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Champagne in China seen failing to match Cognac cachet

As global champagne consumption goes flat, makers of bubbly are turning to China to make up the difference. After all, cognac has become a huge hit there, and the country now accounts for 22 percent of worldwide shipments, up from 5 percent in 2000.
“We think China could change the champagne market in the coming years,” said Charles-Armand de Belenet, head of marketing for the champagne division of Pernod Ricard SA. (RI) China is the second-biggest export market for Pernod’s Mumm brand and No. 3 for sister label Perrier Jouet.

There’s a problem with that plan: champagne doesn’t have the staying power of cognac, its fellow French export. The fizzy drink has to be consumed immediately after opening. Cognac, by contrast, can be kept for years and offered to special guests when the occasion warrants, said Paul French, an analyst with researcher Mintel in Shanghai.
Most Chinese sales of cognac come around the just-finished Lunar New Year holiday, when Chinese often give friends and business contacts expensive bottles of cognac or baijiu — a local white spirit.
These gifts are displayed “on a shelf, like a vase,” said French. “There’s a massive over-expectation about China” among makers of bubbly, he said. “Champagne is quite a hard product to push.”
Global sales of the sparkling wine slid 4.4 percent in 2012, according to industry association CIVC. The decline was led by France, the world’s largest market with more than half of global consumption. In China, sales have jumped 33 percent on average in each of the past three years, according to market researcher Euromonitor.
Hermes Handbags
As the world’s top luxury consumers, accounting for one- quarter of spending on high-end goods, according to consultants Bain & Co., the Chinese could in theory make up for lost sales in Europe. They’re no stranger to fashionable French wares, from Chanel sunglasses to Hermes (RMS) handbags.
Chinese cognac sales have fueled profits and buoyed the shares of Pernod and Remy Cointreau SA (RCO), maker of Remy Martin cognac, with both stocks outpacing the Bloomberg Beverages Index (BWBEVG) over the past year. Pernod said Feb. 4 it’s in talks to buy another producer, adding to its Martell brand, and Remy in December agreed to buy cognac maker Larsen.
Unlike cognac, which was first exported to China in 1859, champagne has only recently started gaining popularity in the nation’s $132.1 billion drinks market. While the Chinese are still getting used to its mineral taste and fizziness, there’s a strong appetite for the drink’s European cachet.
Champagne Bathtub
“Chinese people love France — the sophistication, the luxury that comes out of the country,” said Martin Riley, marketing director at Pernod Ricard. “It’s something quite deep-seated and puts products like cognac and champagne in a fantastic position. It’s a way of drinking the luxury lifestyle.”
That lifestyle is on full display nightly at Bar Rouge on Shanghai’s Bund, the colonial-era waterfront boulevard. There, champagne bottles are served with sparklers, and the bar offers a 10,000 yuan ($1,600) package of six liters of champagne, a three-liter bottle of vodka and soft drinks, carried out in a tub of ice by six employees accompanied by dancers.
“Even people who are not willing to drink champagne are willing to pay the money just to get the bathtub and the show,” said Mathieu Brauer, chief executive officer of Visual Orient Limited, the bar’s owner.
Saber Opening
Despite such conspicuous displays, champagne drinking remains far behind cognac sipping. Drinkers in China bought 900,000 liters of champagne in 2011, according to Euromonitor, while cognac hit 25.5 million liters.
To lure more drinkers, brands use endorsements from local celebrities, sponsorship of exclusive parties and even iPhone apps to educate consumers on what they call the “protocols of champagne.” Mumm, owned by Pernod, holds tastings where consumers learn to choose and serve champagne. Brand representatives even demonstrate the art of “sabrage” — or whacking a bottle open with a saber.
Champagne is an expensive passion in China, with bottles selling for three times what they command in Europe due to import fees and hefty markups at bars, according to Mintel. Growth in spending on luxury goods in China is set to slow from 30 percent in 2011 to 7 percent this year, Bain & Co. estimates, as economic expansion weakens. And unlike, say, vodka, which features new flavors every year, there’s less opportunity to innovate with champagne because of tight controls on how it’s made.
Champagne’s slow progress in China is not unprecedented. Other Western luxury items with a short history in China, like fragrant perfumes, have still not been embraced.
Champagne “is growing, but it’s off a tiny base,” said Trevor Stirling, an analyst at Sanford C. Bernstein in London. “There are many French products Chinese consumers don’t love.”

Source: Bloomberg