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Friday Read: Covid-19 set to devastate Champagne's recovery?

Published:  17 April, 2020

Like a staunch liberal and a UKIP voter forced by coronavirus to cohabit under one roof, Champagne has enjoyed a troubled – and complex - relationship with the UK of late. Both Nielsen and CGA Strategy have tracked falling demand for Champagne over the past few years in the UK; in the 12 months to December 2019, the total volume and value of Champagne sales fell by 5.8% and 4.9% respectively in the on-trade. Meanwhile, Nielsen figures indicate that Champagne sales in the Christmas period 2019 fell well short of expectations. It's hard to rally against statistical evidence - the figures do not lie.

However, Mentzendorff's MD Andrew Hawes reminds us that data collected by analysts does not always tell the whole truth. When we spoke about Champagne's performance earlier this month, he underlined the point that while sales of supermarket private labels had indeed suffered in recent times, sales of prestige cuvées such as Krug and Cristal had performed “above expectations.” Nielsen, he observed, does not track sales of Champagne in the smaller independents and therefore misses out a vital chunk of the market.

In addition, he refers to the latest set of Nielsen data, which indicates that overall Champagne sales increased by 4% in value (MAT 04.01.20). CGA Strategy also provides a point of optimism: rosé Champagne had been doing fairly well in the restaurant sector. While pink fizz accounts for only a relatively small percentage of total volume sales, it is seeing over-indexing volume trends against the total category and positive value growth.

All of which would be a cause for celebration in 2020, if Covid-19 had never materialised. But the coronavirus outbreak may have devastating consequences for the UK's Champagne market, at least in the short-to-medium term.


Going flat

According to Wine Intelligence's chief executive Lulie Halstead, a toxic combination of on-premise closures, a probable severe economic recession and rising unemployment is likely to hit Champagne hard – far harder than the still wine market. It may be an exaggeration to proclaim that Champagne is rapidly sinking into la putain de merde, but only a slight one.

“Wine Intelligence's initial research suggests that the frequency of Champagne consumption may decline significantly in 2020,” says Halstead.

She continues: “Our initial evidence already indicates that consumption of Champagne has fallen dramatically, in stark contrast to sales of still wine categories via online channels. Although the on-trade sector has been shrinking in recent years, it is still an important avenue for sales of Champagne – a market that is obviously completely off limits for an undeterminable future. So we turn to the off-trade: in moments of national crisis consumers do not stop drinking, however, they are likely to focus on 'everyday' still wine categories at accessible price points – the impetus to splash out and celebrate has been temporarily curtailed.”

Even Hawes, ever positive about Champagne's future in the UK market, concedes that sales of the eponymous fizz are clearly linked to the economic prosperity of a nation. As it stands today, the UK-wide lockdown is likely to endure for at least another three to four weeks. Perhaps far longer if the number of infections and subsequent fatalities suddenly spike in the second half of April.

Prominent epidemiologist Professor Neil Ferguson told the BBC this week that the government must enforce a "significant level" of social distancing until a vaccine for Covid-19 has been found – a vaccine that may not be available until 2021. This means that restaurants and bars, presuming they can reopen in 2020, will be forced to limit their number of customers. All of this points to one thing – falling revenues, job losses and stagnating growth.

But let's tentatively hope that by June at least, the on-trade is back in business. It seems logical that after months of being forced to spend time shut inside, frustrated consumers will be rushing to socialise and celebrate – isn't this where Champagne finds its niche? Yet Halstead is not convinced.

“I'm not sure a massive party will occur after the lockdown ends,” she says. “If you look at nations like Austria, which have eased their lockdown restrictions, the number of consumers returning to businesses is quite low. Equally, although Sweden has kept its on-trade running, revenue has declined as more people stay at home. A wary, cautious mood is likely to prevail for many months, even after governments allow consumers to return to some degree of normality.”

As Andrew Hawes freely admits, Champagne is arguably insulated from political machinations such as Brexit, but not the significant consequences of a looming recession. Unfortunately, economists are united in their predictions that a biblical sized one is coming; with the number of Covid-19 infections rising – currently over 2 million – the IMF expects the global economy to shrink by 3% in 2020. The UK and other rich western nations are forecast to experience downturns that rival the great depression of the 1930s. Tory Chancellor Rishi Sunak has warned that the UK economy could shrink by 35%, with 2 million workers finding themselves at the mercy of Universal Credit. The disruption caused by lockdown may seem like child's play compared to what lies ahead.


Deluxe hope

Of course, the brands that survive or indeed thrive in such environments are the brands that have made record profits in recent years – the deluxe firmament. Wealthy households are often insulated from the worst effects of a recession, and these are the punters who routinely splash out for Dom Perignon and Bollinger Grande Année. Everyone else, however, will be searching for value from their wine purchases (incidentally this isn't about paying £20 for a wine that merits a higher price tag due to its stunning bouquet, rather it's about finding a fruity number at under £10). The trade's definition of 'great value' will not converge with consumer expectations - now more than ever. All of this does not bode well for sales of premium fizz, with Halstead believing that Prosecco will understandably fair better than Champagne. But it doesn’t take too much of a leap of imagination to suggest that Nielsen and CGA statistics released at the end of 2020 are likely to confirm Wine Intelligence's worst forecasts.

The optimism in this scenario comes from stating the proverbial bleeding obvious: Champagne has survived two World Wars, several economic downturns and Prosecco's stratospheric rise to fame. Life will get back to normal and economies should return to growth. It is reasonable to assume that the Grande Marques are in a financially robust position and can weather the storm. Yet this provides scant consolation to the smaller brands, which may not be able to survive Covid-19's catastrophic impact on lives, jobs, and global prosperity. Many consumers will continue to drink, partially to ease the tedium of lockdown. But pricey fizz, in times such as these, is highly unlikely to be their first port of call.