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International Audit, Moet & Chandon

International Audit, Moet & Chandon
Patrick MORSELLI, Hugo BLAVIN, Camille TESSEIRE, Gil DGHAILI

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International Audit, Moet & Chandon International Audit, Moet & Chandon Document Transcript

  • I N T E R N A T I O N A L A U D I T Madrid, November 17th, 2010 H u g o B l a v i n • G i l D g h a i l i • P a t r i c k M o r s e l l i • C a m i l l e Te s s e i r e
  • Table of ContentsCORPORATE INTERNATIONAL DYNAMICS! 3 by Camille Tesseire! 3 1.1 SPIRIT & CREATION! 3 1.2 A STRONG HERITAGE! 3 1.3 COMMUNICATION STRATEGIES OVERVIEW OF LVMH WINE&SPIRITS PORTFOLIO! 3 1.4 KEY FIGURES! 4 1.5 ORGANIZATION OF THE BOARD OF DIRECTORS & VALUES! 5 1.6 VALUES! 6ENVIRONMENTAL AND MARKET ANALYSIS! 7 by Gil Dghaili! 7 Introduction! 7 1. Environmental factors impacting the champagne market! 7 2. Competitive arena! 8 2.1 The most dynamic markets! 8 2.2 The market players! 8 2.3 Market competition analysis using Porter’s five forces model! 9 2.4 SWOT Analysis! 10 2.5 Determination of key factors of success! 10Corporate International Assessment! 12 by Hugo Blavin! 12 3.1. Stage of internationalization! 12 3.3 Functional international diagnosis! 15M o e t & C h a n d o n! International Audit 1
  • 3.4. Threating substitutes! 16INTERNATIONAL STRATEGY FORMULATION/RE-FORMULATION ANDIMPLEMENTATION! 18 by Patrick Morselli! 18 4.1 SCHEME! 18 4.2 INTRODUCTION! 20 4.3 FORMULATION! 21 4.3.1 A Strategy to be expanded internationally! 21 4.3.2 China! 21 4.3.3 South America! 21 4.3.4 California and Australia! 22 4.3.5 Segmentation! 22 4.3.6 The Expo opportunity! 23 4.3.7 Distribution and online marketing! 23 4.3.8 Shifting from selling champagne to selling lifestyle! 24BIBLIOGRAPHY! 25ANNEXES! 26 ANNEX 1 “Bernard Arnault Biography”! 26 ANNEX 2: List of main producers of champagne! 27M o e t & C h a n d o n! International Audit 2
  • CORPORATE INTERNATIONAL DYNAMICSby Camille Tesseire1.1 SPIRIT & CREATIONMoët & Chandon belongs to the famous group of Luxury good LVMH, Louis Vuitton Moët Hennessy. TheMaison Moët was found in 1743 by Claude Moët who possessed a strong knowledge in wines, as he hadbeen a wine trader in Epernay since the beginning of the century. Nevertheless, it is only the will of JeanRémy Moët, his gran-son, which allowed Moët & Chandon to become the worldwide known leading tradingluxury brand of champagne. It is clear that the reputation of Moët & Chadon was developed though itstradition thanks to the know-how of the Maison and the vision of Jean Rémy Moët.The quality approach in the production is the main characteristic of Moët & Chandon and the cause of itscurrent eminent brand image. The richness and the diversity of the vineyard produces high quality wine,furthermore selected by choosing only Premiers “Crus” and “Grands Crus” for creating the final product:champagne.Jean-Rémy Moët left all his personal heritage to his Maison: he believed in values as the seductive powerand the magic of champagne, which ultimately symbolize nowadays pleasure, grandeur and purecelebration in Europe as well as in many other cultures.1.2 A STRONG HERITAGEDue to the merger, in 1987, between Louis Vuitton and Moët-Hennessy, the international luxury groupexpanded its activity to wine and spirit business quickly becoming a leader in the industry. Today, LVMHdetains 40% of cognac market and between 20% to 25% of the global champagne market. LVMH represent50% of premium champagne with some prestigious brand such as Moët & Chandon, Ruinart, Veuve-Cliquot,and so on.The reputation of French vineyards, which dominated wine industry, gave to the group strong assets:location advantages, fertility of the land and winemaking know-how. They were at the time, and still are apriceless heritage. Moreover, the knowledge of wine making has been part of French culture for a long timeand specific regions are in the top rank of oenophile’s most desired map.Later on, the French government support of the industry and its high quality controls (with the appellationsystem) increased even further the impact the wineries gained in world markets. Nevertheless, consideringLVMH extended strategy since its creation, the typical choice was to venture outside the traditional winebelts in France and Italy to acquire producers in California and Australia. This once promising market, andnow consolidated production and quality centre, allowed the group to market a global selection of winesand champagnes.1.3 COMMUNICATION STRATEGIES OVERVIEW OF LVMH WINE&SPIRITS PORTFOLIOThe international communication is one of the key factors of the notoriety of LVMH brands and correspondsto its strategy value. All brands have its own and strong unique image: Moët & Chandon, through itsM o e t & C h a n d o n! International Audit 3
  • association with major film events; Dom Pérignon with the personal involvement of its cellar master. At thesame time, they launched many vintage wines as Krug which organizing very exclusive experiences andevents for its “ambassadors”; Ruinart with its presence in the contemporary art world and the variousdesigns assigned to artists; Hennessy through the international development of the Hennessy Artistryconcerts, the specific programs initiated to roll out Hennessy Black in the United States, and theFrance-Russia year; and the luxury Belvedere vodka with the contribution of a new promotional campaign.Lests analyse the characteristics of two famous brand of the group: Moët & Chandon and Veuve Clicquot.Their notorieties are worldwide and their positions on the market are much close: high quality Champagne,international fame, worldwide distribution. So, how brands differentiate themselves even if they aresupported the same global value?First of all the quality of Veuve Clicquot or the yellow label champagne is based on vintage wines. This is themain characteristic of the prestigious cuvée as “Madame Clicquot” previously called “The grande Dame”.On the other hand, Moët & Chandon is appreciating for softer and rustic taste. The enologist’s of the brand,Vincent Chaperon, describe it as "completeness rather than complexity".In a marketing view, champagne is associate to ideas of celebrations, glamour and romance. Veuve Clicquothas clearly elected romance as brand image by creating the Loveseat, designed by Karim Rashid anddistribute at Conran Shop. Then, it’s exposed in various jewellery which linked its directly related toproposal. Moët & Chandon is more