Cheap is not always that cheerful

25 January, 2008

Nigel Huddleston looks at what cut-price bubbly means for its image.


They say Champagne is a good indicator of the wider state of the economy. It does well in boom time before being discounted to hell when the bust arrives and sales drop.

If that's the case, then recent bizarre retailer offers in Champagne seem a fair indication of the confusion of the times.

Woolworths' offer of a £5 bottle of fizz as part of its Worth It range tapped into the primal lust for a bargain at a time when consumers are getting their heads around what a credit crunch means to them - beyond just that it's something quite bad.

At the same time, it's fair to say most people have probably never had it so good and for every Woolies bargain bin Champagne, bubbly producers roll out a dozen three-figure gift packs to be feasted on by the shoppers of Mayfair and Knightsbridge.

So let's not panic just yet, even though such promotions do the Champagne market as a whole few favours.

No price war

Lynn Murray, marketing director at Hatch Mansfield, the UK agent for Champagne Taittinger, said: "It cheapens the category - rather like half-price wine - and consumers start to expect such offers on a regular basis. Offers like these act as traffic builders for the retailer, not image builders for the category."

For now, it seems such promotions have done little in themselves to impact on Champagne sales or prices.

Nielsen figures for the year to Dec 29 showed volumes in the off-trade up 7 per cent, with growth in value sales outstripping that at +9 per cent to £340 million, although some of the biggest brands did take a knock in the run-up to Christmas.

Tesco's De Vallois label was half-price at £12.50 this week, but a widely-feared price war has failed to materialise, with the per-bottle prices of major brands seeming to hold up.

Emmanuel Taupin, national account manager at Champagne Lanson, said: "Commercially, it's had no impact whatsoever, because it was such small quantities. If anything, there was probably a bit of backlash because, having heard about the offer, people were going into stores and then finding empty shelves."

If any damage is done it's to Champagne's image and consumer expectations of what they ought to be able to find in the market.

The pressure's on

If anything, there's still the threat Champagne prices could rise with pressure on supplies caused by heavy world demand.

"These [offers] get publicity," Murray said, "and it gives consumers the perception that the value is down in Champagne, which is quite the opposite of reality. Champagne prices will increase in 2008 and if the effect of the euro continues this will compound the level of increases."

For the stores that do run deep promotions, it's the publicity they generate that makes it all worthwhile.

Asda's pre-Christmas offer of £30 bottles of Dom Perignon did little for the supermarket group's bottom line.

It had only 700 bottles available, bringing just a little over £2,000 in revenue and presumably very little in terms of margin, even if they were all sold.

But the headlines the promotion generates in national newspapers are priceless. Not only do they get a few hundred DP bargain hunters heading into stores - where they'll also hopefully spend a hundred quid on groceries and fill their trolleys with George clothes - they also reinforce that Asda is a place to shop for good value.

The initial Woolworths offer was for a "limited number" of bottles - reported to be 3,000 - which sold out within five days, so again the direct revenue was minimal, particularly given that half the selling price was accounted for by duty and VAT. Stock was only available in 15 out-of-town stores with licences.

A Woolworths spokesman said the company felt the offer was "so limited and on such a small scale that we don't think it could have an effect on the image of Champagne".

Even so, it was the £5 bottles of Champagne that prompted stories in five ≠national newspapers and on national radio, not full-price bottles of MoŽt and Bollinger.

"That's more a criticism of the way the newspapers work than ourselves really," argued the Woolworths spokesman.

Uphill struggle

Murray at Hatch Mansfield said the Champagne market as a whole is the loser in such deals. In the light of such promotions, brands are faced with an uphill struggle in persuading consumers to pay full whack.

"Sadly, consumers buying a £5 bottle of Champagne may be first-time buyers," says Murray, "and the quality of such a wine is not representative of the category. It gives out the wrong messages.

"A £30 bottle of Dom Perignon gives people the opportunity to try a great Champagne at an amazing price, but would they ever buy it at the full price afterwards?"

Taupin at Lanson takes a more sanguine approach. "Everyone knows Dom Perignon is supposed to be £60 or £70 and people can see that it's just a deal when it's that cheap."

Rather than anything Woolworths or Asda might do, how much people will be prepared to pay for Champagne this year might depend on how crunchy the financial markets become.

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