Debate a Bubble - Champagne brands - How come Cristal and Dom Pérignon are so expensive?

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Champagne brands - How come Cristal and Dom Pérignon are so expensive?

Posted: 22 Apr 2010 09:22 AM PDT

You know that it can cost a lot of money to treat yourself to a bottle of the world's most prestigious brands of champagne and wonderful wines though they are, perhaps you still can't help a little question cropping up in the back} of your mind: "Why is it that Cristal, Dom Pérignon, Krug and a few others, are so pricey and are they really worth it?"

Well, in one sense there's no real answer to this question, but when you understand a little about the workings of the champagne industry then you may be able to forget about the price, let go and and just enjoy the experience, or the champagne in this case.

The leading brands of champagne are certainly well-established amongst the world's leading luxury brands and as you all know, or at least suspect, when you're talking about luxury brands the normal rules about price and value for money go out of the window. If you want to enjoy these brands then it's almost vulgar to wonder about the price.

If you're thinking about buying a Ferrari you don't ask how many miles it does to the gallon – except on environmental grounds. No, if you're worried about how to pay for the fuel, you can't afford the car.

So it's pointless to ask if a Bentley or a bottle of Cristal represents good value for money; it's all relative anyway.

Nor is there any sense in trying to figure out what each individual element in Dom Pérignon costs : $X for the grapes plus $Y for the production, add on $Z for the distribution and Hey Presto you get to what you have to fork out in the shop or restaurant.

It just doesn't work like that.

For a start rule No. 1 for luxury goods companies is never to justify the price with logic: a ) that would ruin half of the mystique and appeal around the brand b) it can't be done because a large part of the price you pay is intangible and c) when you buy a luxury product you're buying a dream, an emotion as much as the product itself, and that emotion is beyond value.

That's a pretty frustrating answer though, so let's look at another aspect of the cost of prestige champagne brands that may not make the price tag any more affordable but which will shed a little light on the perplexing issue of why the most expensive champagnes cost what they do.

To give you some background here are a few facts about the champagne industry:

For a sparkling wine to be called champagne it must be made in a region of France called Champagne and in fact that region is not that large: it covers roughly 35,000 hectares or 86,000 acres.

As well as being produced in a relatively small area sparkling wine made in Champagne is also fenced about by a whole raft of rules and regulations and that means that the amount of bottles produced per year is also limited - it's around 300 million bottles per year, actually.

That may sound a lot but don't forget that champagne is drunk all over the world and the demand is very high too.

The fact that champagne is so popular all over the planet is not something that happened by accident. It came about because of the huge amounts of cash that the major champagne brands have invested, and still do, in marketing and promoting to build and sustain the image of their brand and of champagne in general.

Odd though it may sound, although it may be a little bit easier to accept after reading about all that marketing spend, selling what you might call 'standard' champagne – that's the usual non-vintage stuff – is not hugely profitable precisely because of what it costs to market the brands.

No, I don't expect you to shed a tear for the likes of Moët & Chandon, Taittinger, Roederer and the rest – they're not paupers after all – but most of them haven't made a fortune from focussing on the regular, non-vintage champagnes in their range.

It's on the super expensive prestige cuvées that they make their profit.

Look at it this way your main selling brand is not that profitable; there's loads of competition from other brands so you can't up your prices much or the customers will stop buying, so what do you do?

Well, you create another, more expensive champagne which is aimed at wealthier consumers and you charge a lot of money for it. You may not sell very much of it, but what you do sell is very lucrative and even better than that, you don't have to spend the same amounts of money on marketing the new baby because that job's already been taken care of by the existing champagne that carries the same company name.

Bingo, it's jackpot time!

O.K. perhaps that's an over-simplification, but it's definitely the attractive margins on those prestige cuvées that keep champagne houses going because a much greater share of the proceeds from the top dollar champagne brands goes straight into the bank.

So the bottom line on why Cristal, Dom Pérignon and the others are as pricey as they are is because they have to be expensive, at least when you look at things from the commercial point of view of the champagne maker. So they charge whatever the customer is prepared to pay.

This may not have been the answer you were hoping for but there's no point in getting too hung up on the cost of prestige champagnes; they are what they are and the best thing is not to labour too much on the price and instead just revel in the experience.