In an article devoted to champagne, Jean-Marie Cardebat, Professor of Economics at Bordeaux University and INSEEC, spoke of a possible "champagne bashing" in the coming months. In other words, a "bashing" that refers to a collective denigration.

Why is champagne bashed?

If you're a champagne lover, you may have noticed that the bill is far from what it was three years ago. Since 2022, prices have risen by 40%: +20% for bottled alcohol and +20% for intermediaries. These increases cannot, of course, be simply justified by inflation. Producers and intermediaries have simply increased their margins considerably, as can be seen below.

Lanson-BCC margins have risen sharply since Covid-19 (source: MarketScreener)

Laurent-Perrier as well

But this strategy, however pertinent it may be in the near term, could well prove unproductive. Firstly, because at some point - except for very high-end products that escape the traditional rules of supply and demand - consumers may find it wise to turn to alternative products, or simply reduce their consumption.

Champagne bashing is already underway, for example in the United States, where several New York restaurants have decided to remove Veuve Clicquot champagne, owned by LVMH, from their menus. It's anecdotal on a global scale, but quite revealing on a deeper level.

Other problems include the standardization of cuvées, whereas champagne is traditionally perceived as an artisanal spirit, with its own character and authenticity unique to each bottle. On the societal front, the death of several grape-pickers in 2023, in the midst of a heatwave, has caused much ink to flow. Also, the "organic" label is struggling to establish itself in champagne.

All this is having an impact on sales, which slowed to 271 million bottles last year, compared with 325 million in 2022, or -16%. At the same time, Italian Prosecco and Crémant are performing better than ever.

How are the listed champagne players faring?

The Paris Bourse has six players in the champagne sector. Three are (almost) pure players: Laurent-Perrier, Vranken-Pommery Monopole and Lanson-BCC. The other half is made up of more diversified players, where champagne accounts for only a minority, or even a very marginal, share of total sales: LVMH, Pernod Ricard and Rémy Cointreau. We are concentrating on the first three only to get an accurate idea of the market situation, even if LVMH and its major brands - Dom Pérignon, Krug, Moët & Chandon, Mercier and Veuve Clicquot - play the leading role in Champagne by far.

1/ Laurent-Perrier

Product: champagne Main houses: Laurent-Perrier, de Castellane, Salon, Delamotte Geographic presence: Europe excluding France 46%; France 18%; Rest of the world 33% Range quality: mid-range/high-end Sales: €313m Operating margin: 30.5%

Laurent-Perrier boasts high margins, the result of its positioning in the high-end segment (44.6% of sales). These will almost double between 2020 and 2024. The group also boasts a particularly healthy balance sheet compared to its competitors, with controlled debt representing around two years of EBITDA.

2/ Vranken-Pommery

Products: champagne (62%), rosé wines (22%), port & other sparkling wines (16%) Main brands: Vranken-Pommery, Heidsieck & Co Monopole, Champagne Charles Lafitte Geographic presence: Europe excluding France 39%; France 35%; North America 22%; Asia 7% Range quality: low/mid-range (25% of sales sold in supermarkets) Sales: €303m, Operating margin: 11.5%

Vranken is positioned in a more intermediate market than its competitors. In France, 25% of sales are made through supermarkets. The group is also heavily indebted, as evidenced by a net debt/EBITDA ratio of 12.5x. Interestingly, over €300m of this debt is secured by real collateral - champagne wine inventories. A sort of mortgage applied not to houses, but to bottles of champagne... Our three protagonists use this leverage to take on debt.

This indebtedness, coupled with a lower value-added positioning, is severely penalizing the group. The stock has been in chronic decline for a decade, and the dividend maintained at around €0.80 per share does not satisfy many people, especially as the company is unable to generate stable cash flow.

3/ Lanson-BCC

Product: almost exclusively champagne Main houses: Lanson, Philipponnat, De Venoge, Besserat de Bellefon, Boizel, Chanoine Frères, Burtin, Alexandre Bonnet Geographic presence: France 46%; Europe excluding France 45%; Asia 4%; Rest of the World 3% Range quality: mid-range Sales: €255m,  Operating margin: 18%

Lanson-BCC is in an intermediate position. Debt is higher than at Laurent-Perrier, but much lower than at Vranken. The net debt/EBITDA ratio is 6.8x. Margins are similar. On the stockmarket, the share performed particularly well from Covid until last year. Since then, investors have come to terms with the market's difficulties, and the share price is now well off its all-time highs.

Who to choose?

Lanson-BCC and Vranken-Pommery Monopole are in a growth slump. Both companies have benefited from price rises since Covid to improve their margins, but normalization began last year, and the current trend could prolong this situation.

The most solid player is undeniably Laurent-Perrier, whose positioning, financial health and earnings growth are better than those of its competitors.

Champagne's troubles are part of a general sluggishness in the spirits industry. This can be seen at Rémy Cointreau and Pernod Ricard, where Cognac and other spirits are struggling to appeal to customers concerned about their purchasing power.

More generally, the entire luxury goods market has been affected. The fine years of LVMH, rich in growth and profits for all divisions, now seem difficult to reproduce, even if the group's diversification - spirits, jewelry, leather goods, watches, perfumes, etc. - as well as its prestige brands and inexhaustible capacity for innovation and change, could enable it to surprise.

French champagne players since Covid period (source: MarketScreener)

To find out more: Europe - USA: who takes the spoils in the alcohol war?