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Champagne flowing as never before — is the 2007 record at risk?

Champagne sales tend to increase during economic boom times and contract during downward cycles. It can therefore be instructive — and certainly entertaining — to consider Champagne turnover as an indicator of public sentiment about the economic situation and outlook.

Champagne differs from other sparkling wines in that it hails solely from the Champagne region of France and is subject to more complex production requirements than other bubbly beverages. This makes it a highly precious commodity, as is reflected in its high price relative to other sparkling wines.

Champagne sales tend to increase during economic boom times and contract during downward cycles. It can therefore be instructive — and certainly entertaining — to consider Champagne turnover as an indicator of public sentiment about the economic situation and outlook.

In general, people are more likely to treat themselves to a bottle of Champagne when times are good, as indeed they did during Iceland’s pre-crisis upswing. In 2007, the mother of all boom years, Iceland’s State-run alcoholic beverage stores sold a record 16,000 litres of Champagne — or 22,106 bottles, to be precise — not including restaurant sales or imports by individuals.

Iceland’s economic collapse in the second half of 2008 dealt a body blow to Champagne sales, which fell 50% between 2008 and 2009. Sales remained weak in 2009-2015, as did private consumption growth for most of the period, and Icelanders generally exercised restraint in terms of luxuries. But by 2016 the economy was buoyant again, and sales of Champagne had rebounded accordingly. Sales appear to have risen to a post-crisis high in 2018, with 14,400 litres sold by State-run stores, not far off the 2007 peak.

In our most recent macroeconomic forecast, we estimate that Iceland has already entered the contractionary phase; therefore, sales of luxury goods that are highly sensitive to the business cycle can be expected to decline. But in 2019 to date, sales of Champagne in State-run stores are up 18% year-on-year.  So it looks as though Icelanders are far from shelving their Champagne glasses even though the economic outlook has clouded over.

Households better prepared for a downswing

Unlike the situation during Iceland’s last economic contraction, households are now much better prepared to face the coming headwinds. They are stronger financially and less indebted than they were during the run-up to the 2008 crisis. Because of this resilience, we forecast that private consumption will continue to grow in coming years, albeit more slowly than before. A situation like this could prevent Champagne sales from declining even in the face of an economic contraction.

The summertime provides ample opportunity to celebrate, including the particularly beautiful weather over the past couple of months, and even though the numbers indicate that a contraction is underway, it seems as though Icelanders are still relatively upbeat as regards consumption and can be expected to continue filling their Champagne glasses in the near future — perhaps even breaking the 2007 record.

Author

Bergthora Baldursdottir

Analyst

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