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09.20.2010

Where is All the Deeply Discounted Champagne?

ChampagneEvery day, I get e-mails with wines being offered at more and more outrageous prices. What you can get for $20 now astounds me, from Napa and Washington State Cabernet to Brunello di Montalcino. Hell, I got a 1978 Brunello di Montalcino for little more than $20 recently. That's just a little bit insane.

It's not just the flash sale web sites. It's everywhere. While the newspapers are printing stories about how the wine world is weathering the recession pretty well, the offers that I am getting (and I'm subscribed to maybe 5 or 6 retailer's e-mail lists) tell a slightly different story. Or they at least suggest that many top-tier wineries are not willing to sit around and hope that things get better. I'm seeing big name global wineries dip into their library stock to generate cash, I'm seeing wineries that would usually never attend large public tastings start to do so, and my conversations with insiders in Napa suggest many elite wineries are trying to broaden their distribution as much as possible.

The one thing I'm not seeing? Steep discounts on Champagne. Now maybe I'm not looking in the right places, but it's quite unusual that I keep running across wines from pretty much every other wine region in the world at crazy prices, but nary a top Champagne in sight.

This is quite amazing to me considering that the top Champagne houses make millions of bottles of the stuff. And I've seen some reports that say sales are down as much as 26% in America. Of course, you can find a report that says just about anything these days, but if the cult Cabernets are hurting, you can bet the $150-a-bottle Champagne crowd is hurting too, and they probably have in some cases literally 100 times more wine to sell.

The big Champagne houses have always had strong aversions to discounting. Forget recession, think about the last time you saw a top Champagne on sale at anything more than a nominal discount. Dom Perignon? Nope. Taittinger? Nope. Roederer? Nope. The Champagne establishment and their academics (who knew they had academics) think that discounting Champagne is tantamount to suicide. Like the Bordelaise these days , it seems that they think their prices should only ever go up, forgetting for a moment that of all the products we buy, fine wine is the one that we most expect to change in price from year to year.

So I've been doing a little asking around whenever I meet someone who knows a thing or two about French wine markets in general and Champagne in particular, and I've learned a little bit about how the big Champagne houses might be playing this particular swing of the market, given their fear of forever tarnishing their brands with the scourge of a discount.

Some of the houses will no doubt just sit on their stocks and try to ride it out. The nice thing about Champagne is that until you disgorge it and slap a label on it, it keeps pretty well. Especially the non-vintage stuff which doesn't have that pesky problem of being perceived as not the right current vintage in the marketplace.

The trouble with this strategy, however, is that you have an awful lot of money tied up in inventory that you would normally be able to spend on, say, paying your workers for the harvest that started last month, or buying more bottles, etc.

I had the chance to ask a wine broker that flies all over the world buying bulk wine for bottling under other labels whether there was a glut of Champagne wine for sale on the bulk market, and apparently there's very little. We (sadly) won't be seeing a $9 Cameron Hughes Champagne anytime soon.

It also looks like the Chinese are too obsessed with First Growth Bordeaux to buy enough Champagne to make much of a difference.

According to two industry insiders I talked to there does exist a way for Champagne houses to unload their stocks at reduced prices without damaging consumer perceptions of the brand. I was reminded of their predictions when I noticed the following line in Lettie Teague's recent blog post about luxury wines by the glass:

"...if you do want to buy a luxury wine by the bottle, there is a great deal at Landmarc Tribeca, where wine director David Lombardo has just started offering 2002 Roederer Cristal for $200- the same price as many New York retailers!"

According to the folks I talked with: Champagne houses will use the on-premise channel (that's fancy wine industry talk for restaurants and hotels) to sell their stock rather than discount it directly for the consumer. I have no idea whether this is what's going on at Landmarc, but I wouldn't be surprised.