linked to party and movies with Scarlett Johansson as effigy. More overthey create a hand-customized bottle, clients have the ability to crimp it bottle by their name in Swarovskicrystals.1.4 KEY FIGURESIn the year 2000, Wines & Spirits division represented 20% of LVMH sales and its operating margin wasaround 30%. In 2001, it noticed a decline of 4% of the sales division due to a low performance of cognaclabels in the traditional market. Collectively, the wines and spirits division reported sales were around €1.37billion.In the first semester of 2010 the division recorded an organic revenue growth of 18%. This high progressionis directly linked with the trouble of the inventory reductions made by distributors in 2009. Beyond that, itshows the ability of group’s brands to take advantage of the first signs of recovery in consumer spending.Even if 2009 was a challenging year, the premium positioning was maintained. The development ofHennessy in Asia was a key factor of the overall improvement and Wines and Spirits saw an increase inrevenue of 21% based on published figures. In the beginning of 2010, the profit from recurring operationswas 326 million Euros which corresponds to an increase of 35% comparing to the same period in 2009. Thisperformance, a revenue increased by 3 points, has been achieved thanks to:• the sales growth• the control of costs• the positive impact of exchange rate fluctuations• the balance between the rise in advertising and promotion on specific markets.M o e t & C h a n d o n! International Audit 4
  • In the current economic and social situation, LVMH, just as other smaller companies, can’t exactly forecastthe sales. Nevertheless, Wines & Spirits activities have good figures and seem to continue with the sametrend. This optimistic projection is based on the implementation in Asia and the group capacity to reactwhen the major traditional market begins a solid recovery. The policy is to maintain the objectives for theyear-end sales: innovate and intensify sales efforts in the field worldwide. Moët & Chandon is identifying asvalue of excellence and maintains a premium position, and is going to strengthen its visibility throughpromotions and specials events.1.5 ORGANIZATION OF THE BOARD OF DIRECTORS & VALUESMoët & Chandon organization and values are strongly influenced by the ones of the group. Indeed theheadquarters with is strong CEO, Bernard ARNAULT, are very important to the whole group and set thebasis to elaborate all the main strategies of the single brands.The main objectives of the Board of Directors are to increase the value of the company and defend its socialinterest. Therefore, it is necessary to define the major strategies of the Group and of each company. Theboard supervises the implementation of the strategies, checks that the published information aboutcompanies and the group are fair and exact, and then it protects corporate assets.Shareholders of LVMH respond to all requirements of the Board such as a mutual respect with the companywhich implies rights and obligations. The company refers to a charter of “corporate governance code fortraded companies” from AFEP-MEDEF organization. The Board of Directors is divided in two Committees,the Performance Audit Committee and the Nominations and Compensation Committee, the membership,role and missions of which are defined by internal procedural rules.At the 31th of December 2009, the Board of Directors was made up of 18 members and had 6 independentmembers free of any interests with respect to the Company. In accordance with the regulations, one of thenecessary condition to be part of the board is to be personally and directly owner of at least 500 shares of thegroup. The Board is responsible of the validation of the annual and interim financial statements. It gives thestrategies guidelines, budget, stock option plans and bonus share allotment plans authorization for thirdparty guarantees and various agreements with related companies, the adoption of the LVMH Group Code ofM o e t & C h a n d o n! International Audit 5
  • Conduct and the election of a Vice Chairman. It has the obligation to meet several times in the year andshould inform directors of companies before. Last year it met four times and the attendance rate of themembers at meetings averaged 79%.1.6 VALUESThe group is lead by five fundamental values shared by everyone involved in LVMH:- “Innovation and creativity: because our future success will come from the renewal of our product offeringwhile respecting the roots of our Houses.- Excellence of products and services: because we embody what is most noble and accomplished in theartisan world.- Brand image enhancement: because our brands represent an extraordinary asset, a source of dreams andambitions.- Entrepreneurship: because this guarantees our ability to react and our motivation to create and seizeopportunities.- Leadership–Be the best: because it is through continually excelling that we accomplish the best and achieve the best results.”M o e t & C h a n d o n! International Audit 6
  • ENVIRONMENTAL AND MARKET ANALYSISby Gil DghailiIntroductionWith only 0,2% of global spirits volume, LVMH was only the 29th biggest player in global spirits in 2009. Yet,the company’s focus in spirits is focused far more on value than volume and has consequently positioneditself as a niche premium wine producer.The company major focus in wines is in its champagne range. LVMH is the world’s leading champagneproducer and has thus been severely affected by recession in many of the champagne’s core markets. Hence,the company sales volume has declined 23% in the first nine months of 2009.Champagne, a classic example of sparkling wine, has achieved the status of a luxury brand. Besidescompeting with other sparkling wines, it is also offering stiff competition to premium distilled spirits.However, champagne houses are worried over how to cope with the negative impacts of the economic crisiswhich have caused sales to significantly drop in the last couple of years. Another major concern is the risinggrape prices impacting profit margins of producers.1. Environmental factors impacting the champagne marketPolitical-Regulatory factors1 - In 2008, the Champagne appellation (AOC) has been extended to include 40 more communes in France inaddition to the 319 that can already produce under the ‘’Champagne’’ label, in order to face the risingdemand.2 - The European Forum for Responsible Drinking (EFRD) is an alliance of Europe’s leading spiritscompanies driving the industry’s commitment to promote responsible drinking in the EU and encouragingindustry to adopt responsible self-regulatory standards for commercial communications.EFRD member companies include:· Bacardi-Martini · Diageo· Beam Global Spirits & Wine · Moët-Hennessy· Brown-Forman · Pernod RicardEconomical factorsThe global economic slowdown has led to a drop in prices, the lowest in decades.M o e t & C h a n d o n! International Audit 7
