On Aug. 18 in Epernay, France, a dozen representatives of Champagne's growers and négociants faced each other over a negotiating table. Their dilemma? How to protect one of the world's most successful wine industries during a time of pandemic and horribly slumping sales.
The COVID-19 pandemic and the resulting global recession have been especially hard on Champagne. Domestic sales have plunged as France's GDP has contracted by 13.8 percent, and exports to most major markets have also slumped. The long-term forecast is foggy, as restrictions on social gathering and dining continue.
As of July this year, shipments were down more than 25 percent, or about 3.3 million cases from the same period last year, according to Jean-Marie Barillère, president of the Union des Maisons de Champagne (UMC), the trade group for Champagne houses, and co-president of the Comité Champagne (CIVC). And there's little sign of hope on the horizon. Several countries, including France, have seen an increased number of COVID cases as restrictions have been eased and people venture out more. "It's very difficult to know what will happen in November and December," said Barillère. The holidays are traditionally Champagne's biggest sales quarter.
The French government has provided a modest aid package to the wine trade, but Champagne producers feel they have been left high and dry. President Emmanuel Macron's administration offered emergency distillation of wine surpluses and deferred social security contributions related to loss in revenue during the lockdown. The distillation offer does not appeal to the purveyors of one of France's most successful luxury products. "The price for the distillation is at €78 per [100 liters] and the price of Champagne on average is €1,200 per [100 liters]," said Barillère. "You can understand that this interests no one."
"Champagne doesn't want to distill," said CIVC communications director Thibault Le Mailloux. "The French politicians don't understand our wishes and ambitions."
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"We are not in a situation of overproduction," explained Barillère. "There are regions in France that produce more than they sell, and they drag stock every year. Then there's a crisis, the stock explodes and these regions choose to distill. We, however, asked the government for relief from social charges which would have offset the lower yields, so we could get through the crisis with more ease."
But government aid has been going to businesses who suffered revenue losses during the lockdown. The Champagne growers say their losses have come at harvest, after the lockdown, so they don't have access to that aid.
The grim forecast brought growers and the major Champagne houses to the table to find a solution. Traditionally, Champagne has protected itself from volatile economic times by controlling yields. Because it is a blend of multiple vintages, Champagne operates differently than most wine regions. Though yields fluctuate from year to year, the Champagne houses, who act as négociants, keep a portion of the harvest as reserve wines for blending in future years.
Any wine over and above the limit may also be kept as reserve stock to be used in the future. This smooths out the peaks and valleys of individual harvests and ensures a regular supply of Champagne.
In essence, the producers are attempting to forecast the market two years down the road, when this year's grapes will have been vinified, blended and aged. The Champagne on the market this year was produced in 2018 or earlier, when yields were higher. If sales slump, then much of that wine will remain in the cellars, creating exactly the kind of excess stock situation the Champagne houses aim to avoid—a glut of unsold wine that triggers discounting.
Producers consider a regular supply necessary because of blending and maintaining equilibrium in the market. For growers, however, lower yields simply means less cash. Grape supplies above the agreed upon yields will be cut and left to rot on the ground.
The growers and négociants first sat down in July to discuss levels for this year's harvest. It didn't go well. Négociants argued for draconian measures, cutting yields to 3.12 tons per acre, down from 4.46 tons per acre in 2019. The growers balked, saying it wasn't economically viable for them. That raised the stakes for August.
With harvest beginning across the region, a compromise was reached. Barillère and CIVC co-president Maxime Toubart, president of the Syndicat Général des Vignerons de la Champagne (SVG), agreed to restrict yields to 3.12 tons per acre. But an additional 0.45 tons per acre could be harvested and kept in reserve to be used to calibrate volume based on final 2020 sales figures. The combined 3.57 tons per acre corresponds to 19.2 million cases total production for the entire Champagne appellation. That's 25 percent less than the 2019 harvest, which was already 10 percent below average levels in recent years.
"This is closer to the economic reality of our shipments," said Barillère. "Faced with uncertainty due to the economic and health crisis, we preferred to not take risks in this situation."
