Bargaining over Bubbly

Students from my Strategic Management classes (and those taught by my colleague Tom), will be familiar (if not sick of) the champagne example we use to illustrate and explore the Five Forces framework.

We spend quite a bit of time trying to untangle that likely dynamics of the relationship between the numerous (but geographically confined) growers and the champagne houses who transform their grapes into the bubbly bottled stuff.

This recent piece in The Economist sheds some light on the recent state of affairs. Faced with a recent slump in demand for their product, the champagne-makers have been stockpiling output, and are now bargaining fiercely with the growers (seeking effectively a 50% cut in prices in the upcoming round of contract negotiations). Faced with such a situation, growers’ profits can only be hurt (with a commensurate boon for the makers).

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The perils of income elasticity

A reminder this week of the dangers of selling products that are income sensitive: champagne producers are seeing their sales drop as consumers start to tighten the belts and reduce spending on non-necessities. Four of the five largest producers have reported drops in sales compared to 2007, with one down 30%.

Presumably folks have switched to substitutes that meet some of their celebratory/ commiseratory needs at a lower price. I wonder if it’s beer or chocolates? Either way,  firms like Rémy can build in very few switching costs to prevent such consumer behaviour. Wonder if it will be time for more consolidation in this industry…

What other products are experiencing such drops in sales?