Is the party over for cheap fizz?
The ritual of celebrating Christmas with fizz has become as common as leaving a glass of sherry out for Santa. Yet, like cheap ice-cream deals when temperatures rise, the prices plummet just at the time people are most likely to buy Champagne.
This Christmas was no different and, as the big grocers vied for market share, cheap Champagne continued to be the weapon of choice to drive footfall and prices dropped to £10 a bottle in several large retailers. This discounting frenzy will be repeated in early February in the run-up to Valentine’s Day, another buoyant period for fizz sales.
The continuing discount strategy for Champagne doesn’t make much sense, looks unsustainable and it’s debatable whether it’s desirable for retailers, producers or the end consumer.
It may also be damaging the wider image of Champagne, endangering the one segment of the wine retail market where entry-level prices should logically start somewhere north of £12 a bottle. This offers a decent margin, although already nearly two-thirds of sales are made on promotion.
The low retail prices at the end of 2013 do not reflect the rising cost of production in Champagne, where the price of grapes has risen continuously over the past two decades.
After two relatively small harvests in 2013 and 2012, there’s a growing tightness in supply that’s likely to put further upward pressure on prices.
Grocers have falsely preserved this cheap sector over a period when a lot of international brands have gradually increased their prices. Many now sit nearer £40 than £30 a bottle.
They will find it increasingly difficult to source the Champagne to continue with this strategy without cutting corners.
There are producers set up to service this sector but it is becoming tougher for them to survive. One of the side effects of the largest players in Champagne pushing up grape prices – as LVMH deliberately and successfully set out to do over the past few years – is to make it harder for those selling cheaply to operate.
Higher grape prices encourage more small producers to sell their fruit rather than finished wine.
By buying grapes at 2013 harvest prices it’s virtually impossible to sell a £10 Champagne and make even the slimmest of margins.
The operators servicing the entry-level sector get flak for cut-price offers but, while they supply the bottles, they don’t set the final price on the shelf. It is the supermarkets, particularly in France and the UK – Champagne’s two largest markets – but also elsewhere in Europe, that are taking the decision to sell at below cost price, not the supplier.
Although that is technically illegal in France, the likes of Leclerc, Carrefour and Intermarché have readily found ways to circumvent French legislation, mainly by giving customers discounts through loyalty cards.
In November Carrefour cut the price of Paul- François Vranken’s Premier Cru to just €7.78 a bottle and Leclerc responded with an €8.45 price on GH Martel, in much the same way as Sainsbury’s, Asda and Tesco reacted to each other’s promotions in the UK in the build-up to Christmas.
Michel Letter, head of GH Mumm and Perrier-Jouët, says: “With discounts as large as this the consumer might think something is wrong with the wine and I am afraid of this. The price of the Vranken Champagne [in Carrefour] is below cost. It’s not his [Vranken’s] fault but the supermarket which has set the price – but the consumer doesn’t know that.”
The discounting in French supermarkets has continued in the second week of January, with Intermarché offering Marie Stuart Cuvée de la Reine for €8.57 a bottle via a 50% discount on a loyalty card – a mechanic it also used to sell bottles of Evian.
But even these deals don’t match the price of just €5.45 a bottle for Laurence D Champagne at Leclerc in September 2012. This was supplied by Nicolas Dubois and his Pressoirs de France group and provoked the local paper l’Union to run the headline: “Champagne for less than the price of a kilo of grapes”.
How did Dubois help Leclerc to do this? Although he had vineyard assets of his own (10.67ha) and the company had some 165ha of supply contracts, giving him a production capacity of between 1.75-2 million bottles of Champagne, in 2012 he actually sold 6 million bottles.
While the Champenois don’t generally like to talk about the sur lattes market – the trade in bottled but un-disgorged, unlabelled Champagne – and often play down its significance, here was hard evidence of it flourishing.
Sur lattes can be of any quality. It is variable depending on who it is from but mostly it is entry level and the way the cheapest Champagne is likely to be sourced.
It is often the wine made by co-operatives for grower members to label and sell themselves or through a third party.
All this emerged as the Pressoirs de France business model foundered and became the subject of bankruptcy proceedings in the French courts.
With the rest of the Champenois looking on, Dubois revealed he had purchased €160 million of other producers’ Champagne in this way over the four previous years.
That’s in excess of 22 million bottles working on an average sur lattes price of between €6.5 and €7 a bottle.
While much of this wine retailed in France, a significant proportion was sold in the UK, fuelling the demand for cheap Champagne. In 2012 and early 2013 several of the large UK supermarkets were dealing with Dubois’ Pressoirs de France group.
