Champagne units see no cheer in grape prices, banking crisis

Carol Duval-Leroy stands above her sun-soaked vineyards in Vertus, France, watching workers pluck grapes and place them in carefully calibrated plastic crates.

The chief executive of Champagne Duval-Leroy, a family owned vineyard that sells about 6 million bottles of the sparkling wine a year, says she’s worried.

Strong demand and a cold spell that produced a less abundant crop this year have driven grape prices to unprecedented levels, putting quality champagne beyond the reach of many consumers just before the crucial holiday season. As the global financial system reels from the collapse of US banks and insurance companies, champagne makers fear their customers will have little to celebrate at the end of the year.

“Champagne has had a run of several great years, so grape growers feel they can ask as much as they want and that their demands are justified,” said Duval-Leroy, 53. “But we are entering a difficult period, and I’m not sure consumers will put up with excessive price hikes. The holiday period will be a big test for us. This is the first time we are seeing such a confluence of grape-price inflation and a financial crisis.”

Average Champagne-grape prices rose as much as 11 per cent in the past two years, said Duval-Leroy, who also chairs the Champagne Winemakers’ Association that oversees quality control. The sparkling wine can only be made with grapes from the region.

The price of a bottle of champagne can rise up to 10 per cent a year, said Fabien Manyeut, who sells wine at the Hediard delicatessen store in central Paris. A bottle of Veuve Clicquot Brut, which sells for ¤36.10 ($52), cost ¤29 three years ago, he said.

Grape Prices: “It's enormous,” he said. “Brands like Dom Perignon, which used to produce vintages only in exceptional years, now make wine every year because of the demand. But we’ll see how long it’s going to last.”

The higher grape prices come as export figures point to a slowdown in champagne sales in the first half. Demand in the US, champagne's third-biggest market, took a nosedive, with 22 per cent fewer bottles sold. UK sales by volume declined 4.4 per cent and they fell 18 per cent in Spain during the period, according to Epernay, France-based industry group Comite Interprofessionnel du Vin de Champagne.

Although the first six months represent less than a third of yearly sales, bubbly makers worry that higher prices, the financial crisis and economic slowdown will cut demand, leaving them with little to cheer about in the second half.

Quality Vintage: Large producers like LVMH Moet Hennessy Louis Vuitton SA, the maker of Moet Chandon, Veuve Clicquot and Dom Perignon, and Pernod Ricard SA, owner of the Mumm and Perrier-Jouet brands, do not grow enough grapes to cover their production needs. With increasing focus on top quality and fashionable vintages, they compete for the best grape supplies in the region.

Prices of grapes keep on rising, said Olivier Cavil, a spokesman for Pernod Ricard's champagne division. Mumm buys 75 per cent of its grapes from independent vineyards, while Perrier-Jouet depends on them for two thirds of its annual production, he said. Like other large champagne makers, he would like to see grape growers sell more of their produce and keep prices down. Many small champagne-grape growers also produce their own sparkling wine. They see champagne's global success as a justification for increasing the asking price for grapes.

Take Herve Le Gallais, for example. Le Gallais, who owns three hectares of vineyards, sells about a third of his grapes to subsidise his own small champagne label and raise funds for the renovation of his family's chateau, which he purchased from Madame Clicquot, the widow who gave her name to the famous champagne brand. Le Gallais makes about 20,000 bottles a year and sells mostly to restaurants in France.