  • Rising grape prices have also put under pressure pressure the producers in terms of profit margin.Furthermore, the image of champagne as a luxury product has been hurt by promotions/discounts thatchampagne houses had to make in order to face decreasing sales.Social factorsPeople are becoming more educated about the wine segments, and champagne is more and more in thehabits of consumers, and is seen as an aperitif and nowadays accompanies meals more often.Technological factorsProducing champagne has some issues to be taken into consideration: champagne houses are worried overhow to cope with increasing demand since there is an average of two-year time lag in champagneproduction.Climate factorsClimate conditions and global warming are actually having a positive impact onproductions, which is reflected in increased production2. Competitive arenaFrance is still the dominant market for champagne, which is named after the Champagne region of France.The French market is highly fragmented and competitive with several brands like Veuce Cliquot, CharlesLafitte, Nicolas Feuillatte, and Mumm. The global champagne market is dominated by two brands - Moet &Chandon (LVMH Group) and Veuve Cliquot (LVMH Group) which together hold a 19 % global marketshare.2.1 The most dynamic marketsChampagne continues to be dominated by 5 markets: France (50% of global volumes), UK, US, Italy andGermany, which together account for 75% of global volumes in 2009.2.2 The market playersHereafter is the list of Top Champagne houses operating in the market (included in the annexes is a completelist of all the champagne houses)Moet Hennessy V! ranken Pommery MonopoleLanson-BCC !! Laurent-PerrierCentre Vinicole Champagne Nicolas Feuillatte! Pernod RicardM o e t & C h a n d o n! International Audit 8
  • Rémy Cointreau !! GH MartelLouis Roederer ! TaittingerGroupe Thiénot ! Jacquart (Alliance Champagne)Duval-Leroy ! BollingerThe following chart shows the 5 leading champagne producers by volume share in 2008 and 2009.In 2009, LVMH Moet & Chandon was the leading player in the 205 million litres global champagne market,with sales of 48 million litres, with brands like Moet & Chandon, Veuve Clicquot and Dom Pérignon.Moêt & Chandon was the company’s best-selling champagne, with a 12% category volume share.2.3 Market competition analysis using Porter’s five forces modelRivalryWine is a highly fragmented market, the top 10 companies accounting for over 14% of total volume sales.Many powerful big holdings operate through branded wine and try to differentiate through high quality anddifferent prices in the various market segments.ConsumerConsumers have a large bargaining power, since they are able to choose the spirit of their choice, and theremany high quality choices provided in the market at acceptable prices.Barriers to entryM o e t & C h a n d o n! International Audit 9
  • The existence of a very high level of fragmentation is the sector’s major barrier, with high levels ofunbranded wine available in many markets.SubstitutesDue to economic crisis, people are shifting to cheaper wines from Italy, Spain and California and to othersparkling wines than champagne.In UK, the recession has encouraged 3/10 drinkers of champagne to switch to other sparkling wines.2.4 SWOT AnalysisStrengthLVMH owns strong brands in its wine portfolio. Actually, it has two of the top leading brands in the worldwhich are Moet & Chandon and Veuve Clicquot, that maintain a 19% global market share.Also, a solid financial situation is reflected in low level of debts and high level of cash giving it theopportunity to acquire or to create opportunities to link its marketing activites with other of its luxurybrands. This is very important in the current weak economic climate.WeaknessesThe focus on premium products makes it sensitive to negative impacts of a difficult economy.In addition, the company is not utilising its global profile and marketing expertise to promote its other wineproducts besides champagne, like the Still Light Grape Wine or other sparkling wine.OpportunitiesMoet & Chandon has established a strong presence in rapidly developing markets such as India, Russia orChina and is well positioned to benefit from the growth and increasing demand for champagne and wines inthese markets.Furthermore, the company must put more effort on developing the other sparkling wine activity like theChandon brand, which could help it offset the falling sales in champagne due to bad economy.ThreatsThe falling demand for luxury products in Europe and North America markets leaves the companyvulnerable to slowing revenue growth. In those markets, there a strong decline in sales of the Moet &Chandon and Veuve Clicquot brands.Another threat comes from relying on the champagne activity, which has showed a significant negativegrowth in the last two years.2.5 Determination of key factors of successM o e t & C h a n d o n! International Audit 10
  • LVMH is the leading champagne producer in the world and the reason for that relies in the following keyfactors of success:- a strong distribution network- a solid financial position has been crucial facing the recession- a marketing expertise: for example in the ‘’be fabulous’’ Moet & Chandonadvertising campaigns- Premiumisation: having own Cuvée de prestige and building value in the business- a responsible communication in advertisements (Moet & Chandon is a member of EFRD)M o e t & C h a n d o n! International Audit 11
