By John Ward Anderson
Washington Post Foreign Service
Saturday, November 24, 2007
REIMS, France -- Fancy some French bubbly this holiday season? Brace yourself. The bottle of tongue-teasing champagne that was 20-something dollars last year is up to 30-something this year, thanks largely to the season's big party pooper, the tanking dollar.
Here in the heart of France's Champagne region, the rising price of champagne is causing a sinking feeling about U.S. sales this month and next, when Americans traditionally make most of their purchases. With the declining dollar and gloomy economic feelings, champagne sales were already down more than 12 percent in the first half of this year, and officials say the remainder of the year looks equally grim.
"It's getting less profitable for everyone," said Daniel Lorson, a spokesman for the region's trade association, known by its French abbreviation CIVC. With the value of the dollar down about 15 percent since last holiday season, he said, "we're starting to suffer."
But it's not all gloom and doom here in Champagne, a region of rolling, vine-laden hills and small villages about 80 miles east of Paris, because champagne sales are a remarkably accurate barometer of the world's economic health. While sales are dropping in the United States, they are skyrocketing in places where times are good.
Sales to Russia rose 158 percent and to China by 74 percent in the first six months of the year, according to CIVC data. The data prove that, economically speaking, when America sneezes, the rest of the globe no longer gets a cold.
"If I sell a little less in the U.S., I sell a little more in India -- market share means nothing to me," said Pierre-Emmanuel Taittinger, 54, owner of Champagne Taittinger, a legendary house that has been making champagne since 1735. "We live in a global world."
"The dollar is weak today, tomorrow it is strong -- what can I do?" he said.
Sitting in a spacious office 100 feet above 3 million bottles of his product, which are aging and fermenting in nearly two miles of ancient Roman quarries and caves excavated by Benedictine monks, he struck a philosophical note: "I'm like the monks 300 years ago in our cellars. My job for 50 years is to produce a marvelous champagne and then pass away."
The dollar's decline is raising the cost of a variety of U.S. imports, from foreign cars and clothes to airplane parts and pharmaceuticals. It is contributing to price increases in oil and food, and has raised concerns about increases in interest rates and inflation.
A year ago, it took $1.25 to buy a euro. In early trading yesterday, the euro hit $1.4966 before retreating to $1.4838. Some currency analysts expect the euro to top $1.50 before the end of the year.
Treasury Secretary Henry M. Paulson Jr. said recently that a "strong dollar is in our nation's interest," but some analysts questioned his conviction, noting a trade-off: A weaker dollar makes U.S. goods cheaper to buy abroad, which fuels exports and lowers the trade deficit with other countries. The opposite tends to be true for products from countries whose currencies are gaining in value. For example, officials at the European aircraft company Airbus say that for every 10-cent decline in the dollar's value, they lose about $1.3 billion in profit.
In a speech to Congress during his recent visit, French President Nicolas Sarkozy cautioned that a weak dollar "cannot remain solely the problem of others" and warned that "monetary disarray could, indeed, morph into economic war."
As for champagne, "the next six weeks will tell us a lot," said John Polis, sales manager for Republic National Distributing Co., the largest wine distributor in the Washington area. Last year, some premium champagnes could be found for under $30 a bottle, he said. Not this year. "It's a pretty critical price point they passed over."
Industry officials said U.S. distributors and consumers are absorbing most of the price increases, not the French producers, whatever they may say. The nature of champagne, these officials said, is sparing the producers the need to chase money.
"One factor of the declining dollar is the success and growing aspirations and investment opportunities in other parts of the world, and people who become wealthy as a result want to buy things like champagne," said Andrew Lilico, managing director of the London financial consulting firm Europe Economics.
"It's probably no coincidence that there are very high oil prices recently, and Russia is an oil exporter, so there is a group of Russian elites feeling that times are very good, and they're buying lots of champagne."
Agnes Laplanche, a senior official at G.H. Mumm, producer of the third-largest-selling champagne in the United Statesi, said, "There's new money in the world, and these guys are ready to pay full price." The company is one of several in Reims that has massive, state-of-the-art production facilities alongside magnificent chateaus.
Sales in Asia, Russia and India were "exploding," Laplanche said, while sales in the United States for the 12 months ending in June were down more than 927,000 bottles compared with the year before, a 4.4 percent decline.
Three years ago, the United States was the biggest customer for J. Lassalle, a highly regarded boutique producer in Chigny-Les-Roses, a small village about five miles south of Reims surrounded by gently undulating hills that nurture neatly pruned rows of gnarly vines. Today, Russia is its biggest customer, followed by Japan and the United States, said Angeline Templier, who owns and runs the company with her mother and grandmother.
The dollar's decline so far has had "no impact" on sales in the United States, Templier said, but "the emerging markets are growing and growing."
Champagne producers, meanwhile, said they were concerned about the downward trend in U.S. sales because the United States is considered a key market for growth. American consumers typically drink champagne only at times of celebration, such as Thanksgiving, Christmas, New Year's and birthdays. In "mature" markets such as Britain, however, people drink six times as much champagne as Americans. In France, almost 40 times as much is consumed.
Sales of some brands seem to be immune from price increases, analysts said. Consumers willing to pay $275 for a bottle of vintage 1990 Dom Perignon probably are not going to flinch if the price rises by $25. In fact, economists and industry officials said, a reverse psychology sometimes kicks in with luxury goods: The more the price goes up, the fewer people can afford it, the greater the prestige if you can buy it, so the more you want it, and the more you are willing to pay.
For others, champagne has a built-in defense against such forces as currency fluctuations.
"As Churchill said, 'In victory you deserve it, and in defeat you need it,' " said Lorson, the champagne trade association official. No matter what happens, "In the end, it's positive for the Champagne region."
Researcher Corinne Gavard contributed to this report.
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