"For the growers, it's economically sustainable," said Toubart, who represents 15,800 farmers. "It's extremely difficult but we don't have any choice. It's not about the amount of grapes in the vineyards. We have to consider the market context and make a decision regarding the current harvest and sales through Christmas when it's complicated to do so."
Leading producers seemed pleased. "They have kept it as simple as possible," said Charles Philipponnat, president of Maison Philipponnat. "The négociants said [in July] that we need to deplete some of the stock, because the stock is just too heavy, to avoid excess pressure in the market and a possible drop in prices. But apparently the growers have managed to be heard. "
Signs of hope? Yes, but also many obstacles
While things are grim, producers are seeing signs of hope. June and July have inspired measured optimism. "It hit us in March, April and May, but we're recovering progressively. Our own sales are up in June and July compared to June and July last year," said Philipponnat. "We've been selling allocations of Clos des Goisses to the usual customers."
"The big question is whether we will make up for the lost sales from March, April and May," he added. "The answer is no. How much will it take before we sell as many bottles as we sold in 2018 or 2019? The answer is I don't know. Probably two or three years."
The impact of the pandemic on the Champagne houses and growers varies. "In all of the families, growers and négociants, there are those who are doing pretty well and those who are battling. It's not one particular group," said Barillère. "It's a question of their markets. The négociant who sells to the supermarkets, it's going well. If they sell to restaurants, they're suffering. A grower Champagne who sells to restaurants is suffering. A grower Champagne who sells direct to French consumers is doing fine."
Philipponnat added, "It also depends on the segments you are in. Our own segment, which is the prestigious, quality segment, is doing well. Wine-loving people, connoisseurs, the more affluent consumers are still consuming."
Benoit Tarlant, grower-producer of Champagne Tarlant, said his wine shop clients and connoisseurs remained active but are buying at a slower, less regular pace. "Our activity dropped 80 percent during the lockdown, and rebounded in June and July," he said. "At this point, it's about 25 percent less [than 2019], and we don't know what will happen at the end of the year."
For growers, the picture is even grimmer. Grape prices are expected to fall. This means the growers will sell fewer grapes for less money. Although the grapes are sold under multiyear contracts, it's possible to adjust the price if both grower and négociant agree. This year, négociants are reportedly telling their suppliers that prices must come down due to financial pressure.
"That's probably what is going to happen in most cases this year. Through the grapevine, we've heard that the price will decrease from last year," said Philipponnat, who says it's a long overdue brake on rising grape prices. "We need to make an effort to adjust to the market and make Champagne more attractive, pricewise."
One of the underlying difficulties facing Champagne today is that shipments in 2019 dropped to 24.8 million cases, their lowest volume since the 2008 recession. Going into the 2008 crisis, Champagne was in strong position, buoyed by record sales in 2006 and 2007. The region is not on the same footing today. While top Champagnes are still in demand, entry-level cuvées have lost ground to bubbly alternatives like Prosecco.
"Before the COVID crisis, Champagne sales had stopped growing in a growing sparkling wine market. We've lost some attractiveness over time—at least the generic Champagne has lost attractiveness—and part of that loss of attractiveness has to do with the quality-to-value ratio," said Philipponnat. "That's why I think we cannot afford to keep increasing prices every year like we've been doing for the past 20 years."
The 2020 harvest looks to bring good news. "It's looking good. The grapes are very healthy, there is absolutely no botrytis at all," said Philipponnat. "It's an early harvest because the weather has been sunny. And since we'll only be using [3.57 tons per acre], we'll have plenty of room to make a very strict selection of grapes and wines."
While large houses will only plan to bottle 3.12 tons per acre, grower Champagnes will be able to bottle the equivalent of the entire 3.57. The most successful producers are counting on their reputations for quality and terroir to carry them through the pandemic.
'We don't view the world from a financial perspective, but through plants and nature," said Tarlant. The 12th-generation vintner farms organically. "I am hopeful that these values will provide meaning to [wine lovers] in the near future, to celebrate with a Champagne that kept an artisanal and natural approach." All Champagne producers hope the future holds plenty to celebrate.