Y2K Champagne Shortage? Poppycork!

Why you won't get stuck with crapaud next New Year's.
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It's not like we didn't have enough Y2K hassles to think about -- what with the fall of Western Civilization and the prospect of the embedded systems in our toasters turning on us like rabid cyberhounds.

Apparently that's not enough for the doomsayers, who are now saying there won't be enough champagne to ring in the new millennium. Of course, if things are going to be as bad as they say, maybe the drink for Jan 1, 2000 should be a tumbler full of

Wild Turkey

, or maybe a good stiff mug of hemlock.

Even normally level-headed

Fortune

magazine has gotten into the fright. In their Dec. 21 issue, Eileen P. Gunn writes: "It's Dec. 31, 1999. You're hosting the party of the millennium. When the clock strikes midnight, you raise a glass to toast the year 2000. Sadly that glass is filled not with Don Perignon, but with Sprite, one of the few drinks with bubbles that you've been able to find since Columbus Day."

Poppycork!

The hype is obviously coming mostly from people who stand to benefit from higher champagne sales and prices.

Newsweek

swallowed the hype whole in its Dec. 21 issue. That august newsweekly quoted Joy Sterling -- a Peter Mayle

(Year in Provence)

wannabe and doyenne of Sonoma County sparkling wine maker,

Iron Horse Vineyards

-- as saying that people who don't hoard before the hordes do will "be drinking Cold Duck."

Cold Duck? Is that stuff still around?

Well, Steve Boone, president of Walnut Creek (Calif.)

Beverages & More

, the second-largest beverage retailer in America, tells me that Cold Duck is still being made, but he'd actually prefer Sprite if it comes to that. But he assures me it

won't.

"The feeding frenzy about shortages is just a way to stimulate prices," Boone said. "In France, they're sitting on millions of bottles of product that they control very carefully, letting it out more to keep an upward pressure on prices than simply to stabilize," Boone said. "There's a lot more bubbly than they'd like us to think they have."

The champagne system is under the control of the quasi-governmental

Comite Interprofessionnel du Vin de Champagne (C.I.V.C)

headed by champagne makers and grapegrowers who act with the authority of government. Using their power -- on the monopoly scale it ranks somewhere between

OPEC

and

DeBeers

-- they decide how much champagne gets released each year. The wine that's held back is known as

blocage

-- which is a reserve against short harvests The C.I.V.C. says that they aim for a

blocage

reserve of "the equivalent of half a harvest at least"

According to Jean-Louis Carbonnier, director of the C.I.V.C.'s U.S. operation, the

Champagne Wines Information Bureau

, 1998 champagne shipments are estimated at 290 million bottles. He added: "The champagne producers will be able to supply up to 310-320 million bottles of champagne -- the most ever and the maximum for the appellation. These bottles are already waiting in the cellars of the producers due to minimum aging requirements."

Other sources who spoke to us on a condition of anonymity say that the currently ample size of the

blocage

may allow a substantially higher level of shipments. If true, these would be the equivalent of smuggled diamonds that elude the

Central Selling Organization

and could greatly increase availability.

Boone says the situation has created a dilemma for the French. On the one hand, putting all that champagne on the market shows their hand, "but on the other hand, they have a chance only every 1,000 years to make a killing and I suspect they will release everything they have."

Consensus -- including Boone and Carbonnier -- is that there will not be a shortage of anything but the very elite champagnes -- the so-called

tete de cuvees

-- such as Dom Perignon, Cristal and others that will be in short supply and sell out as early as spring 1999. This situation may actually be aggravated by people hoarding stocks and trying to speculate in the shortage.

But there will be no shortage of the genuine French stuff and certainly none from U.S. producers -- or those of Spanish

cava

(Freixenet) or French

vin mousseux

(the proper name for methode champenoise sparkling wine made in France, but outside the boundaries of Champagne).

Actually, the U.S. practice of calling its sparkling wine "champagne" -- even that which is made by the traditional methode champenoise -- is illegal in most of the world, a violation of several score trade agreements, and a bit of consumer fraud that ranks right up there with pasting a Mercedes hood ornament on a Geo. But it's legal here, thanks to political pressure from

Canandaigua Brands

(CBRNA)

(maker of Cook's) and

Gallo

(Balletore etc.), the two largest makers of cheap, Charmat, bulk-processed "champagne." For what it's worth, the huge bubbles in bulk processed sparkling wine are known by the French as

oeils de crapaud

-- toad's eyes -- while the finest champagnes have tiny, pinpoint bubbles.

Notwithstanding the

crapaud

, there's a glut of domestic stuff. "Domestic

methode champenoise

consumption has been flat and they're sitting on a lot of inventory," Boone says.

Rather than having a shortage in the U.S., the millennium factor may actually be a last chance for survival for many American sparkling wine producers who have seen five years of flat or declining sales. These makers, who have about 75% of the market, will have ample product.

Shortage or not, champagne and sparkling wine sales will most definitely be up. So who benefits? Other than Canandaigua,

LVMH Moet-Hennessy Louis Vuitton

(LVMHY)

is the obvious choice, owning as they do the largest champagne maker, Moet et Chandon along with a number of the tete de cuvees including Dom Perignon.

Diageo

(DEO) - Get Report

should do well, too, by virtue of its 34% ownership of Moet-Hennessy and distribution arrangements with LVMH.

Brown-Forman

(BFB)

, (which we recently wrote

about) which distributes Korbel (the #1 sparkler sold in supermarkets), should benefit nicely.

Seagram

(VO) - Get Report

may or may not do well thanks to Edgar Bronfman Jr.'s attempts to sell its Mumm Champagne brands right before the millennium. This could be a fumble on par with selling its Dupont stock.

Non-sparkler makers

Beringer

(BERW)

,

Chalone

(CHLN)

and

Mondavi

(MOND)

should also do well since Boone thinks that end-of-the millennium entertaining will cause soaring demand for high-end Cabernet Sauvignons and Ports. Drinks & Diversions will revisit this next summer as the

fin de siecle

investing and drinking season begins.

But as for having to drink Cold Duck? Sprite? Gedouddaheah! Trust me, there will be no shortage of hangovers on Jan 1, 2000. But hey! You'll have bigger problems that day -- especially if you live near a nuclear power plant whose safety system is still running on a 286 PC.

Lewis Perdue is the editor and publisher of

Wine Investment News, a comprehensive site offering breaking news and analysis of the 22 publicly traded wine and liquor companies, and private wine partnerships. Perdue does not hold any positions in the companies discussed in this column. He can be reached at

lperdue@ideaworx.com.