CONSUMERS

BRICS: The Future of Champagne?

by

Estella Shardlow

|

This is the featured image caption
Credit: This is the featured image credit

Estella Shardlow, deputy editor of Vintage Seekers, explains why emerging economies look set to become the lifeblood of the luxury Champagne trade

Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.

PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.

In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”

The Fondation Cartier pour l’Art Contemparain building in Paris

Estella Shardlow, deputy editor of Vintage Seekers, explains why emerging economies look set to become the lifeblood of the luxury Champagne trade

A limited edition case of Perrier-Jouet

Estella Shardlow, deputy editor of Vintage Seekers, explains why emerging economies look set to become the lifeblood of the luxury Champagne trade

Forget about Bordeaux. Emerging economies are catching onto the charms of prestige cuvées and look set to become the lifeblood of the luxury Champagne trade. But with rising costs of production and reduced spending power in traditional bases, the road ahead will be far from easy for the Champenois.

Global Champagne sales in 2011 managed to scrape into positive figures with a 1% rise, most of which was driven by a surge in appreciation and sales from BRICs countries. Within LVMH’s wine and spirits portfolio, it was solely markets outside Europe and the US that generated actual revenue growth in 2011. Whilst in the UK – historically the biggest export market for Champagne – year-on-year sales moved towards decline.

The Asia Pacific region once again confirmed its significant role in Champagne consumption, as import rates to Russia and China in 2010 grew 89.9% and 87.6% respectively. Whilst the Chinese interest in Bordeaux and Burgundy has been well established with astronomical auction prices, for the first time the region is developing a substantial appetite for Champagne. In Mainland China, young, urban consumers are increasingly choosing sparkling in bars and nightclubs.

“ Growth rates for Champagne imports to Russia and China in 2010 were 89.9% and 87.6% respectively ”

Sales are also increasing in Uruguay, Chile and Argentina. Dom Pérignon’s most impressive growth in 2011 was in South America, primarily Brazil. Alexis Petit-Gas, marketing director at Canard-Gats, described it as “one of the hottest countries at the moment”. Although it still represents just a tiny sliver of the market share, shipments of Champagne to Brazil increased by 63% (2009-2010) and it is this rapid growth that is attracting the attention of producers.

As is the case in several other luxury industries, emerging economies are expected to play an integral part in the long-term success of Champagne brands. There are now more high net worth individuals (those with assets of more than $1m, excluding property) in the Asia Pacific region than anywhere else outside of the US – 3.3 million in fact. These consumers are indicating a desire to experience the most luxurious Champagnes and it is expected that larger volumes of top cuvees will be reserved for such tastes.

Though the opportunities are clear, high taxes and complex import processes present a serious hindrance to expansion in BRICs markets. Charges on Champagne imported to Brazil stand at almost 300%, while delivering to India can cost up to $125 for a single bottle. For brands even looking to supply complementary drinks to events as part of a marketing strategy, the costs are, for now, prohibitive.

“ Mainland China will be big; all the ingredients are there, from demand for brands, authenticity and desire to drink alcohol ”

The understanding is that the market is poised on the brink of a great new dawn, but it is yet to break. Champagne producers and executives are optimistic that tax and distribution laws in BRICs countries will evolve in the near future, and begin to cater to the growing demand, but they do not necessarily expect this to happen quickly.

“I’ve no doubt mainland China will be big,” confirmed Bollinger CEO Jérôme Philippon. "All the ingredients are there, from demand for brands, authenticity and desire to drink alcohol. Now it’s about Bordeaux and Burgundy, but it will happen.”

Beyond the excitement over these pastures anew, some mature markets for Champagne returned to form last year. In the US, which accounts for 5.9% of the export market, Champagne sales were up more than 14%. Having slumped as a result of recession, they were once again approaching the $32 million mark. In Japan, sales expectedly dipped in the aftermath of the tsunami disaster, but Perrier-Jouët named the region as its top-performing market for the prestige Belle Époque line, Krug similarly had a blockbuster year.

Another surprise boom – the biggest rise in sales of all, in fact – was Australia. The so-called “Wonder Down Under” has been enjoying an economic boom largely thanks to the exploitation of rich mineral resources, creating many new HNWIs ready to celebrate with prestige cuvées.

