T he C hampagne C luster

1. The Champagne Cluster Presented By: Sasha Shapiro, Vala Goharbin, Mariya Minkova, Nishant Bangar

2. Agenda • Overview of France • History of Champagne • Champagne Cluster • Recommendations

3. Overview of France

4. General Overview • Largest EU country at 643,427 square kilometers • Location • Terroir • 33.4% of the land is arable • GDP – from € 2.12 million in 2009 to € 2.16 million in 2010 • GDP per capita € 33,000 • Inflation was 1.5% in 2010 • Unemployment in 2010 was 9.5% (from 7.4% in 2008) • In 2010, there were 28.21 million people active in the labor force • Public debt was 84% in 2010 (from 68% in 2008) • Budget deficit in 2010 was 7.8% (from 3.4% in 2008) • Exports were € 508.7 million • Imports were € 577.7 million • Germany was the main trading partner

5. The French Economy • Transited economy to market • Strong government presence in energy, military and public transport • Focus on social equality through legislative and tax policies • Agricultural policies • € 12 million aid from Common Agricultural Policy • Cereal producers main recipients for years • New priorities include • Livestock farming, organic farming, energy conservation, water management and increasing biodiversity • Focus on three things • Forming competitive clusters • Reforming higher education and research • HR renewal in tech and scientific fields

6. Industries % Contribution to GDP • Eight agricultural sectors and nine industries • Main revenue comes from tourism: expenditures by foreigners in 2007 amounted € 39.6 billion • Transportation includes air, marine, road and rail • Food Retail – France accounted for 13.5% of the entire European food retail industry in 2009 • Aerospace Industry • 40% of commercial communications satellites market • 50% of accessible market for launchers France Food Retail Industry Segmentation, 2009

7. Historyof Champagne

8. The Beginning of Bubbles • Romans were first to plant vineyards in the area of northeast France • Churches owned vineyards and monks produced wine for use in the sacrament of Eucharist • The Champenois were envious of the reputation of the wines made from their Burgundian neighbors, and sought to produces wines of equal acclaim • However, the northerly climate of the region gave the Champenois a unique set of challenges • The wines were lighter bodied and thinner than the Burgundies • Cold winter temperatures prematurely halted fermentation in the cellars, leaving dormant yeast cells that would awaken in the warmth of spring and start fermenting again • One of the byproducts of fermentation is the release of carbon dioxide gas, which, if the wine is bottled, is trapped inside the wine causing intense pressure • The pressure inside the weak, early French wine bottles often caused the bottles to explode and if the bottle survived, the wine was found to contain bubbles • Something the early Champenois were horrified to see

9. The First Champagne • Contrary to legend and popular belief, Dom Perignon did not invent sparkling wine • The oldest recorded sparkling wine Blanquette de Limoux • Invented by Benedictine Monks in the Abbey of Saint Hilaire near Carcassonne in 1531 • Over a century later, English scientist and physician Christopher Merret documented the addition of sugar to a finished wine to create a second fermentation • Merret presented the Royal Society with a paper in which he detailed what is now called méthodechampenoise in 1662 • Although Dom Perignon did not invent champagne, he did develop advances in production of the drink, including holding the cork in place with a wire collar (muselet) to withstand the fermentation pressure

10. Modern Champagne Industry • The Champenois and their French clients preferred their champagne to be pale and still • But the British were developing a taste for the unique bubbly wine • The sparkling version of champagne continued to grow in popularity, especially among the wealthy and royal • Champagne was for a very long time made by the méthoderurale • No knowledge about controlling the process or how to make wine bottles strong enough to withstand pressure • In the 19th century, these obstacles were overcome, and the modern champagne industry took form • Champagne production had an explosive growth, going from a regional production of 300,000 bottles a year in 1800 to 20 million bottles in 1850

11. The Taste • In the 19th century, champagne was noticeably sweeter than the champagne of today • The trend towards drier champagne began when Perrier-Jouët decided not to sweeten his 1846 vintage prior to exporting it to London • The designation Brut champagne, the modern champagne, was created for the British in 1876

12. Champagne Cluster

13. STRATEGY & RIVALRY • Roles in champagne production • Law – barriers to competitiveness • DEMAND CONDITIONS • Local demand • World market • China & the emerging markets • FACTOR CONDITIONS • Location, climate, terroir • Champagne vine growing • Capital availability • Infrastructure • Government • Institutions: CIVC & INAO • RELATED INDUSTRIES • Glass bottles • Packaging • Corks • Tourism • Agriculture • Education and R&D

14. General Overview • Four regions make up Champagne – Aube, Marne, Ardennes, Haute-Marne • 150 kilometers east from Paris • Trade routes from North Sea to Italy • 1.3 million people at 52/km2 • GDP - € 31 million in 2009 • Agriculture (8.2% of GDP) • Industry, including smelting, metalworking, mechanics, textiles/clothing, craft (2.5% of GDP) • Services, including tourism, retail/wholesale, banking, real estate (1.6% of GDP) • Exports, including champagne and machinery • R&D expenditures are €238 million • Top French region for investments • Number one region for producing cereals • 53,960 companies operating • € 16,000 per year average salary • Best business include packaging, logistics, timber, textile, metallurgy, automobile and medical instruments • 25% of activities dominated by champagne production