  • Corporate International Assessmentby Hugo Blavin3.1. STAGE OF INTERNATIONALIZATIONMoët & Chandon has clearly reached a permanent multinational stage of development, and so for variousreasons. The most obvious one is the historical one. Since its start in 1743, the company has graduallyreached different countries in most of the continents. Firstly Moët & Chandon moved to England in 1750, in1762 it reached Russia, followed by the U.S.A. In 1787, Brazil in 1815. It finally it expended to a reallypromising market which is Asia with the opening of a factory in China in 1843 and in Japan in 1905.Therefore, in the early 20th century, Moët & Chandon was already settled in the most fertile marketsthroughout the world.Another explanation to its expansion world-wide is the industry it is located in. Luxury goods are somethingthat most of higher-class citizens are really fond of, and this since almost the age of time. In the antic Rome,rich romans wanted the best wine in order to have the feeling of being part of an elite, nowadays the societyhas changed but the habits remain the same. The possession of luxury goods is a sign commonly associatedto success, and this in most of nowadays cultures. Therefore, as soon as the higher-class layer of a countrybecomes sufficiently numerous and wealthy, the latter automatically becomes a potential market for Moët &Chandon. Figure 1 : LVMHs current establishment throughout the worldFigure 1 shows us the establishment range LVMH - the mother company of Moët & Chandon - around theworld, and clearly illustrate what was stated before. We can easily observe that the days were Moët &Chandon was a small vineyard in Epernay are far long gone, and that the company is now solidlyestablished into the most lucrative markets.M o e t & C h a n d o n! International Audit 12
  • 3.2. International incentivesMoët & Chandon international incentives are tightly linked to the growth of fast growing economies. At itsbeginning, it was only aiming at already developed countries, mainly based in Europe, and was expandingfairly local on the world scale. Its business was based on already established economies, therefore steady,and was making most of its revenues out of it.But by the middle run of the 20th century, things have changed. Some new markets appeared, due to theirthe economical expansion and thus the augmentation of the high layer of the social classes. These newmarket were eager to reach West-European lifestyle, and even challenge them. Therefore, the consumption ofluxury goods was the most logical step to follow.Two of the most promising market were Asia and South America. Their density of population as well as thedevelopment of their economy was extremely interesting, and was offering an opportunity that the companycould not afford to miss. That was the reason why Moët & Chandon decided to settle there, to retail directlyto this new population craving for champagne and glitter.! ! But how is the situation nowadays ?Well, it clearly went in the same direction, significantly. These new markets kept on growing, with not onlyan important growth, but also managed to conserve a stable development. Figure 2 shows us the comparisonof estimated and actual annual growth of Asia, emerging economies, advanced economies as well as the restof world from 2005 and 2014. We can observe that Asia, but also emerging countries, have been significantlyless hit by the 2009s crisis than advanced economies, that they are keeping their impressive growth rate to ahigh level approaching the 8%. Therefore they represent a great source of revenues on a long-term basis, andhave to be set as high-priority markets.This graph truly validates the incentive for Moët & Chandon to spread internationally, in order to adapt to aworld quickly changing.M o e t & C h a n d o n! International Audit 13
  • !! ! Asecond Figure 2 : Real GDP growth 2005-2014international incentive is obviously the 2009s crisis. Most of advanced economies in the world have been hittoughly by this financial phenomena, and consumption habits have change subsequently. Western Europe,the core market of Moët & Chandon, has been particularly affected by the crisis, characterized by a generaldecline in consumption and a change in drinking habits; most evident in the mature markets of France,Spain and Italy. Cultural differences and drinking patterns aside, the majority of key Western Europeanmarkets faced similarly uninspiring performances over 2009, with the levels of decline directly linked toeach countrys reaction to the financial volatility. These changes are seriously changing the businessvariables, and Moët & Chandon has to readjust its strategy in order to encompass all of them.We are going to use figure 3 and 4 in order to illustrate and give tangible evidence to this internationalincentive. They are respectively showing Frances and USAs market forecast for champagne for 2009-2014 interms of volume.! ! Figure 3 : France Champagne Market forecastThese bar graphs show us two important things. Firstly, that the European market – here represented byFrance – is still an important market compared to the USAs with nearly ten times more volumes sold in2009. Nevertheless, it is pretty obvious to state that its forecast are decreasing, but above all it is predicted tostay at a lower-than-ever level for the oncoming years. This clearly indicate that 2009s crisis has and willhave deep impact on the Europe, and that this recent incentive to internationalize is bound to last. Thesecond important thing is gathered by the figure 4, showing that different market from the original –M o e t & C h a n d o n! International Audit 14
  • represented here by the USA – are more likely to recover quickly from the crisis, therefore giving a greatopportunity to Moët & Chandon to damp its difficulties.! ! As a sortof sum-up Figure 4: USA Champagne Market forecast Figure 5 : Importance of Leading Markets for Champagneof the various international incentives, we will use figure 5. It shows the evolution of the proportion ofChampagnes leading market from 2009 to 2014. We can easily observe that the evolution will not be fromblack to white, but nevertheless would change the aspect of this industry. Indeed, the top five Champagnemarket will turn out to be the minority within 5 years, letting the rest of the world leading the market. Thisclearly testifies that the incentive to focus on the international is not option for Moët & Chandon butdefinitely a capital priority.3.3 FUNCTIONAL INTERNATIONAL DIAGNOSISHere is a presented a table summing up the main functional strengths and weaknesses of Moët & Chandon,in order to obtain a quick overview of their competitiveness on an international scale. Strengths WeaknessesProduction Strong network developed through years The creation of overseas production sites triggers some concerns related to the Great capacity of production : homogeneity of the quality of the product approximately 26.000.000 bottles a yearM o e t & C h a n d o n! International Audit 15