It supplied Tesco with a range of wines from Jeeper as well as the cheaper Léo Deviroy brand and François Dubois labels, Morrisons with its Louis Dubrince Champagnes and Waitrose with Bertrand de Bessac, all of which were heavily promoted on half-price deals in the UK in the run-up to Christmas 2012.
Tesco wine category manager Laura Jewell MW says it is no longer doing business with Dubois, although she adds that Tesco never had any problems in its dealings with him.
While Dubois looked like going bust a year ago, the business was rescued from receivership at the 11th hour by French entrepreneur Michel Reybier, whose wine interests include ownership of Cos d’Estournel.
With Dubois and his new business partner expected to move out of this entry-level sector in favour of building up a more profitable branded business under labels such as Jeeper, this has left a gap in the market for producers capable of providing the UK grocers with own- brand exclusives, not to be confused with own-label.
It is own-brand exclusives that typically offer the largest discounts – and on Valentine’s Day this is where the half-price deals are likely to come from.
A relative newcomer to this business in the UK is Les Roches Blanches, a streamline négociant operation employing 15 people and built up from scratch by Nicolas Gueusquin since 1994.
Originally based in Dizy – where it still has a 20,000hl winery used for blending its Champagnes – the company has just opened a facility with riddling and labelling operations plus two disgorgement lines on an 8,000sq m site at Oiry on the south side of Epernay, close to a new Moët warehouse.
Les Roches Blanches has been active in the UK market for several years, working in partnership with Bottle Green and in 2009 introducing the French Connection range of three Champagnes, which was sold by Morrisons and the Co-operative Group.
The demise of the Dubois operation opened up further opportunities and Les Roches Blanches has started to supply Tesco, initially with Louis Delaunay Brut priced at £24.99 and discounted by the grocer to £10 in early December.
As well as introducing lines from the co-operatives Montaudon (Alliance Champagne) and Esterlin (Mancy) at Tesco, Jewell says she was impressed when she visited the new Les Roches Blanches site.
Guy de Saint Victor, export director at owner Gueusquin, says: “The Les Roches operation has grown to around 6 million bottles last year with about two-thirds sold in France and the remainder exported to the UK and Germany, with a little to Belgium and some business in Japan.
“It’s a solid business and we are now a sizeable player. That is why Tesco has decided to work with us.”
Les Roches Blanches has been built up slowly, working with the on-trade, wine shops and wholesalers – supplying brands such as Henri Favre, Louis Rozier and French Connection – as well as the major off-trade retailers, says De Saint Victor.
“Although Gueusquin only owns 3-4ha of vineyard, the company has contracts of supply for some 350ha plus long-term supply agreements with co-operatives which vinify and age for us to our specification to match our style of Champagne,” he says. “We source from all over the appellation. The sur-lattes side of the business is a small percentage.”
He rejects the idea that £10 Champagne is damaging to Champagne’s image.
“In this world of special offers and bargains I am not sure £10 Champagne is endangering the idea of a deluxe drink. If more people can enjoy a magic bubbling moment, why not, providing they drink reasonably? The global image of Champagne remains strong.”
One of the other players in the UK supplying inexpensive Champagne to the large retailers is Free Run Wines, which used to work with Nicolas Dubois and his Pressoirs de France group.
Director Nicolas Bauer says it is now in business with three producers in Champagne: Paul Laurent and the Co- opérative Union Vinicole des Coteaux (CUVC), which are both in Béthon in the Côte de Sézanne region, plus Charles Mignon, a small négociant based in Epernay.
The CUVC supplies the Charles Lecouvey Brut recently introduced at Waitrose – and a shade optimistically priced at £31.99. It was one of its main discount lines this Christmas selling at half price, £15.99 a bottle.
Charles Mignon Premium Réserve Brut is a relatively new line at Tesco selling at £24 a bottle.
Does Bauer see the continuing steep discounting in UK supermarkets continuing?
“We can’t dictate retail prices,” he says. “The supermarkets decide what prices to sell their Champagnes at and see it as a key part of their offer to drive footfall in the promotional periods such as Christmas, the New Year and Valentine’s Day. Champagne still has a lot of kudos.”
Is it sustainable? “I don’t know. The prices of grapes and duty continue to go up. Does it make commercial sense? It does to them.”
He views the estimate of €8.30 to make a bottle of Champagne from grapes bought in the 2013 harvest as optimistic. “It is closer to €9,” he says.
What about damaging the image of Champagne?
“I’m not convinced,” says Bauer. “Putting aside the aggressive pricing, it is possible to get a good bottle between £15 and £20 and we are trying to offer this opportunity to the consumer.
“You don’t need to pay £35.”