Why is Cristal So Expensive - The Economics of Champagne

Why is Cristal so expensive?

At practically every champagne tasting some one asks me this question, or a variation:
 “Is Cristal really that good?” “ Am I getting value for my money if I  buy Cristal?”

If it’s not Cristal it’s the price of Dom Pérignon, or Krug that intrigues people.

Perhaps people want to know what each constituent element costs so as to arrive at the price in the shop or in the bar, but of course, it doesn’t work like that.

Rule No. 1 for companies that sell luxury goods is never to justify the price with logic; a ) it can’t be done and b) when you buy a luxury product you’re buying a dream, an emotion as much as the product  itself and that emotion is beyond value.

However, there’s another answer to the question which is much closer to the truth and that is that the most expensive champagnes cost what they do because they have to.

In order for you to understand what I mean by this I should explain a little about the economics of the champagne industry.

The area in which champagne may officially be produced is not only quite small, ( it covers about 35,000 hectares or  86,000 acres ), but it’s also rigidly controlled. Everything that happens within the champagne region is also tightly controlled - from the number of vines you can plant per hectare, to the weight of grapes that you are allowed to harvest from one hectare of vines, right through to amount of juice you may press from each kilo of grapes harvested

All this is done in a bid to maintain the reputation and high quality standards that are associated with champagne and you have to admit that, by and large, this has been achieved

It follows from all this regulation that the amount of champagne that can be produced each year is also limited; it’s just over 300 million bottles per year, in fact.

Although there are 35,000 hectares of vineyard, the area is split up into about 260,000 plots,
-many of them tiny- spread amongst some 20,000 different owners most of whose vineyards  have been in their family for generations.

Most of the large champagne houses also have their own vineyards, but none of them own enough to supply all the grapes they need to make the quantity of champagne they sell each year. From time to time vineyards are put up for sale, but this is an increasingly rare occurrence and it is certainly not possible to rely on buying more vineyards as a means of increasing the supply of grapes.

This consequence of this is that every champagne house has a choice to make. When sales reach the limit of what they can produce using grapes from their own vineyards, they can either choose to carry on increasing sales and buy the extra grapes they need on the open market ( from those who grow grapes but do not make champagne ), or they can decide to limit the number of bottles they sell and use only the grapes that they grow in their own vineyards.

Louis Roederer, which is the house that makes Cristal, has a policy of buying in no more than 30% of the grapes they need to make their champagne, or looked at the other way, they have decided to be self-sufficient in grapes for 70% of their needs.

Whilst this can be seen as an advantage because it gives control over the supply of grapes, it also means that  (unless you can buy more vineyards) it’s very difficult to increase the number of bottles you can produce and sell, so the only way to increase annual turnover is to increase the price of the bottles you do sell, but this can be easier said than done.

Most houses sell a ‘ flagship’ non-vintage brand – these sell in the UK for  between £25-£40 – but here the market is crowded and competition is tough so it’s hard to raise prices. This is the principle reason that houses also sell a Prestige Cuvée – the likes of Cristal and Dom Pérignon – that sell for £100 or a lot more, even though the cost of production is only a few euros more than for the less expensive ‘flagship’ brand. At these higher prices the competition is slightly less fierce and besides, there is a less clear perception on the part of the public of what the ‘correct’ price should be. Consumers base their decision to buy or not to buy on emotion just as much, if not more than, on logic.

It’s the generous profit on these prestige cuvées that keeps champagne houses afloat. There is money to be made in selling non-vintage champagne if you sell enough of it, but champagne houses usually re-invest a large part of the profit on non-vintage in advertising, marketing, distribution and all their other business activities, whilst a much greater proportion of the profit on the more expensive champagne goes straight into the bank.

So, from the commercial point of view, that’s why the price of Cristal and the others has to be at the level it is.

My advice, whatever champagne you are buying, is not to think too much about the price, but just to enjoy the experience.