  • Marketing High impact of promotional operations, such as the Golden Pod, used in order to boost sales. Strong branding supported by the LVMH group.Finance Belonging to the LVMH group insure The access to the fund is complicated by Moët & Chandon a tremendous amount of the size of the group, bureaucracy is financial assets. getting in the way.Human Resources Being into the Champagne business for Being based in countries other the world, decades, Moët & Chandon has the availability and flexibility of the work developped an uncompared know how force is harder to achieve. and a deep knowledge of the industry as Because of the cultural diversity the well as the clients. company is dealing with, the work force has to have a high level of the specific sector it is aiming at.3.4. THREATING SUBSTITUTESIn this part we are going to analyze some of the substitutes to Champagne that Moët & Chandon is facing onan international basis, in order have a wider overview of their industry as well as to assess the potentialthreats to their business.The Beer Market : ! !Economy lager was beyond doubt the big winner of the 2009s crisis, if there was one. Posting strong 3%total volume growth globally in 2009, it managed to outperform both the standard and premium segmentsand provided an alternative for cash-strapped audiences that were thus not forced completely out of thecategory.Figure 6 show us a bar graph of the Global Beer sales from 2004 to 2009, which confirms that even thoughthe growth of the sector is plummeting, it sales remains fairly important and therefore are a threat to beseriously taken in consideration. This goes directly with the change of habits of the customer stated before inthe audit, preferring cheap alcoholic drinks due to the difficult situation and the decrease of level of incomes.!!M o e t & C h a n d o n! International Audit 16
  • Figure 6 : Global Beer SalesThe Spirits Market : ! !Spirits reaffirmed its resilience in 2009, defying the recession with a 2% total volume growth on a globallevel. As displayed on the Figure 7, the number of liters sold from 2004 to 2009 has been increasing sharply,even during the grim phase of the financial crisis, which is a very strong symbol. This market is solid andreally promising, thus Moët & Chandon has to find ways to keep a close eye on this area. Figure 7 : Global Spirits PerformanceThis quick overview of two of the various substitutes to Moët & Chandons products confirms that thecompetitiveness of the sector is ferocious, but above all that all of the various sectors have not been affectedto the same extent by the 2009s crisis. Beer for instance, has been touched by it but still manage to boast animpressive volume of sales. As well for Spirits, which growth has slightly decreased, seems to be quicklyback on track and eager to gain some market shares.Therefore, Moët & Chandon has to take strong measures in order to fight back this various pressures, as wewill tackle in the following part.M o e t & C h a n d o n! International Audit 17
  • INTERNATIONAL STRATEGY FORMULATION/RE-FORMULATION AND IMPLEMENTATIONby Patrick Morselli4.1 SCHEME PRESENT POSSIBLE? W H AT 1) Strong quality brand/heritage 2) Solid marketing strategy 2) More specific and differentiated marketing strategy. Adapted locally. 3) Local and regional partnerships with 3) Developed distribution elite bars, clubs, events, restaurants. (Expo Milano) 4) Dom Perignon 4) Push the epitome of champagne luxury even further in international markets (it’s easier than to develop Moet because it’s a real top-end luxury brand) 5) Bodegas Chandon 5) Grow in Argentina (and export to South America) 6) Grow in U.S. and Australia (and export 6) Domaine Chandon (Napa, Australia) to the world) 7) Culture of champagne to celebrate 7) 8) Educate the emergent markets like festivities / parties (Europe) Asia and South America to the champagne 8) Distinction between champagne and culture for celebrating and having fun sparkling wines (Europe) 9) Avoid cannibalization and distinguish 9) Risk of Cliquot cannibalization clearly WHERE Europe 75% Europe 50% Rest of the World 25% Rest of the World 50% WHEN 20th century 2010-2015M o e t & C h a n d o n! International Audit 18
  • HOW 1) History of technical and quality excellence. Original methods and dedication of champagne artisans. 2) Penetrate China and Brazil with 2) Support of LVMH group and marketing different strategies, according to habits expertise. Events. Celebrities. and sensitivity of population to European lifestyle. 3) A long-established network of partners 3) Partnerships with new bars, restaurants like events, clubs and restaurants. and clubs. Develop online business and tighter relationship with selected segments. 4) Development of a prestigious brand and 4) Develop the image of Dom Perignon related product. It differentiates so much through the word-of-mouth between from Moet products and marketing celebrities and clients of nightclubs and strategy hat it’s almost a brand by itself. restaurants. 5) Develop the Bodegas Chandon brand in 5) 6) Acquisition and local marketing of Argentina with a local marketing, and vineyards able to produce explore Brazil who might be interested in a champagne-method sparkling wines luxury sparkling wine from Argentina 6) Create a brand of cheaper sparkling wine to distribute in US (from Napa valley) and Asia (from Australia) for the customers who are in a lower segment than Moet, with a -35% price. 7) 8) Educate customers, especially in 7) 8) In Europe and US, established metropolis, and through events, culture. it’s a strenght restaurants, bars, hotels etc. to celebrate with champagne. In China, try to instigate the habit to consume it in family reunions. 9) Both the champagne brands have a 9) Allineate with more traditional heritage: celebrity and event-related marketing STYLE (vs Veuve Cliquot - GLAMOUR) strategy. Only in the last years they are and target a specific consumer: 35+ (vs starting to differentiate, but the process Cliquot - 20-35) might be complexM o e t & C h a n d o n! International Audit 19