It's not a bad idea as far as it goes -- it definitely allows the Champagne houses to sort of have their cake and eat it too, and I won't mind paying retail price for great Champagne in a restaurant if given the opportunity. But I really wish that the top Champagne producers would come off their high horses a little bit and join in the realities of the market. Restaurants with any sense of self preservation and accounting principles are probably dramatically cutting back their wine inventories for the same reason that the Champagne producers need to sell theirs. Too much dough tied up in bottles that are just sitting there. So while I'm sure it's appealing, it might not make enough of a difference.

The top Champagne houses need to take a little bit of a leap of faith. I'd jump at the chance to buy a bunch of really good bubbly at Flash-sale prices and I know a lot of other people would as well. They could sell a lot of wine. And I mean a LOT of wine. It would help with the cash flow and might even win them more customers that, once they got a taste of the good stuff, would have a hard time going back to $15.99 California Sparkling Wine.

And just like with everything in our lives it seems these days, from gasoline to the interest on our mortgages, to the price of oranges when there's a frost, we'll suck it up and pay more when the prices go back up when the market recovers.

Whaddya say? Do we have a deal?

Comments (19)

Per-BKWine wrote:
09.21.10 at 12:06 AM

The second half of last year saw a lot of champagne discounting in Europe. Sales were going badly. Perhaps a bit surprising, sales of champagne seems to have picked up quite a lot the first half of this year and that may give them less inclination to discount.

You also need to consider that champagne is a market that is controlled by a very small number of producers, unlike most other wine regions. The biggest one alone makes 25%-30% of all champagne sold, if I remember right. And the top ten 'companies' (you can't really talk about 'wine makers' here can you?) accounts for the vast majority of the production.

In that context it is much easier to control prices and pricing strategies.

09.21.10 at 12:23 AM

Many wines retailing for more than $30 have been escalating in price for years and years. They now need to come back down if they hope to survive a very slow market. It is that simple.

09.21.10 at 6:56 AM

I think you got a point, Alder. I don't really see deep discounting on Champs. Just saw Dom P at $120 at local Costco - like you said "nominal discount". Would snap up a LOT if I saw deep values. To be honest, top-tier Burgundy is still stratospheric as well. No matter how much they discount, that stuff is still untouchable for vast majority. See you at the MW tasting in SF...

Unmitigatedgaul wrote:
09.21.10 at 8:52 AM

Hi Alder
2 things:
1) Landmarc has a low markup policy. Great place to eat for that reason
2) Champagne houses discounted heavily in UK and France for quite a while to drive out stocks. Decided against it in US. Consider it a vote of confidence in resilience of our economy ( or at least in our wealthy brethren). Maintaining pricing here is of utmost importance to them. Why do you think they are restricting yields?

Alder Yarrow wrote:
09.21.10 at 8:57 AM

Gary,

I give Burgundy a pass (perhaps too generously) because they make so little of the stuff, and the production is so fractured among lots of tiny producers.

Per-BKWine wrote:
09.21.10 at 9:39 AM

@ Alder

That's exactly WHY Burgundy is still interesting (that there are so many small producers). But you have to know where to look to find both good and reasonably priced wines.

@ Unmitigatedgaul

"restricting the yield"?? They have by far the highest yields of any quality wine region in France.

Corkdork wrote:
09.21.10 at 11:39 AM

As a former Pernod Ricard employee and having some insight into Moet Hennessy's strategies, neither supplier intends to heavily discount in the US for holiday 2010, neither in base brands nor Tete de Cuvee . In fact, distributors will more than likely see FOB increases in calendar 11. The winery figures losing 1/2 to 1% per month to hold inventory over the mid-term until business rebounds is a more fiscally sound stragegy than lowering prices that they may not be able to recover. They also don't want to fill distributor warehouses because the big guys will demand floor stock adjustments in excess of what it costs the winery to hold goods, at cost, in France. Not the answer the consumer wants, but for now, the reality of the positions of the two biggest US importers.

