Uncorking success

TAKE a stroll down the Avenue du Champagne in Epernay, in north-eastern France, and a sense of the wealth and power of the champagne industry is immediate. At one end lies the vast fortress-like headquarters of Moët & Chandon, the world's largest champagne producer, owned by LVMH, a luxury-goods house. Then there are the more elegant 19th-century mansions belonging to smaller houses, like Perrier-Jouët, with its “Maison Belle Epoque”. Finally, you come to the modern headquarters of Mercier, where delivery trucks and tourist coaches jostle for space in the car-park.

At a time when the rest of the French wine industry is reeling from a steady decline in sales at home, and fierce competition from New World producers abroad, the French champagne industry appears unassailable. Australian or Spanish bubbly has never come close to rivalling the cachet (or the price) of real champagne. French champagne makers have defended their nectar with a clever mix of brilliant marketing and a zealous legal campaign to protect the crucial “champagne” name.

At first glance, the sales figures seem to speak for themselves. In the 1850s, before champagne became fashionable with the European nouveau riche—and when the wine was mostly sweet-tasting, a bit like today's Asti Spumante—the Champenois were selling around 10m bottles a year. A century later, in 1951, they were selling an annual 51m bottles. By 1999, as preparations for millennium celebrations got going, sales hit a new peak of 327m bottles—or more than $7 billion-worth of champagne. Currently, the champagne industry is suffering a small post-millennium hangover, as sales re-adjust to a normal pattern after the end-of-century binge. But the overall trend for the industry has been to float ever upwards, as surely as the bubbles in a champagne glass.

A family affair

Yet the venerable champagne houses are more vulnerable than their opulent mansions and booming sales might suggest. A clue to their problem lies in the geography of the Avenue du Champagne. Unlike the great chateaux of Bordeaux, the big champagne houses are not surrounded by vineyards. They are located firmly in the centre of towns like Epernay and the nearby city of Reims. That is because they are essentially trading houses that manufacture and market champagne. For the most part, they do not actually own the vineyards which produce the red and white grapes that they turn into champagne.

Drive up into the hills where the grapes are grown, and you see small stone plaques, like tombstones, which mark out the patches of land owned by the houses. One stone will mark a row of vines owned by Veuve Clicquot, another will signal ownership by Louis Roederer or Bollinger. But, largely as a result of French law, which has been structured to prevent the big champagne houses buying out smallholders, 90% of the champagne vineyards are still controlled by some 15,000 small growers. They own patches of vineyard all over the champagne district. Even mighty Moët's own vineyards produce just a quarter of the grapes it needs for the millions of bottles it churns out every year. Like almost all the other champagne houses, Moët is dependent on buying in grapes.

Relations between the growers and the houses have gone through tense periods in the past. In 1911, the growers rioted and trashed the cellars of many of the big houses, because they were buying in grapes from outside the region. It took the arrival of 40,000 troops to restore order. These days, most of the growers make a decent living, and thousands produce their own champagne, which they sell on a small scale—often to visitors who drop by their premises in the small villages that surround Epernay and Reims. The fact that vineyards have stayed in the hands of the same families—often for centuries—is reflected in the names of the small producers. In Chouilly, an ugly little village in the heart of the best chardonnay vineyards, there are directions to no fewer than six champagne makers called Legras.

For the most part, however, it is only the real champagne fans—often clutching the “Guide Hachette”, the bible of the French wine industry—who can be bothered to hammer on the doors of the various branches of the Legras family, or any of the hundreds of other small producers dotted around the region. The real marketing and sales power lies with the big houses. They account for 90% of exports, and 65% of sales in France.

Aux armes, citoyens

The champagne houses, however, are in danger of becoming victims of their own success. As production has soared, problems of supply have begun to loom. There are precious few vineyards left in the champagne region (which was carefully defined after the 1911 riots) that have yet to be planted. People in the industry reckon that champagne will have reached the limits of its production within a couple of years. When this happens, it will strengthen the position of the growers, who own the increasingly precious grapes.

