This article was initially published in the May issue of Global Drinks Intel magazine. For details on how to subscribe click here.
With demand for Champagne skyrocketing, especially in the US, Italy and Japan, producers have been forced to restrict allocations to protect supply.
It says much about the current state of the Champagne category that the industry recorded its highest level of shipments in 15 years in 2022 – and still be left with a sense of underachievement.
An increase of nearly 2% on 2021’s already strong post-Covid recovery to 326m bottles [according to trade association Comité Champagne] is a strong endorsement of Champagne’s enduring appeal. However, the global total had been poised to hit something above 330m units, until producers moved to restrict allocations and protect supply for the early months of this year.
“2022 could have been a record year, should enough bottles have been available in the cellars,” says Jean-Pierre Cointreau, CEO of Renaud Cointreau, owner of high-end Champagne house Gosset. “However, Maison Gosset, like most Champagne houses, suffered from low volumes of previous vendanges and an unexpected rise in consumer demand.”
It was a similar story at Champagne Drappier. “The market was extremely dynamic,” says head of marketing Charline Drappier. “We had to put a lot of effort to slow the orders because we simply didn't have enough bottles of Champagne left. As a result, our sales are a little under 2021, because we weren't able to supply the demand.”
At Maison Bruno Paillard, Alice Paillard reckons the current supply shortage made 2022 a good year for everyone, adding that one should be cautious in drawing too many conclusions from the numbers. “What's particularly striking is the overall value of these shipments,” she adds - referring to the breaking of the EUR6bn [US$6.72bn] barrier for the first time in 2022. “And, finally, everybody's coming out of Covid progressively, even China.”
This positivity is also highlighted by François Demouy, communications & marketing manager at Champagne Palmer, who reports “solid growth” for the house last year, with exports rising by 5%. “Beyond the shipment figures," he adds, "we see that this reflects the market trend in terms of Champagne consumption in the markets.”
“The excellent start to this year in terms of shipments [in January and February] confirms this trend - there has been no accumulation of stock in 2022 [and] sales correspond to strong demand.”
Value over volume
Last year's shipment declines, according to Champagne Cattier president & chef de caves Alexandre Cattier, were mainly confined to supermarkets - the traditional home of lower-priced grower Champagnes. He believes the trend reflects two complementary dynamics: some consumers trading down from low-priced Champagne to other sparkling wines, while others trade up to premium Champagnes only to encounter restricted supplies as houses reallocate volumes to more lucrative export destinations.
Multiple factors are driving the increased value of exports. One positive is the continued appetite for higher-priced cuvées beyond core brut non-vintage. At the same time, however, companies are having to navigate a complex landscape of rising costs - for grapes, packaging and logistics.
Alice Paillard sees the current value surge as the result of three phenomena: rising prices, increased sales of higher-priced cuvées, and stronger performances in more lucrative markets, such as the US and a resurgent Japan, long a mainstay of the category's luxury segment.
Could this go too far, overheating the market? “We have to be careful with prices,” warns Alexandre Cattier. “They went high for two main reasons: inflation and rarity. Inflation, we ‘deal with’. But, with high demand and lower stock, it's easy to turn a blind eye and put a significant increase on prices.
“At some point, the demand will go back to where it should be and the customer will remember when the brands abused [their position] and made mistakes on pricing. It's easy to write, but finding the right balance is, of course, another thing.”
At Bruno Paillard, Alice Paillard has been dealing with restricted supply since mid-2021, when the post-Covid bounce first emerged. She has employed three main tactics: preserving quality; continuing to supply smaller markets and distribution ecosystems to avoid concentrating sales in too few destinations, and being as transparent as possible with trade partners, so they can respond to the situation.
Good 2023 harvest vital to ease supply pressure
This complex juggling of supply, demand and pricing is partly caused - and certainly exacerbated - by the small harvests of 2020 and 2021. The former was artificially enforced by the Champagne authorities, who wanted to restrict production because of the Covid-19 crisis; the latter was the result of appalling weather conditions.
In this context, the glorious 2022 harvest - both in terms of quality and quantity - was a godsend, with Demouy pointing out the parallels with two more years ending in ‘2’, recalling the quality of both 2002 and 2012.
But, Champagne requires ageing - for at least 15 months, even for the humblest cuvée, but much longer for the higher-value bottlings that are becoming increasingly important to the industry. As Gosset’s Cointreau puts it: “Indeed, the 2022 vendange was welcome. [But], due to the long ageing of the Gosset cuvées, it will take at least four years to ease our supply pressure.”
Alexandre Cattier agrees. “It won't push down the pressure right away,” he says. “This will lower the pressure when the bottles produced from that vintage will be on the market, so roughly not before late 2024/early 2025. Up to that moment, if the demand is still high, there will be high pressure on the stocks.”
In that context, the 2023 harvest is every bit as vital as 2022. “Even if the market goes slightly down, back as usual, the stocks will still remain low,” explains Cattier. “So it will be important to have a great harvest, to refill the cellars with enough bottles. To make it simple: we had two small harvests, 2020 and ’21; we need two large harvests to balance this situation - 2022 and, fingers crossed, 2023.”
This is necessary not just to supply future demand, adds Alice Paillard, but also to enable houses and growers to rebuild their individual reserves to hedge against future poor harvests.
After that, we’re into crystal ball territory. “Both harvests are important, as they will eventually, in three to four years from now, help meet the demand,” says Charline Drappier. “However, it's hard to say if the demand will keep rising.
“Champagne is limited to a very small producing area - 0.4% of the world's wine-producing areas, and 13% of all sparkling wine - so the future will tell if we can produce enough.”
This article was initially published in the May issue of Global Drinks Intel magazine. For details on how to subscribe click here.
