Off-trade discounting and the widespread upmarket swing across food and drink sectors have boosted Champagne and sparkling wines, as non-occasion consumption rises. This has altered concepts of exclusivity, and driven demand for high-end Champagnes. With shortages of the drink looking likely in the next few years, UK sparkling wines may benefit from restrictions placed on the former's production capacity by the geographical limits of the official Champagne region, though inflation is expected to lead to value decline in the sector, despite volume growth.
The effects of an upmarket shift in food and drink sectors, from ready meals to yoghurt, have been ubiquitous over the past few years, as consumers have shown they are willing to trade up and pay more for higher-quality products.
This changing attitude has certainly been reflected in the fortunes of the Champagne market. The UK now accounts for more than a quarter of Champagne exports, and while sales have risen 8% over the past two years to reach a value of £958m, the biggest growth has been seen in sparkling wine, where sales are up 17%.
According to Mintel, sales of Cava, Prosecco and Australian sparkling wines reached £385m in 2007, with Champagne and sparkling wines the fastest growing on-trade category.
The sector has been boosted by the growing popularity of cocktails and fine dining, both at home and in restaurants. As people spend more money and time on food, they become more discerning about the drinks they choose as accompaniments. With the growing trend for home entertaining, sparkling wines have also found a market as a gift for the host.
On-trade sales of Champagne have grown significantly, and off-trade has posted still greater increases in volume sales. However, retailer discounting has taken its toll on value. By contrast, sparkling wines have failed to transform strong performance in the off-trade into a secure foothold in bars and pubs.
Despite the rise in non-occasion drinking in this category, sales are still greatly affected by the seasons, with up to 40% of annual sales taking place around Christmas; Valentine's Day marks another surge, and producers are quick to capitalise by launching additional vintages and limited editions.
As more consumers buy into the category, the exclusivity of it has shifted, so that sales of vintage and prestige cuvees (the best quality juice from the grape pressing) are also on the rise.
The perceived value of Champagne has also been affected by retailers keen to offer discounts to drive footfall and volume sales. Last year, Asda had a limited-run sale of £30 bottles of Dom Perignon, while Woolworths introduced 3000 bottles of its own-label version for £5 under its Worthit! brand.
Indeed, over the long term, supply is likely to be outstripped by demand in this sector. There is a strong possibility of shortages in the next few years, especially as demand rises in countries such as Russia and China.
The geographical boundaries of the official Champagne-growing region, as determined by the Institut National des Appellations d'Origine, also limit production capacity. The body's expansion of the region in March has been supported by many of the big Champagne houses, though not by all growers, and has yet to be approved by the French Conseil d'Etat.
If it is passed, the increase in volume will not reach shoppers until about 2020, and a scarcity of Champagne will benefit sparkling wines, which have no such limits on their growing regions.
There are some notable trends within the latter category. Rosé varieties have found an audience, and are now the fastest-growing sub-category. In addition, Champagne producers Veuve Clicquot, Diamant and Tattinger have all made launches into this sub-sector.
Moreover, despite the poor reputation of English wines, domestically produced sparkling wines are gaining recognition. Denbies in Surrey and Nyetimber in West Sussex are the biggest British producers, while land in the UK, particularly the South East, has become sought-after by growers, including some French Champagne houses.
Moet is the market leader and has a strong on-trade position, although its sister brand Veuve Clicquot has posted the biggest growth in the sector over the past four years. Pernod Ricard is the second-biggest supplier, with brands in both the Champagne and sparkling wine categories, including Mumm, Perrier Jouet and Jacob's Creek.
Taking a longer-term view, the sector's key market of 25- to 34-year-olds is expected to remain static. However, older generations have tended to be low consumers of Champagne, and it is this age group that will return some of the biggest growth.