  • 4.2 INTRODUCTIONChampagne is unique. Well defined for its peculiar technical process, for the region where it comes from andfor its taste, it distinguishes clearly from any other alcoolic product. No wine is like champagne, ça va sansdire.Despite of that, there is a high level of fragmentation in the Champagne region of France. This means thattiny top-quality producers, as traditionalist as innovative refined private owners and growers, areneighbours of the big, commercial, industrialized and powerfully marketed brands. Maybe for the rest of theworld every champaigne is already a niche product because of its denomination, but for the artisans whowork in the region every hill, every tiny change in grapes, vineyard and method makes a huge difference interms of result in the final product. They want quality to be awarded, and they see almost every bottle asunique, but they indeed encounter a big obstacle to their philosophy.In fact, the worldwide denomination is “champagne”, no matter which hill it comes from. This is indeed aweakness for small producers, but it’s a blessing for huge brands like Moet. In this industry, the biggestplayer wins the market because its brand means at the same time luxury and exclusivity, but the productionis big enough to distribute worldwide and trigger a powerful marketing strategy.Nonetheless, also Moet competes, and often fights with its closer brothers, like Veuve Cliquot, the child of anexceptional twentieth-century marketing operation with a big growth potential. The marketing strategy isdifferent, but still not clear enough for the customer of this champagne, which can be positioned in anaccessible luxury segment and therefore targeted by many brands and even more potential substitutes. It’scomprehensible, on the other side, that the group wants to avoid cannibalization between products.Therefore, the most relevant question we can formulate about the potential strategy for Moet, who shares themarket with many brands of the same group, is: How to implement growth without cannibalizing other LVMH brands, yet increasing the brand value and image, but not at expenses of the corporate portfolio of luxury champagnes? And, at the same time, how to internationalize by differentiating effectively from other champagne brands that could penetrate the growing luxury markets of Asia and South America?Considering the limited development of international markets of Moet, and the European decrease indemand (because Moet with the standard brand targets a segment of accessible luxury who is more sensitiveto prices than, for example, the customer of Dom Perignon), the following question could be: How can Moet improve its marketing, distribution and partnership network internationally, to balance the European downturn and exploit new emerging markets?M o e t & C h a n d o n! International Audit 20
  • 4.3 FORMULATION4.3.1 A Strategy to be expanded internationallyMoet et Chandon marketing is well defined by the partnerships with movies, events and celebrities. Thebrand focuses on its traditional heritage and quality, proposing a range of products appreciated by acustomer which is indeed not an oenophile, but nonetheless pretty sensitive to luxury brands attractivenessand mostly consumes champagne to celebrate and to participate to a social event, where he can show thespecific brand he chose.However, even if this strategy worked perfectly to develop the brand in Europe, the same events andcelebrities do not have the same level of visibility in new emergent market such as China and Brazil, wherethe medium segment, which is Moet et Chandon’s target market, is growing much faster than in the oldcontinent. On the other side, in these developing economies the culture of celebrating, dining and partyingwith champagne is not part of the social habit. At least, not yet...4.3.2 ChinaA more specific local marketing strategy is needed to distribute sales in a more equilibrated way worldwide.This can be achieved with understanding of local markets. The huge influence of US culture on China, andthe Chinese customer’s perception of the luxury connected with European products and life-style are a bigincentive to internationalize in the region. A local marketing strategy will target the middle segment byplacing the product and, at the same time, educate the potential customers by introducing the meaning ofchampagne in celebrations, events, private and public.Family relationships have a huge role in the life of Chinese population, therefore it is necessary to find a wayto place the champagne as a constant in these private events and weekly reunions. This strategy, at themoment, might not reward with immediate results. But Chinese population is becoming more and moresensitive to European habits and in the next ten years the middle-class population who approached anEuropean lifestyle will be nearly the double as today.The analysis for Moet in China does not include, of course, the higher segment. In fact, this is a marketwhich already has a European lifestyle, due to frequent holidays in Europe and the frequentation of Westernstyle restaurants and clubs, especially in the younger segment, making it perfect for Dom Perignondistribution. In this case, the high price is a necessary tool to reach the target market.4.3.3 South AmericaFor Brazil, the situation might be slightly different, as the culture of independence is stronger. Europeanlifestyle is still taken into consideration and imitated, but for food and wine consumption, except for a minorsegment, the population is still traditionalist. A possible penetration strategy is to educate the potentialmiddle-class market to understand the heritage and exclusivity of the Moet brand.M o e t & C h a n d o n! International Audit 21
  • But also a different alternative is available. By exploiting the Bodegas Chandon brand produced inArgentina, a marketing strategy could be developed for the whole South America, including Brazil.Argentina is still recovering from a downturn and offers high level services at low costs. A Bodegas Chandonmarketing centre could be implemented in Buenos Aires to target the whole South American region. LVMHdeveloped a mastery in marketing luxury products and the group policy is to always keep a record and a“manual” for the operations and tactics. This might consistently help the local branch to develop an effectivestrategy.Through partnerships with hotels (where the visitor can be invited to taste an outstanding sparkling winefrom Argentina), commercial centres (in Brazil they offer a more personalized attention to the client and tendoften to offer champagne to enhance shopping experience), trendy bars (growing and developing especiallyin Sao Paolo and Rio) and events (Brazil has different celebrities than Europe and it’s extremely sensitive tothem), the visibility of Bodegas Chandon brand could be highly enriched, with the possibility to market thesparkling wine made with the champagne method at the same price of Moet itself, while the costs would bekept lower.It may also be considered to choose an aggressive marketing strategy, by educating