Champagne in crisis? (Updated)

[Note added later: for a thorough review of this issue, including some important corrections to the information here, you should read the comments below, and also this article just posted on Jancis Robinson's website. JG, 10/09.]

There's a great piece in the Guardian about the issues facing Champagne, which quotes both Adam Lechmere and Robert Joseph. The key issues:

• Champagne sales are down (exports down 45% in the first half of 2009 versus 2008 figures)
• This year, growers are only going to be allowed to pick about half their grapes, leaving the rest on the vine, in attempt to reduce supply to keep demand high

Effectively, Champagne is a brand, and one of the rules of brand management is that you shouldn't kill your brand by discounting it.

Yet the sorts of market manipulations attempted by the Champenois make me feel uncomfortable.

The horror scenario for Champagne is that consumers should lose the perception they have that Champagne is special and worth a huge premium over other sparkling wine styles. What if consumers decide that it's fizz they want, not Champagne, and they can get fizz that ticks all their boxes from other regions?

With Champagne producers committed to protecting their price points through regulating supply, this creates an opportunity for sparkling wines from other regions.

Would it be so disastrous if Champagne were to win new consumers with £10 supermarket own-label Champagnes, £15 Grand Marques, and more prestige cuvees kicking in at £30? Lower margins but increased volumes might win customers who otherwise would shift to discover other sparkling wine styles.

Low cost airlines, wine clubs and business models

Did you know that budget airlines make a loss on ‘the metal’ [the wonderful term they use to describe flying fare-paying passengers by aeroplane], but make their margin from what are known as ancillaries, such as on-board catering, sales and charging for luggage? I didn’t, until yesterday lunchtime, when I attended the press launch of the Flybe wine club. During the presentation, Flybe's director of marketing Simon Lilley explained that despite not breaking even with their core business—flying people—the budget airline model is one that works if you maximize your ancillary income. This was one of the motivations behind launching a wine club.

In fact, Flybe are pretty good with this – they make £7 per passenger. Doesn’t sound a lot, but when you realize that they fly 8 million people a year, and do the maths, that’s a tidy sum. And unlike some of the other budget carriers, they are looking to give people a good flying experience and develop some relationship with their customers.

The wine club is being run by Wines4Business, which is one of Peter Jones’ legion of entrepreneurial ventures, and which I have some involvement in as resident wine expert. Peter was there to give a short speech: if you are used to seeing him on television (Tycoon, Dragon’s Den, etc.), the first thing you notice is how incredibly tall he is. Indeed, seeing as Lilley is on the short side, it was amusing to see the photographer struggling to get a shot of them together which included both their heads. Peter is also a tremendously good people person. Engaging, sincere and clearly pretty smart.

Back to budget airlines. It’s interesting to see a business where the core activity is not the profit driver. I guess TV has been like this for ages. You make good television programs and get lots of viewers because you have an interesting schedule. But you give this all away free and rely on advertising revenue: you’ve attracted an audience for advertisers to target (the BBC is an exception here, relying on a licence fee). But now with cable/satellite services we’re seeing the revision of this model: there’s a split between advertising revenue and subscription, with some content being paid for.

But I can see a situation where advertising revenue comes under threat: as people download programmes for later viewing, they can skip the adverts. Of course, we’ve been doing this for years with VCRs, but not to the extent that we stop watching broadcast material. Advertisers will need to move away from the 30 second commercial towards sponsoring programmes and other ways of getting their message across that can’t be fast-forwarded. There becomes a merging of editoral/advertising boundaries.

So how do I develop wineanorak? I give content away free, and gain advertising revenue, much like traditional commercial broadcasting. More than that, though, I see giving content away as having less tangible benefits. By being widely read my reputation spreads, and from this there are ancillary benefits that pay. I wouldn’t have found a way into writing for magazines and newspapers without the website; it’s my presence on the net that has got me some of my contacts and paying gigs. These are my ‘ancillaries’ that the budget airline business relies on for profitability.

Trevor O'Hoy speaks

I was alerted to an interview with Trevor O'Hoy, president of Foster's Group, by a post on the UK wine forum. Australian wine giant Southcorp have, since summer 2005, been part of Fosters Wine Estates, which includes the likes of Beringer, Lindemans, Wolf Blass, Penfolds, Rosemount, Matua Valley and Wynns Coonawarrra Estate.

The business of wine can be quite depressing for the real wine lover: when you look below the surface and see the nuts and bolts of the industry, it can take some of the romance away. At the same time, from a journalist's perspective it's good to try to understand the beast you are dealing with, something I tried to do in this piece a while back.

The O'Hoy interview only really scratches the surface, but he finishes with the final point. "The world is getting smaller. You will see fewer and fewer big players, but also more small niche brands. The mid-range will disappear. This is the perfect model for us because small players get people talking about their products. We commercialise that talk."

If we unpack this a bit, he seems to be suggesting that the big players "piggy back" on the smaller producers. In wine, small niche producers create the glamour, the interest, the stories, creating a market which the big brands then cash in on. Kind of like my comments on brands, parasitism and mimicry (here). Am I reading this correctly?