“ Western Europe still accounts for 80% of sales for luxury champagne houses, but for how much longer? ”

Western Europe still accounts for 80% of sales for luxury champagne houses, but increasing production costs threaten further growth in such an established market. Growers have upped the price of grapes, meaning that the raw material alone now accounts for around 40% of the total cost of production, or as high as 50% for some houses.

Economic concerns in the West threaten disposable income, making an increase in Champagne prices somewhat unpalatable to these existing consumers. Faced with the inevitable consequences to producers’ margins – brands could look to sell the same bottle in Brazil, Manila or Shanghai for three times the price.

The figures make an unequivocal point: luxury Champagne houses must court new international markets to thrive in the long term. They need to set their sites firmly on Asia and South America, shifting their dependence away from fragile Western European economies.

The market has proved remarkably resilient in weathering several years of recession and, in an exercise of caution, production volumes have been adapted accordingly. “The pipe is empty”, as Ghislain de Montgolfier, president of CIVC, put it. Producers can be cheerful about the future of fine Champagne, but it will be those that play for the long term who will continue to prosper.

To further investigate Fine Wines and Champagne on Luxury Society, we invite your to explore the related materials as follows:

5 Minutes With … Margareth Henriquez, CEO, Krug
China’s Market for Fine Wine Shows Maturity
2012 Luxury Industry Predictions from the Experts

Estella Shardlow
Estella Shardlow

Deputy Editor

I am the deputy editor of heritage lifestyle magazine Vintage Seekers, based in London. I also write freelance on travel, food, culture and art for consumer titles such as Conde Nast Traveller, GQ, Business Insider, Magnificent Man (Bremont) and The Arbuturian.

CONSUMERS

BRICS: The Future of Champagne?

by

Estella Shardlow

|

This is the featured image caption
Credit : This is the featured image credit

Estella Shardlow, deputy editor of Vintage Seekers, explains why emerging economies look set to become the lifeblood of the luxury Champagne trade

Over the last decade, collaborations between luxury brands and contemporary artists have gone beyond mere artistic partnerships towards a new kind of luxury branding.

PARIS – Art and fashion have always developed side by side, for fashion, like art, often gives visual expression to the cultural zeitgeist. During the 1920s, Salvador Dalí created dresses for Coco Chanel and Elsa Schiapparelli. In the 1930s, Ferragamo’s shoes commissioned designs for advertisements from Futurist painter Lucio Venna, while Gianni Versace commissioned works from artists such as Alighiero Boetti and Roy Lichtenstein for the launch of his collections. Yves Saint Laurent’s vast art collection, recently auctioned at Christie’s in Paris, testified to his great love of art and revealed the influence of a variety of artists on his own designs.

In the 1980s, relationships between luxury brands and artists were advanced when Alain Dominique Perrin created the Fondation Cartier. In the Fondation Cartier pour l’Art Contemporain, a book marking the foundation’s 20th anniversary, Perrin says he makes “a connection between all the different sorts of arts, and luxury goods are a kind of art. Luxury goods are handicrafts of art, applied art.”

The Fondation Cartier pour l’Art Contemparain building in Paris

Estella Shardlow, deputy editor of Vintage Seekers, explains why emerging economies look set to become the lifeblood of the luxury Champagne trade

A limited edition case of Perrier-Jouet

Estella Shardlow, deputy editor of Vintage Seekers, explains why emerging economies look set to become the lifeblood of the luxury Champagne trade

Forget about Bordeaux. Emerging economies are catching onto the charms of prestige cuvées and look set to become the lifeblood of the luxury Champagne trade. But with rising costs of production and reduced spending power in traditional bases, the road ahead will be far from easy for the Champenois.

Global Champagne sales in 2011 managed to scrape into positive figures with a 1% rise, most of which was driven by a surge in appreciation and sales from BRICs countries. Within LVMH’s wine and spirits portfolio, it was solely markets outside Europe and the US that generated actual revenue growth in 2011. Whilst in the UK – historically the biggest export market for Champagne – year-on-year sales moved towards decline.

The Asia Pacific region once again confirmed its significant role in Champagne consumption, as import rates to Russia and China in 2010 grew 89.9% and 87.6% respectively. Whilst the Chinese interest in Bordeaux and Burgundy has been well established with astronomical auction prices, for the first time the region is developing a substantial appetite for Champagne. In Mainland China, young, urban consumers are increasingly choosing sparkling in bars and nightclubs.