Overall, the market's fortunes over the next five years are predicted to be in sharp contrast to the impressive growth of the previous period. Though Mintel predicts 10% growth in the market, which is expected to reach a value of £1.1bn by 2012, when inflation for alcoholic drinks is taken into consideration this equates to a 4% decline, despite a predicted 10% growth in volume sales to 32m litres, over the same period.
Sparkling wine is expected to follow a similar pattern of growth and decline, although its volume sales are forecast to grow by 15% to reach 49m litres by 2012.
Champagne volume sales by variety 2007 2005 2003 % change 000 litres % 000 litres % 000 litres % 2003-07 1 Brut* 25,988 89 25,110 93 24,180 93 7.5 2 Rosé 2336 8 1080 4 1040 4 124.6 3 Prestige cuvées 584 2 270 1 260 1 124.6 4 Demi-sec 292 1 473 2 435 2 -32.9 Other 29 - 67 - 85 - -65.9 Total 29,200 100 27,000 100 26,000 100 12.3 Non-vintage 27,886 96 25,920 96 24,960 96 11.7 Vintage 1314 5 1080 4 1040 4 26 Source: Mintel *Brut includes only white variants Champagne brands by value and market share 2007 2005 2003 % change £m % £m % £m % 2003-07 1 Moët & Chandon 189 19.7 173 19.4 163 19.2 16 (Moët Hennessy) 2 Lanson 115 12 99 11.1 104 12.2 10.6 (Marne & Champagne) 3 Veuve Clicquot 113 11.8 105 11.8 94 11 20.2 (Moët Hennessy) 4 Laurent-Perrier 64 6.7 60 6.7 56 6.6 14.3 (Laurent-Perrier) 5 Bollinger 50 5.2 45 5.1 43 5.1 16.3 (Mentzendorff) Own-label 42 4.4 38 4.3 38 4.5 10.5 Other 385 40.2 370 41.6 352 41.4 9.4 Total 958 100 890 100 850 100 12.7 Source: Mintel Champagne volume sales and share by unit size 2007 2005 2003 % change 000 litres % 000 litres % 000 litres % 2003-07 1 75cl 27,448 94 25,650 95 24,674 94.9 11.2 2 20cl 642 2.2 459 1.7 442 1.7 45.2 3 Magnum 584 2 378 1.4 390 1.5 49.7 4 37.5cl 526 1.8 486 1.8 468 1.8 12 Other 29 0.1 27 0.1 26 0.1 11.5 Total 29,200 100 27,000 100 26,000 100 12.3 Source: Mintel
Analyst comment
Richard Halstead Chief operating officer, Wine Intelligence
According to the latest sales figures, Champagne is outrunning spark-ling wine in both value and growth, with sales up 27% to £777m, while the competition remains static at £370m. However, a recent Wine Intelligence survey of regular wine drinkers revealed some consumer awkwardness in the sector.
The on-trade was the chief beneficiary in terms of growth, but both bars and retailers should be encouraged by Champagne's value growth, which rose even faster than volumes.
In contrast to the still wines sector, where the sheer range of products available can be baffling, UK consumers have clear perceptions about Champagne and sparkling wines, and strong ideas about which brands are relevant to them.
Our study showed that 82% of wine drinkers were aware of Moet & Chandon, but only 48% felt the brand was 'for people like me'. This was the highest perceived relevancy rating of all Champagnes and sparkling wines.
Of those who were aware of the brand, just 24 %had bought it in the past six months, though 34 % report-ed drinking it in that time, and 27 % said they were likely to purchase the brand in the next six months.
The sparkling wine with the highest awareness rating was Martini Asti, at 58 %, ahead of Krug (50%), Jacob's Creek Sparkling (43%) and Mumm (42%).
Four of the top 10 sparkling wines that consumers identified as 'right for people like them' were from outside the Champagne region.
This is broadly in line with the UK market's sales split, and suggests that, while Champagne is still an aspirational product, many consumers are more comfortable with less flamboyantly marketed, and lower-priced, rivals.