Their hand will be further strengthened by a European Union ruling, which came into force in 2000, that the champagne region's long-established tradition of fixing grape prices—as part of a negotiated agreement between the growers and the houses—is anti-competitive. As a result, the price of grapes is set to soar and the champagne houses—which traditionally enjoy a gentlemanly and co-operative relationship (do not say cartel, lest Brussels takes another look)—are already being tempted to out-bid each other for grapes. One big wheel in the champagne industry tut-tuts that some of the smaller houses are behaving irresponsibly and paying “whatever it takes” to get hold of supplies. Quite what the going rate is remains perhaps the most closely guarded and controversial subject in the little world of champagne. Although the growers and champagne houses still set an “indicative” price for grapes, a system of secret additional bonuses has evolved. One champagne mogul says that the “greatest fear” of every grower in the region is that his neighbour is getting a better deal than he is. The greatest fear of the champagne houses, meanwhile, is that growers will defect to a better-paying rival.

Challenges to the traditional dominance of the champagne houses are already emerging. A couple of miles outside Epernay, on a hillside surrounded by vineyards, lies the headquarters of Nicolas Feuillatte—the newest and brashest kid on the champagne block. While most of the great champagne houses have been around since the 19th century, Nicolas Feuillatte has emerged from nowhere in the last 15 years to become the bestselling champagne in French hypermarkets and the seventh-biggest producer overall (see table). What is more, Nicolas Feuillatte is a growers' co-operative. Its pitch to the thousands of small growers is simple: don't sell all your grapes to the big champagne houses, give them to us and share in the profits and glory of your own brand. Some 4,500 growers—a third of the total—have so far taken up the offer.

The rapid growth of the Nicolas Feuillatte brand came as a shock to the champagne houses. Grower co-operatives have a long history in champagne—as they do in the rest of the French wine industry—but they have never had a reputation for quality produce or skilled marketing. Nicolas Feuillatte confounded those stereotypes. The firm's production facilities are the biggest and most modern in the region—indeed, they are used, on the quiet, by some of the traditional champagne houses.

The co-operative's marketing has also been innovative and sharp. While the Veuve Clicquots and Moëts, naturally enough, emphasise their history and tradition, Nicolas Feuillatte stresses modernity. A tour of a traditional champagne house will always include a view of the deep underground cellars, where the champagne is stored and aged, and perhaps a tasting in a panelled room surrounded by portraits of the founders of the house. At Nicolas Feuillatte, by contrast, visitors see the giant stainless steel vats in which the wine is blended, and the above-ground temperature-controlled storerooms, where specially commissioned works of modern art are displayed. “We like to commission young up-and-coming artists, because it fits with our own values,” says Olivier Cavil, the group's publicity man, before adding, frankly, “it's also cheaper.” The brand's advertising slogan is “Epernay—New York—and Beyond”.

Nicolas Feuillatte has not risen faultlessly. On the contrary, the faster the brand expanded, the more money it seemed to lose. Intoxicated by their rapid expansion, the co-op's managers poured money into fresh investment. Eventually, the growers—who had to finance the group's losses—staged a revolt. Last year, they turfed out the managing director and installed new bosses. The group expects to return to profit only by the end of 2002.

Naturally, the upheaval at Nicolas Feuillatte has been greeted with undisguised satisfaction back at the traditional champagne houses in Epernay. Yves Benard, who runs Moët's champagne business and chairs the Union des Maisons de Champagne, which groups together the biggest champagne brands, says: “The old management at Nicolas Feuillatte talked like they were on some sort of crusade against the champagne houses; but the new management are serious people.”

It is certainly true that, these days, the managers at Nicolas Feuillatte adopt a more humble tone. Appeals to liberate growers from their serfdom to the champagne houses are no longer in fashion. Instead, the talk is of co-existence and mutual respect. Indeed, most growers have been far too canny to throw in their entire lot with Nicolas Feuillatte—a more usual pattern is to sell some grapes to the traditional houses, some to the co-ops, and perhaps to keep some back to make your own-label champagne.

Indeed, it is the rise of the independent “grower champagnes” that has posed a second big challenge to the big champagne houses. Their great achievement—and the source of their wealth—has been to maintain the image and price of a luxury product, while selling huge volumes. The top wines of Bordeaux or Burgundy, by contrast, are usually produced in tiny quantities by small producers.