15. Factor Conditions • Transportation & Logistics • Historic architectural legacy – 17th century • Distribution coverage includes North-East France • Major transport network is the Channel Tunnel to South-East Europe • Five key airports with one for freightlogistic hub • Three key ports are Rotterdam, Antwerp and Le Havre • Railways include the Chalindrey hub, TGV, Scandinavia-Rhine-Rhone-West Mediterranean "rail highway" and Paris-Basel • Capital Availability • € 7.7 million to agriculture in 2011 and € 11.73 million (2007-2013) • Champagne-Ardenne operational program – € 186 million • Infrastructure • Scientific and technological – CARRINA • Administrative – Regional Council

16. The Champagne-Ardenne Terroir • Geography • North-East France • Geology • Subsoil deposits of 300-metter think chalk from 90 million years ago when the Atlantic ocean stepped back • Temperature control, drainage, underground champagne cellars • Creation of belemnite sediment from an earthquake that occurred 10 million years ago • Climate • Mild oceanic and harsh continental • Annual temperature of 10 degrees Celsius • Snowy winters and warm summers • 630 millimeters of rainfall each year with 45 millimeters in September

17. Vine Growing in the Region • Vines in Champagne represent 4% of all vines in France, but bring in 1/3 of total revenue from export • 33,077 hectares of vine growing • 22,107 hectares in Marne • 7,740 hectares in Aube & Haute-Marne • 3,230 hectares in Sainte-et-Marne • Yield in 2009 was 12,276 kilograms per hectare or 352 million bottles • In the region there are 4,776 vine growers, 66 cooperatives and 293 negociants • Grapes produced include: • Pinot Noir – 39% • Meunier – 31% • Chardonnay – 29%

18. The Government’s Role • 1852 – 1868, Werlé (VeuveClicquot) was the mayor of Reims • Law in Champagne • 1891 Treaty of Madrid to protect the product of champagne • Échelle des Crus(ladder of growth) • Fixed pricing for vine ranking; Premier versus Grand Cru (100pt) • 17 villages with Premier Cru rank • AOC: Appellation d’Origine Controlee • 2003 – 1010 Revision of the Champagne Area • Due to the program’s delay the first plantings will happen as early as 2015; expected first yield will be in 2020; first quantities to be released around 2021-2025 • Started in 1908 when, with a decree, the Aube area was added • Taxation regulations on export and import • Production methods • 15 months aging for NV champagne • Strict regulations on alcohol advertising • Up to 2.5% alcohol volume • Institutions • CIVC: ComitéInterprofessionnel du Vin de Champagne 1941 • INAO: Certification system to protect the French geographical indications for agricultural products including wines, cheese and butters

19. Demand By Market

20. Increase in Demand • There is an increase in demand of champagne due to: • Limited supply • Marketing success of the region • Image of quality, tradition, exclusivity and luxury • Positive image conveyed by France as the country of origin

21. Related Industries

22. Global Champagne Market • During the 2008 crisis, there was an increase in stocks • CIVC set yield limit for 2009 and 2010 • Stabilizing short-term cash flows • In 2009, the global wine market was € 263.8 billion Global Wine Market Segmentation: % Share, By Value

23. Top Players • Top three companies hold more than 30% of the champagne market • Benefits: • Vineyards and grape purchases • Old versus new technology in production – funds for modernization of the production process • Brand positioning • Distribution system • Marketing and advertising • Moët & Hennessy (LVMH Group) • The biggest group holding premium champagnes and spirits • In 2010, sold 19.3 million bottles of champagne • Started in 1991 with the acquisition of Pommerchy Champagne

24. Laurent-Perrier • Established in 1812 as the Laurent Perrier Champagne Maison • Champagne and alcoholic beverages through own subsidiaries • Seven key brands, including the iconic Laurent-Perrier Brut • € 242.9 million in sales in 2009

25. VrankenPommeryMonopole • Established in 1976 as MaisonVranken • In 1978, became VeuveMonnier champagne brand • € 269.8 million sales in 2009 • 10% market share with five key champagne brands • 19.8 million bottles of champagne in production • Porto producer with 1.7 million bottles

26. LansonBCC • Lanson BCC (Lanson International & BoizelChanoine Champagne) produces and sells champagne • Acquisition and grouping of Champagne Maisons • 1991: Chanoine Frères et Champenoise des Grand Vins • 1994: Champagne Boizel (1834), Champagne Chanoine Frères (1730) • 2006: MaisonBurtin (1843), Champagne Lanson (1760) • € 276 million revenues in 2009 with an operating profit of €16.1 million • 21 million bottles sold

27. Recommendations

28. Recommendations STATE LEVEL • Governmental incentives for the champagne producers • Redistribution of funds from the Common Agricultural Policy • Taxation policy – common EU market • Encourage students to stay in the area after graduation CLUSTER LEVEL • Sustain collaboration between local government, research centers and Maisons • Keep the Champagne area size after the enlargement • Helps ensure scarcity and luxury • Improvement on the national level will build the foundation for upgrading the Champagne cluster, as well as stimulatingthe full development of supporting industries around it

29. ThankYou Questions?