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THE BACKGROUND

We're now in the midst of the 'summer circuit'. Sporting events such as the Wimbledon tennis championships and Royal Ascot have traditionally represented the peak of seasonal champagne consumption by the affluent classes. But these days, champagne is no longer the drink of kings and people of all classes appear to be quaffing bubbly as never before. The sharp growth-curve for the world's most famous sparkling wine has opened up the market for many more national variants and tastes. As a result, some observers believe champagne brands must choose between further growth and a loss of exclusivity.

UK champagne consumption is at an all-time high. Last year, some 26m litres were drunk in the UK - a 10% rise year on year, and 50% more than just five years ago. Not surprisingly, the French are by far the world's leading consumers of champagne, reaching 63% of adults, according to TGI Europa.

Champagne drinking in France is no longer considered a luxury and a broad range of consumers drink it on a variety of occasions. It is the UK market that now shows more healthy signs of future growth.

The UK champagne market is estimated to be worth £900m, according to Mintel. Rapid growth rates show few signs of abating - Mintel predicts this figure could rise to £1.2bn by 2007.

Two reasons for this are increased consumer affluence and a rapid expansion of bars specialising in cocktails and fine wines. Champagne's elitist image has also slowly evaporated thanks to associations with sports and pop stars.

Champagne originates from the eponymous region in northern France and by law only sparkling wine made in France can use the name. Brut (dry), champagne with a sugar content of up to 15g a litre, is the most popular type consumed in the UK - accounting for more than 92% of all champagne drunk.

An estimated 98% of champagne sold in the UK is imported by major brand owners, independent producers and co-operatives. But while numerous champagnes are now available in this country, a handful of big names continue to dominate. Moet Hennessy's Moet & Chandon is the market leader, followed by Marne & Champagne's Lanson and Veuve Clicquot brands (see table).

Arguably the most important factor driving UK champagne sales growth is the rise of good-quality supermarket champagnes and retailers' recent emphasis on heavily discounting non-vintage variants. Mintel figures show sales of champagne for take-home consumption account for 55% of the market.

Own-label success

Tesco and Sainsbury's are the main own-label champagne players. Over Christmas 2003, Tesco sold more champagne than it did during the Millennium festivities. Tesco's cheapest cham- pagne - Pol Aime - sells for just £10.53. The supermarket caused quite a stir two years ago when one of its non-vintage brands, then selling for £12.99, was preferred to Veuve Clicquot and Mumm in a blind tasting by Which? experts .

'A broader range of consumers are now drinking champagne and the wide variety of champagnes now available in the UK - such as the softer, more approachable, roses and demi-secs - is driving the trend,' says Tesco product development manager Nick Juby. 'Retail brands provide a trusted choice for consumers. The high quality and good value they provide encourages people to experiment. Rose is the fastest-growing wine category in the UK and that will probably become the case with champagne. Off-dry and demi-sec are increasingly popular as people use champagne as an alternative to dessert wine.'

For retail brands, heavy discounting is a significant marketing tool.

But established owners such as Allied Domecq, which controls brands including Mumm and Perrier Jouet, insist that once people get a taste for champagne from supermarkets, many will then trade up to more famous names.

It appears that advertising plays a less important role in the sale of branded champagnes than it does with other alcoholic drinks. In 1999, advertising for champagne peaked at £3.2m - less than 0.3% of the market value.

UK resistance

There is still some way to go before UK champagne consumption equals that of many of our European neighbours. However, champagne sales in France have stagnated at 125m litres - widely blamed on a sluggish economy - and many expect the figure to drop further. The latest valuation of the French champagne market is approximately 3.5bn euros (£2.3bn). Meanwhile, prospects for the UK champagne market look bright. Volume sales are expected to rise to almost 40m litres by 2007, an increase of 44%, and analysts predict a rise in value of 36%. UK sparkling wines are becoming increasingly popular as their profile grows.

Just last month, three English sparkling wines were rated better than champagne following another blind-taste survey by Which? A further four were classed 'as good as' champagne.

'The future for the mature French market does not look healthy - due to their economy. The French are unlikely to spend on discretionary indulgences,' Mintel analyst Michelle Strutton observes. 'But the prospects for the UK market are strong given its buoyancy and its optimistic economic outlook.'

The importance of image

Strutton sounds one note of caution. While supermarket discounting will undoubtedly drive sales further, she believes there is a danger of champagne becoming too accessible.

'Champagne is still seen as a drink for special occasions, but to grow the market the industry needs to perform a delicate balancing act,' Strutton says. 'The challenge is to democratise champagne without shedding its long-standing and carefully-cultivated image as the finest sparkling wine in the world.'

UK CHAMPAGNE DRINKERS 2003 BY GENDER, AGE AND PLACE OF CONSUMPTION (%)

Champagne At home Elsewhere Both

drinkers

All 25.0 12.3 6.8 6.2

Men 23.6 11.7 5.7 6.4

Women 26.3 12.9 7.9 6.1

By age

15-19 24.3 11.3 7.7 5.9

20-24 26.6 11.0 7.1 9.3

25-34 31.2 14.7 7.6 9.0

35-44 28.8 14.8 7.0 7.3

45-54 27.4 14.6 6.5 6.2

55-64 22.8 11.5 7.1 4.5

65+ 15.2 7.4 5.4 2.9

Source: TGI Europe, BMRB

ADSPEND BY BRAND

Owner Brand 2003

(pounds)

1 Moet Hennessy Moet & Chandon 181,000

Dom Perignon 90,000

Mercier 56,000

2 Allied Domecq Perrier Jouet 59,000

Mumm 47,000

3 Remy Piper Heidsieck 11,000

4 Veuve Clicquot Veuve Clicquot 92,000

La Grande Dame 8000

5 Canard-Duchene Krug 28,000

Laurent Perrier 18,000

Bollinger 17,000

Source: Nielsen Media Research

OWN-LABEL CHAMPAGNE ADSPEND BY RETAILER

Retailer 2003

(pounds)

1 Tesco 378,000

2 Sainsbury's 208,000

3 Marks & Spencer 86,000

4 Oddbins 39,000

5 Morrisons 27,000

6 Other 22,000

Source: Nielsen Media Research

ANALYST COMMENT

Anne Nugent, Global research manager for alcoholic drinks, Euromonitor

That champagne has managed to broaden its appeal to a wider demographic in recent years is of little doubt.

This change in consumption patterns and the drink's accessibility has led some to wonder if it is in danger of losing its prestige image. The short answer is no. Champagne has many factors in its favour to support its image.

First, champagne has traditionally built its image on exclusivity - not through availability and price alone, but also through some strong brands.

Over the past few years, price discounting, which did take place across the board and particularly in 2002, is most heavily concentrated on smaller brands and through own-label offers.

Aspirational brands such as Bollinger and Veuve Clicquot were much less affected by discounting. In 2003, due to a poor grape harvest, many key champagne houses were reluctant, or even unable, to participate in heavy discounting because of the danger of running out of stocks.

Second, the Champagne region is clearly defined and, as such, production is limited to that area.

It is also dependent on climatic factors to ensure supply. So while 2002 was a good year for production, this is not always the case - as witnessed in 2003. Furthermore, while global demand is in line with supply, any surge in demand will inevitably lead to price increases.

Third, champagne is in the enviable position of having the edge over its closest competitor.

Other types of sparkling wine such as cava and spumante, although popular in the UK, tend to be positioned as a cheaper alternative to champagne.