the customer to see thechampagne-method as a proper champagne. The South American consumer would be proud to consume anational product of high quality. At the moment, Moet presence in the region is so low - and target marketsfor Moet and Bodega so different - that the fear of cannibalization is not relevant.In conclusion, while in China Moet can be imported with a premium price, because the Chinese customer ismore sensitive to European lifestyle, in South America, to target Brazil and Argentina, which arefundamentally traditionalist in food and wines, Bodegas Chandon brand can be implemented to beperceived as a local product (as it actually is) and using the low-cost marketing professionals in BuenosAires, helping them with LVMH expertise in developing marketing strategies.4.3.4 California and AustraliaDomain Chandon brand, which produces both in Napa Valley (California) and in Australia, might bemarketed in a slightly different way. If the consumers of champagne are decreasing due to the crisis in theUS, and switching to sparkling wine, then why not offering them the sparkling wine of Domain Chandon,produced in the region? It shall be marketed with a slightly lower price (-30%) respect to Moet. Advertising,partnerships and celebrities will not help to develop the brand in this case. But an outstanding packaging(with the clear words “champagne-method”, for example) and a correct placement, in every winery andsupermarket just close to the European champagnes, will invite the customer, not eager to spend in a luxuryproduct like imported champagne from France, to try the brand once and then become habitual consumer.The word “champagne” has the power to market a sparkling wine, coming or not from the eponymousregion of France, in specific markets that admire Europe and share - more or less - the culture and history ofcelebrating in the old continent style. This is true for U.S., Europe itself, China and Japan. In these marketswe shall exploit the power of the name (“Moet” and “Champagne”), representing quality and luxury.4.3.5 SegmentationM o e t & C h a n d o n! International Audit 22
  • To the top-end segment we can market Dom Perignon, without connecting it with celebrities but with atradition of outstanding luxury, exploiting the word-of-mouth and the price-quality correlation.To the high and middle segment, able to afford it often, we might sell Moet brand by connecting it with anaspirational marketing campaign based on celebrities, social events, personalized service and lifestyle.Finally, to the low and middle segment we will place a product that is a substitute of champagne, using the“champagne-method” brand. A non-minimal packaging will satisfy the customer completely even after thepurchase and reward him with an exclusive image in the social events he will participate even without a“real” champagne from France.In the other markets, where Europe’s luxury sill means only fashion brands and the culture related with foodand drinks is more conservative, as Brazil and Argentina, we shall merge with the local culture andproducers, by developing a brand that is perceived as local but at the same luxury level as any otherEuropean brand. This will allow for a wider margin and faster expansion into fast-growing economies.4.3.6 The Expo opportunityThere will be an important opportunity that Moet, Dom Perignon, Bodegas Chandon and Domaine Chandonshould not miss to enhance their expansion into international markets. The Expo 2015 in Milan will befocused on food and on artisan gastronomic products, a perfect situation to couple food with drinks andoffer to a huge number of visitors from all around the world the possibility to try Moet products.Competition from Italian wines will be strong, of course, but champagne is not italian, and even Italy doesn’thave many substitute sparkling wines. By associating with events in the city, hotels and nightclubs, Moetwill be able to boost its image at a global level with a presence by concentrating marketing efforts in just onecity and for a few months.By that time, Moet, and all the Chandon brands, should have implemented an efficient virtual store wherecustomers can buy online and get the products shipped home in a reasonable time. In this way, for example,the potential client from Argentina visiting the Expo will be offered a Bodegas Chandon bottle, and will beable to order it immediately to be shipped at his home address in Argentina.4.3.7 Distribution and online marketingThe potential for an online store makes us shift the attention on the current distribution network of Moet.While in bars and clubs the brand is strong, it is becoming increasingly weak in contexts where the consumeris an experienced champagne connoisseur. In this case, the smaller, often indipendent, players will quicklyoffset Moet because of the higher quality and exclusivity. The habitual champagne drinker will often preferto switch to new, unexplored, vineyards. This threat is a further indication of the decline of Europe as aprofitable market for the brand, and it shows even more incentives to develop an efficient distributionoutside Europe, where the potential consumer won’t be an expert.From the data shown in Chapter 3 it is evident that a strong distribution network is already present in Asia.Unfortunately, the sales do not reflect the same distribution, still being concentrated in Europe with apercentage of 75%. That’s why international marketing shall be the next move of Moet, eventually integratedM o e t & C h a n d o n! International Audit 23
  • by an online store, to compensate for the concentration of stores which, in Asia and South America, is ofcourse much lower than in Europe.An online registration process would allow Moet to offer to each client regular invites to events, thepossibility to buy first the latest “vintage editions” and to participate to partnered restaurants openings. TheChinese consumer would feel integrated in the Moet universe and lifestyle, in this way becoming an habitualconsumer (especially at home) instead of an occasional consumer. It is extremely important, if the objetive isto expand to Asia, that Moet becomes present not only in restaurants, but in the homes.4.3.8 Shifting from selling champagne to selling lifestyleThe concept of lifestyle brand has to be approached, finally, to avoid cannibalization of Cliquot by part ofMoet. The solution relies in the brand image. A precise and very clear distinction shall be made between thetwo different champagne, based on the final consumer, on