The rise of grower champagnes threatens the traditional houses, whose great achievement has been to maintain the image and price of a luxury product

But the Burgundy story is a cautionary tale for the Champenois. Thirty years ago, the production and marketing of the top wines from Burgundy was also dominated by négociants: intermediaries who bought and processed the grapes from the growers, much as modern champagne houses do today. But fashions and the balance of power changed. Today, the most fashionable and costly Burgundy wines are produced by individual small growers, cultivating their own tiny plots of land—and receiving fawning profiles in magazines like the Wine Spectator. If a similar fashion for “grower champagnes” developed at the top end of the market, the carefully nurtured image of the big champagne labels might begin to suffer—and the competition for the best grapes in the region would only intensify.

There is little doubt that more small growers are taking the plunge and going it alone. The Chiquet family, champagne makers in the village of Dizy, just outside Epernay, claim to have been the pioneers of the idea of “grower champagnes”. The family had been tending vineyards in the region since the 1700s, but it was not until 1919 that Gaston Chiquet started to manufacture his own champagne. His descendants are now doing well. Nicolas Chiquet, who runs the business today, says that exports of Gaston Chiquet champagnes have grown sharply: they now account for a third of all production, up from a fifth five years ago. The brand, for example, is now stocked by London's poshest wine store, Berry Bros. and Rudd.

There are now over 4,000 different champagne makers. Mr Chiquet reckons that the small growers benefit from a burgeoning consumer interest in knowing more about a product: where did it come from and who made it? He admits that small growers, no matter how inspired, will not always be able to match the results of the big houses, which have a wider choice of grapes to blend from. Indeed, some small growers produce inferior stuff that is thin and acidic. But the small production runs of the best growers allow them to devote that much more attention to each bottle. Some growers, like Gaston Chiquet itself, R & L Legras in Chouilly and Marguet-Bonnerave in Ambonnay, regularly get high praise from wine critics.

The mystique of the single vineyard or the inspired winemaker are already crucial to the images of most posh wines outside champagne. But they are not tools available to the big champagne houses, which achieve consistency, quality and volume by blending different grapes from different vineyards, and indeed different years, in industrial quantities.

To an extent, the champagne houses have seen the threat coming, and are moving to head it off. In the past couple of years, for example, both Moët & Chandon and Nicolas Feuillatte (which, in volume and marketing terms, now ranks among the big boys), have begun to produce new ultra-exclusive champagnes. These stress that they are produced from a single grape variety, and a particular vineyard.

If this is the way the fashion is going, the big champagne houses are determined to claim the business for themselves. And they seem to be succeeding. Perhaps the two most expensive and successful champagnes, which are based on grapes from particular vineyards, are Clos du Mesnil (which can reach euro370 or $370 a bottle) and Salon—both of which are produced from chardonnay grapes grown around the village of Mesnil-sur-Oger. Both are also owned and made by big houses: Clos du Mesnil is produced by Krug, Salon by Laurent-Perrier. The small growers may already have missed their opportunity to colonise the top end of the market.

Big bubbles rising

The skill with which the big champagne houses have faced down the threat from their smaller rivals and co-operatives like Nicolas Feuillatte suggests that they are well-placed for the future. The bottle-neck in the supply of vineyards, and the consequent rise in grape prices, are clearly a looming concern. But the big houses are already moving to protect themselves.

Alamy

The grapes of froth

Moët, for example, has been carefully building up the number of vineyards it controls. It has sold two of its lesser labels—Lanson and Pommery—while hanging on to their vineyards. These now supply the grapes for Moët's more important brands: Moët & Chandon, Dom Perignon, Veuve Clicquot and Mercier. The big growers are even muttering about expanding the limits of the champagne region. It is a sensitive matter. The last time they tried this, a century ago, the growers attacked their mansions on the Avenue du Champagne—and they are likely to resist again.

History suggests that the champagne houses will find a way to continue to grow and prosper. There is, however, one dark cloud that the champagne world may not be able to dodge: a world recession. The prosperity of the champagne region has closely tracked the fortunes of the world economy over the past century. There has been a long-term boom, punctuated by periodic busts. Indeed, because champagne is a good-time drink, its booms and busts, like those of other luxury goods, tend to exaggerate the cycle. The 1930s are still remembered with a shudder in the champagne region; the economic downturn in 1991 also prompted a serious slump in sales of bubbly. If there is a war or a big recession this time, the champagne region's fear of running out of grapes may come to seem a distant and fond memory.