Winemakers crack open the bubbly, by Euromonitor International
Winemakers' hunt for margins and Champagne producers' drive for expansion have sent both towards the same goal of diversification.
Recent reports highlighting wine producer Codorníu's interest in acquiring a Champagne brand are hardly surprising, given winemakers' desire for the sort of premium image and premium margins enjoyed by Champagne brands. Meanwhile, however, companies such as Moët Hennessy, faced with the challenge of getting consumers with limited disposable income to trade up to Champagne, are diversifying their portfolios to include sparkling wine.
Value versus volume
Confronted by a maturing Western European market, which accounts for 56% of worldwide volume sales of still light grape wine, winemakers are seeking higher value returns. A combination of oversupply and massive supermarket discounting has encouraged consumers to develop an undiscerning, deal-chasing attitude to wine, making it practically impossible for wine producers to convince consumers to trade up beyond a particular price. As such, Champagne's higher margins represent an attractive alternative. Not only is Champagne experiencing growth in Western Europe, in Asia-Pacific, Champagne's third largest market, sales are forecast to grow by an impressive 50% in volume terms by 2011.
However, structural challenges including grape supply remain a problem in Champagne production. The area in which Champagne can legally be grown and the amount that can be cultivated in a given area are heavily constrained, leaving companies susceptible to successive poor harvests with little to no flexibility to increase production. At the beginning of January, the French appellations body raised the limit on Champagne production yields by over 16% to 15,500 kilos a hectare of grapes in order to enhance the ability of producers to meet the growing demand. A further challenge is in pinpointing a brand which has sizeable stocks and a good contractual relationship with the grape suppliers.
Attaining the perfect balance
Euromonitor International anticipates further diversification, as those companies with highly focused offerings seek to balance their portfolios. Wine companies will wish to exploit the western nations' increasing tendency to consume Champagne outside of traditional celebratory occasions, whilst taking advantage of the rapid growth expected in immature markets such as Japan, China, India and South Korea. Conversely, Champagne producers will be looking at adding a sparkling wine to their portfolios in order to aid expansion, and could attempt to use this cheaper product as a stepping stone to their more expensive, premium Champagne brands.
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