CHAMPAGNE PRICES ON THE RISE

‘Tis the season for Champagne and Champagne news stories. A report in USA Today claims Champagne prices are headed for a big increase due to grape shortages and the decline of the dollar vs. the euro. Estimates of the increases for Champagnes range from 5% to as much as 30%, some industry experts say. Many retailers held the line on price increases during the holiday season and even offered traditional holiday discounting. They’re likely to stop absorbing the losses, however, during the first quarter of next year.

“The prices of many luxury goods imported from Europe are expected to head north - perhaps far north - in 2008 and probably will stay there,” the article claims.

The annual production capacity within the Champagne appellation, about 325 million bottles in a normal harvest, is maxed out, but worldwide demand continues to get stronger. While France plans to eventually expand the champagne grape growing region, it won’t happen for at least 15 years. Companies such as LVMH, which dominates the Champagne industry, have prepared for the inevitable price increase, but many smaller companies have not.

“The smaller guys who haven't been able to build a cushion over the last three years will be in sorry shape,” says Charles Curtis, product management development director with Moët Hennessy USA to USA Today.

LVMH has managed to build its business by staying in the good graces of the growers. The company, for example, offers field help to growers at cost as a way to build loyalty. Technical services such as determining the presence of mildew and parasites and identifying which grapes are maturing the fastest are provided free.

For a closer look at LVMH and its background in Champagne, take a look at this WSJ article.