Bottles made of sand

[mustang & vines]The current state of the wine business is enough to drive anyone to drink. Consider, for instance, this report from France:

French wine and spirits exports fell by almost a quarter in the first half of 2009…Champagne sales plummeted by 45% in value with Bordeaux declining 24%…Burgundy exports fell 30%

That last number might also be slightly elevated by the ongoing, and as yet not convincingly solved, premature oxidation issue affecting some of the region’s whites, but I suspect the majority of it is a simple matter of (over)supply vs. (under)demand.

In Champagne, however, they have a plan:

With sales falling, producers may be ordered to leave up to half their grapes to wither on the vine in an attempt to squeeze the market. Merchants are pushing for an historic reduction in yield as they seek to ensure that champagne remains an expensive luxury. “Everyone agrees that production has to be cut because no one here wants to see prices fall,” an industry insider said.

I suppose some might be moved to a fair bit of offense at the naked avarice of the folks who make Champagne, but I’m afraid I’m too cynical to be upset at this sort of thing anymore. And it is a good business/marketing decision, given what they sell is no longer wine (more on that in a moment).

But the news isn’t all bad. Referring once more to French wine:

The vin de pays category was less badly affected, while vin de table grew by 1.2%.

This matches what I’ve heard from retailers and restaurateurs: people are still buying alcohol, they’re just spending less when they do. But still, those drops in Champagne, Bordeaux, and Burgundy are dramatic. Aren’t these in-demand luxury products, with a worldwide audience and a steady stream of new buyers?

Yes. Therein lies the problem. Champagne, and to a slightly lesser extent Bordeaux, are not – in the market’s imagination – wines any longer. They’re luxury goods. They’re sold on their names and admired for the same reason, probably more than they’re admired for the contents of the bottles. Don’t believe me? Heed the source:

“Champagne is the drink of dreams and of parties,” [Patrick] Le Brun [chairman of the Syndicat Général des Vignerons de la Champagne] wrote in La Champagne Viticole, the trade magazine. “Its image, its universe are endangered when the term ‘crisis’ is associated too often with it.”

Note the absence of any talk of Champagne’s gustatory qualities. It’s all about the image, the prestige, the “event.”

This is a situation certain regions have engineered themselves. In boom times, it helps their sales, and – especially in Champagne – it neatly separates desirability from quality, making the former rather than the latter the driver of popularity (were that not so, people wouldn’t buy so much mediocre Veuve Clicquot). But as we’re now seeing, there’s a downside. People might remain true to a beloved beverage during hard times. But a status symbol? Those can be replaced, or abandoned, with ease.

On the other hand, not everyone suffers in a downturn:

The South African wine industry could face wine shortages within five years if sales continue to rise at the current rate, a leading South African producer has warned. In 2008, total exports increased 12% to a record 405 million liters but vineyard planting has not kept pace with increasing demand. Merwe Botha, financial director at Distell told decanter.com, “We need to look at the demand and supply situation. There are signs that in the next five years the industry could face shortages in supply. Producers have been under severe pressure because of margin and cash flow problems so they have not planted as much as they should have,” he added.

This was a topic of much angst last year when I visited South Africa. The ten-rand-to-the-dollar exchange rate that made the trip a ridiculous bargain has, for a while now, helped the wines make significant inroads into territory that once belonged to Australia, New Zealand, and California. But the too-cheap prices received by the producers have a significant downside, one that’s been plaguing South American countries as well: the money to plant (or replant, a significant issue facing a good number of South African growers), the money to upgrade facilities, and the money to work the market simply doesn’t materialize, even though the bottles themselves might be flying out the cellar door.


4 Comments

  • Hoke Harden

    September 3, 2009

    Insightful analysis there.

    I think the Champagne situation is particularly interesting since it was just last year the authorities vastly expanded the AOC are of Champagne. Expand the designated vineyard land one year and then cut back per-producer production the next.

    Hmmm.

    Reply
  • Ken Sternberg

    September 4, 2009

    I agree, Thor, that the Champagne industry (excluding genuine, grower-made wines) has made its own bed. But I think it's good that the overall quantity of grapes grown or at least used there gets reduced. I've wondered for years now how they manage to make so many mega bottles of Veuve or Moet from the grapes i the region. Maybe this will eventually improve the quality.

    But what would Alice pontificate on this?

    As for South Africa, certainly many very good wines still exist there. But the industry has been so co-opted by the industrial dreck producers that it seems this will bcome the next New Zealand Sauvignon Blanc fiasco.

    Reply
  • Christian Miller

    October 27, 2009

    I have long felt that Champagne was really operating in a different market from wines in terms of consumer psyche, so I think your commentary is right on there. Bordeaux, I'm not so sure, it seems to be positioned in consumer and trade minds quite similar to Napa Valley Cab. The odd thing about Bordeaux (in the U.S., it's a different story in Europe) is the extent to which it is associated by consumers with expensive, high quality, prestigious, expensive wines by consumers despite the plethora of $10-20 Bordeaux in the market (and even cheaper stuff available if anyone wanted to import it.)

    The trade down trend is very real and profound at this time. Our consumer research shows a major shift occurring between $15 and $20 a bottle, with majorities of consumers reporting decreased purchases above $20 and increases below $15.

    Reply
  • Brewnoser

    December 9, 2009

    I have to admit that I am far less inclined to purchase "Champagne" simply because I find more fun, and far better value, in sparkling wines from other places that don't charge an arm and a leg. Recent New Zealand, Chilean, Spanish, Italian, and yes, Canadian examples suffice for almost every occasion.

    Reply

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