The moving annual total for shipments in the 12-month period from 1st October 2021 to 30 September 2022 shows a total of 336.5 million bottles shipped.
Contrast this with the figure of just under 300 million per year at the start of the pandemic and with the figure of just 250 million bottles at the low point during the pandemic and you have a good idea of how much sales have taken off recently.
Finally, it’s worth noting that the record from annual shipments stands at 338.7 million which was set in 2007, so we’re well on track to exceed even that within the next few months.
This situation has led to a lot of speculation that there will inevitably be shortages of champagne this Christmas and New Year.
To add fuel to this fire, in a recent interview, Philippe Schaus, the head of Moët Hennessy – the wines and spirits branch of LVMH, the world’s largest luxury brands group - confirmed that he expects just the kind of shortages that have been feared.
Photo credit © Jean-François Robert
Before you rush out right now to buy every bottle you can find, let’s look at the situation more closely.
Yes., it’s true that stocks are under pressure, and it will be a couple of years before stocks are significantly replenished when the wines from the 2022 harvest become available for sale. However, the effects may not be felt in the same way across all segments of the champagne market.
What tends to happen when supply is constrained whilst demand remains high is that prices go up and this is what can already be seen playing out.
One producer I work with has just raised prices for the third time this year and whilst the underlying cause of the increases has been rising prices in raw materials, the effect is to dampen sales which sooner or later will help to ease the pressure on stocks. In this sense the market acts as a self-regulating system as it always does.
This is reassuring in the mid- to long-term, but not in the next few months. Therefore, in the immediate future what we will probably see are fewer and less-generous discount offers over Christmas and the New Year, especially on non-vintage champagnes where the demand over the holiday season is the most intense. Paradoxically, it may be that higher priced cuvées are easier to find with the exception of the very best-known brands which are often subject to supply limitations in normal circumstances.
Aim high
For anyone looking to create a private brand, all this disruption may have a number of impacts.
It’s likely that over the next few months it will be harder to find suppliers willing to accept new projects, particularly if the projected number of bottles is significant and the target buying price is on the low side.
This trend, coupled with rising prices will put additional pressure of the profit margins of any new brand targeting a mid-to-low-end retail price point. However, this segment of the market has always been the most competitive and the most difficult to penetrate, so now more than ever, it makes sense for any new brand to shoot for a more luxury positioning that offers the potential for more viable profit margins.
This interpretation of the state of the market is borne out in a recent study of the global market for luxury brands carried out by Bain & Company.
According to the study, by 2030 there should be an additional 100 million consumers joining the ranks of luxury brand buyers. Foremost amongst these new consumers will be young people born in the early 1980s ( Generation Y) and those born around the turn of the century ( Gen Z )
Know your customers
Whenever I work with a new client on a private brand, one of the first questions I ask is “ Who are your target customers?”
In my view this is an absolutely fundamental question that influences almost every other aspect of the brand image and positioning and consequently is a determining factor in the success of any new brand. The more you understand your customers, the better you can respond to their expectations and the greater your brand’s chances of success.
That’s why a recent report by Wine Intelligence into the expectations of younger wine drinkers is particularly interesting. The study addressed only the U.K. market, but I think it’s reasonable to extrapolate the findings into other markets
You can read more in this article in The Drinks Business
https://www.thedrinksbusiness.com/2022/11/this-is-what-the-younger-generation-wants-from-wine/
but the key points are:
A. Boomers (55+) and Gen X (40-54)
- Boomers and Gen X remain the key targets for the wine industry because wine drinking is a solid habit and wine dominates their alcohol repertoire.
- These two groups account for 73% of the wine drinking population and 66% of total spend in off-premise.
- Their wine-drinking focus is on the informal and functional (taste, food matching, relaxation).
- They have routine purchase-patterns at entry and mid-price points.
- Gen X (40-54) are more willing than boomers to trade up in the off premise, they are more involved drinkers, and they still seeking novelty.
B. LDA Gen Z (18-24) and Millennials (25-39)
- LDA Gen Z and Millennials are the key targets in the on-premise and for premium and super premium wines.
- Both generations account for only 26% of the regular wine drinking population but for around 50% of the total spend in bars, pubs and restaurants.
- For both of these cohorts, wine carries social values, prompting curiosity, involvement and higher spend levels.
- LDA Gen Z tend to be price sensitive though are willing to trade up for social occasions. They also show specific interest for sweeter styles of wines, rosé and sparkling.
For those doing business in the USA or Canada, Wine Intelligence publish specific reports into the latest wine trends. Find out more here:
https://www.wineintelligence.com/what-we-do/wine-consumer-observatories-2022/
New product launch
On the subject of luxury brands, one new brand of champagne has recently caught the eye.
It’s called Cuvée Karma 2016 and has been produced by Champagne Victor and Charles whose owner claims to have produced the most beautiful bottle in the world.
The bottle certainly looks extremely elegant, and a real diamond is embedded into the logo displayed on each bottle which partly explains the retail price of €575
The wine itself does not lay claim to be of any exceptional quality, but if rarity (only 1,000 bottles available at the moment) and visual impact are anything to go by, then Cuvée Karma should be a success.
The cost of producing a bottle like this one is clearly on the high side – even very high, and so the initial investment would have been considerable, but as we touched on above, the potential return on a luxury brand such as this is also high. With a potential turnover of €575,000 there should be ample room to cover all the development costs plus quite a bit to spare.
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That brings me to the end of the last Champagne Bulletin for 2022.
I’ll see you again in 2023 with more news and views from Champagne and in the meantime, I wish you a very Merry Christmas and a wonderful New Year with plenty of sparkle.