Mr.Zdur wrote:
09.22.10 at 1:14 PM

Champagne houses can bottle their prestige wines according to demand. It makes no sense to produce a too much of a wine that is not selling. They, like any other company, have a limit to how much inventory they can keep. These houses typically have very large volume non-vintage cuvees that they can use to declass the higher end base wines. In turn, they can declass the lower end base wines to an even lower tier or bulk them out. Also, disgorgement is done on demand and quality can improve if the wines are held in tirage longer. So, what you might see is higher quality and lower prices for a house's lower end Champagnes.

Anthony Truchard wrote:
09.22.10 at 3:35 PM

I think that the main reason that you are not seeing major discounting in Champagne is because it is either not vintage dated or the Tete de Cuvees that are vintage dated are not made every year so that the distributors and Champagne houses do not have to close the wine out and put it on sale to introduce the next year's vintage. One of the challenges of managing inventory with wine is that it is vintage dated and made every year. For the most part that vintage has to be sold in one year's time as the next vintage will be ready to release.

Mr.Zdur wrote:
09.23.10 at 9:20 AM

Looks like the market for high end fizz is doing pretty well. I guess Krug doesn't rhyme as well as Cristal though.

http://www.thedrinksbusiness.com/index.php?option=com_content&task=view&id=11734&Itemid=66

Sam wrote:
09.23.10 at 10:47 AM

Great article! With the glut of wine out there it would be nice to see other regions respond the way California has. Deep discounts aren't a bad thing and regions like Champagne should be using this economy as an opportunity to expose more people to their great wines by showing off what makes Champagne different than other sparkling wines.

Sam

GuitarGuy wrote:
09.23.10 at 11:07 PM

Don't forget that in the US, the ovewhelming majority of sparkling wine (including Champagne) is sold in November and December. It is well above 50% of yearly sales, I think. Champagne houses are used to making their yearly market in 2 months and those two months are yet to come. They probably are not seeing this as much more than their normal pre-holiday sales lag. They may be holding their breath, like the Democrats in Congress, hoping for better news come late fall and early winter.

rs wrote:
09.26.10 at 1:34 PM

This is NOT to start an argument re: the relative merit of Fr vs CA. As much as my wife and I enjoy Champagne, we do just fine on CA bubbly.

Anthony wrote:
09.27.10 at 5:09 AM

I did hear of a specific incidence here in Florence where a broker offered a top name champagne to a retailer at half the normal wholesale (and said he had as much as they could take - hundreds of cases if wanted). They took 3 cases - and put it on sale at full regular price.

So as far as Italy goes, even if the supply chain is coming down, the retailer still can't bite the bullet!

On the other hand I was in Reims 2 summers ago and Taittinger had a cellar (just one of many) with over a million bottles of vintage champagne that they don't seem to have any rush to move...

Richard Fadeley wrote:
09.27.10 at 8:02 AM

I believe it was last year that they cut production by 25% and lowered the yields on the harvest by 1/3 (or vise versa) throughout Champagne. This is probably the main reason your not seeing any "deals". Personally I think they should have cut prices and maybe intice new buyers into the market, but they chose to manipulate the market the other way.

Tom wrote:
09.27.10 at 10:32 AM

Since champagne sales in the US are ultra-seasonal, and people will likely still buy it for those occasions, there hasn't been the price pressure that there is in Europe (where people drink more of it more often and can get a lot more brands).

Weston wrote:
10.15.10 at 3:28 PM

Have you seen those Champagne Castles! can't discount how will you pay the Gardener to keep your grass perfect!


I must say Champagne at Retail prices in a restaurant actually does sound like a genius move. Good play~

Steven Aulk wrote:
10.21.10 at 1:51 PM

In the UK there is a strong tendency to discount Brut Non Vintage brands by the major supermarkets at Christmas time to bring in the customers. They make up the profits by charging over the odds on the regular shop.

Outside of the festive period special offers on Champagne are pretty much hit and miss.

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