“ Growth rates for Champagne imports to Russia and China in 2010 were 89.9% and 87.6% respectively ”

Sales are also increasing in Uruguay, Chile and Argentina. Dom Pérignon’s most impressive growth in 2011 was in South America, primarily Brazil. Alexis Petit-Gas, marketing director at Canard-Gats, described it as “one of the hottest countries at the moment”. Although it still represents just a tiny sliver of the market share, shipments of Champagne to Brazil increased by 63% (2009-2010) and it is this rapid growth that is attracting the attention of producers.

As is the case in several other luxury industries, emerging economies are expected to play an integral part in the long-term success of Champagne brands. There are now more high net worth individuals (those with assets of more than $1m, excluding property) in the Asia Pacific region than anywhere else outside of the US – 3.3 million in fact. These consumers are indicating a desire to experience the most luxurious Champagnes and it is expected that larger volumes of top cuvees will be reserved for such tastes.

Though the opportunities are clear, high taxes and complex import processes present a serious hindrance to expansion in BRICs markets. Charges on Champagne imported to Brazil stand at almost 300%, while delivering to India can cost up to $125 for a single bottle. For brands even looking to supply complementary drinks to events as part of a marketing strategy, the costs are, for now, prohibitive.

“ Mainland China will be big; all the ingredients are there, from demand for brands, authenticity and desire to drink alcohol ”

The understanding is that the market is poised on the brink of a great new dawn, but it is yet to break. Champagne producers and executives are optimistic that tax and distribution laws in BRICs countries will evolve in the near future, and begin to cater to the growing demand, but they do not necessarily expect this to happen quickly.

“I’ve no doubt mainland China will be big,” confirmed Bollinger CEO Jérôme Philippon. "All the ingredients are there, from demand for brands, authenticity and desire to drink alcohol. Now it’s about Bordeaux and Burgundy, but it will happen.”

Beyond the excitement over these pastures anew, some mature markets for Champagne returned to form last year. In the US, which accounts for 5.9% of the export market, Champagne sales were up more than 14%. Having slumped as a result of recession, they were once again approaching the $32 million mark. In Japan, sales expectedly dipped in the aftermath of the tsunami disaster, but Perrier-Jouët named the region as its top-performing market for the prestige Belle Époque line, Krug similarly had a blockbuster year.

Another surprise boom – the biggest rise in sales of all, in fact – was Australia. The so-called “Wonder Down Under” has been enjoying an economic boom largely thanks to the exploitation of rich mineral resources, creating many new HNWIs ready to celebrate with prestige cuvées.

“ Western Europe still accounts for 80% of sales for luxury champagne houses, but for how much longer? ”

Western Europe still accounts for 80% of sales for luxury champagne houses, but increasing production costs threaten further growth in such an established market. Growers have upped the price of grapes, meaning that the raw material alone now accounts for around 40% of the total cost of production, or as high as 50% for some houses.

Economic concerns in the West threaten disposable income, making an increase in Champagne prices somewhat unpalatable to these existing consumers. Faced with the inevitable consequences to producers’ margins – brands could look to sell the same bottle in Brazil, Manila or Shanghai for three times the price.

The figures make an unequivocal point: luxury Champagne houses must court new international markets to thrive in the long term. They need to set their sites firmly on Asia and South America, shifting their dependence away from fragile Western European economies.

The market has proved remarkably resilient in weathering several years of recession and, in an exercise of caution, production volumes have been adapted accordingly. “The pipe is empty”, as Ghislain de Montgolfier, president of CIVC, put it. Producers can be cheerful about the future of fine Champagne, but it will be those that play for the long term who will continue to prosper.

To further investigate Fine Wines and Champagne on Luxury Society, we invite your to explore the related materials as follows:

5 Minutes With … Margareth Henriquez, CEO, Krug
China’s Market for Fine Wine Shows Maturity
2012 Luxury Industry Predictions from the Experts

Estella Shardlow
Estella Shardlow

Deputy Editor

I am the deputy editor of heritage lifestyle magazine Vintage Seekers, based in London. I also write freelance on travel, food, culture and art for consumer titles such as Conde Nast Traveller, GQ, Business Insider, Magnificent Man (Bremont) and The Arbuturian.

Related articles

CONSUMERS

In the Gloom in China’s Luxury Market, Is 520 Still Relevant?

CONSUMERS

The Anatomy of the Perfect Brand Resort Takeover

CONSUMERS

5 Must Know Facts About China’s Millennials