the kind of bars, restaurants and shops where it isplaced and on the advertising campaigns.While Cliquot could be connected with an aspirational glamorous, romantic universe made of trendy clubsin Saint Tropez, Punta del Este and Bali and a young upper class (20-35) crowd who wants to party in themost luxurious locations worldwide, Moet might be targeted to a segment older than 35 years, who prefersrestaurants, golf clubs and a more sober kind of relax. If Cliquot represents glamour, young people, andcontemporary architecture, Moet shoud represent style, professionals in the middle of a bright career,personalized service and classic, ageless environments. The more sophisticated target of Moet is alsocoherent with the strategy of giving to the consumer a personalized attention and creating a universe ofevents and locations to make him feel in the middle of a typical Moet lifestyle.While in Europe champagne is connected with celebrations, and for this reasons is lately experiencing alimited development, in the rest of the world the champagne culture has still to be created. This means agreat chance to create the target instead of adapting to its needs. Instead of marketing champagne in the oldway, Moet shall try to make it become a recreational drink good for any occasion: not only for celebrations,but also for an afternoon tea, for an aperitive, for a business lunch, a dinner or the perfect present for theweekly family reunion. Habits in Europe are difficult to eradicate, but when we talk about new emergingeconomies there is the potential to educate the customer, who is thirsty of European lifestyle, about howmuch, when and how to consume. A new culture is about to be aggressively targeted, and indeed that meansfor Moet a lot of possibilities.M o e t & C h a n d o n! International Audit 24
  • BIBLIOGRAPHYLVMH Web site:http://www.lvmh.com/pg_default.asp“Interim Financial Report” - Six-month period ended June 30, 2010“First Half 2010 results” - July 27, 2010“The marketing of bubbles” by Silvana Bottega, March 28th 2009.https://docs.google.com/document/d/1RnZPWECEK2cQjA1vyWnHQXari8Y0Wk2rZumU-FvGMTU/edit?hl=en#“House Style” Fashioning Champagnes by Lyn Farmer, January 2003www.thewinenews.com/decjan0203Xerfi700 Report 2007 “Groupes des boissons alcoolisées dans le monde”“LVMH: In search of sinergies in the global luxury industry” Case Study by Thunderbird Graduate School ofManagementwww.chandon.com.ar (Official Website of Bodegas Chandon)“LVMH in wine - world report’’ Euromonitor, 2010‘’Challenges of the wine and spirits sector’’ Euromonitor, 2010M o e t & C h a n d o n! International Audit 25
  • ANNEXESANNEX 1 “Bernard Arnault Biography”Bernard Arnault Biography : LVMH Moët Hennessy - Louis Vuitton S.A. ChairmanFamous for : Being the richest man in France and a major owner of luxury goods brands. Arnault ischairman of LVMH (Moet Hennessy Louis Vuitton), Christian Dior SA, and Groupe Arnault.Arnault details : Born - 5th of March, 1949 Roubaix, France / Lives France and New Rochelle, New York,USABernard Arnault is the primary shareholder, chairman, and chief executive officer of the Moet HennessyLouis Vuitton company which focuses on producing and marketing a variety of luxury goods including thepopular brands Moet champagne, Christian Dior, Dom Perignon, and Louis Vuitton.Bernard Arnault was born on March 5, 1949 and grew up in Roubaix in the north of France. He attended theEcole Polytechnique, an engineering school, and helped run his familys construction and property businessfirm after graduation. The company, named Ferret-Savinel, surged under Arnaults supervision and beganbuilding time shares on the French Riviera. After the French Socialist rise to power in 1981, Arnault, alongwith his wife and children, moved to the United States where he continued his construction business in PalmBeach, Florida.When the political atmosphere in France changed in 1983, Arnault moved his family back to his nativecountry and took over the struggling textile firm, Boussac which owned the brand Christian Dior. It was theFrench government who had been looking for someone to acquire the company and Bernard Arnault put up$15 million of his own money with some additional finances to purchase it. His entire reasoning behind theacquisition was to gain control of the Dior label and gain a foothold on the luxury market.Arnault began building his empire by selling off various divisions of the Boussac company that had nothingto do with his luxury business goals. Much of that money went to purchasing 24% of the controlling sharesM o e t & C h a n d o n! International Audit 26
  • of the LVMH enterprise. After a bitter battle with the executive staff, Arnault eventually gained control overthe company and laid off a number of managing executives in order to rebuild the company to meet hisvision.Bernard Arnault shifted the companys focus away from the traditional trends and onto the new and creativeenergies that were immerging within France. He wanted to harness the creativity of the fashion world andbring it to the luxury marketplace. Part of this change included hiring a new designer by the name of JohnGalliano. Arnaults experience with business gave him the strength and knowledge he needed to rebuild thecompany and his training as a classical pianist gave him an understanding of the creative arts. Thiscombination provided Arnault with a powerful foundation on which to build the future of LVMH.Arnault continued to acquire brands throughout the 1990s and purchased luxury names such as Givenchy,TAG Heuer, Sephora, and a number of wine and spirit labels. He was criticized for his large luxuryconglomerate but many of his competitors found that Arnault was making both business and financialstrides with his decisions.With the changing economies of the 21st century, however, Bernard Arnault found that much of the worldwas not purchasing the luxury goods they had craved in past years. As a result, many of the brands underthe LVMH company struggled to make money and stay afloat. Arnault, however, was not dissuaded andcontinued to focus on quality and luxury while realizing that some of his brands and stores needed to bedownsized. Despite any financial problems, Arnault still managed to keep a tight hold over some of theworlds most well-known luxury brands in the industry.ANNEX 2: List of main producers of champagne House Year founded Place of origin Cuvée de prestige Parent group (Premium label) Vintage where indicatedAbelé 1757 Reims Sourire de Reims FreixenetAyala 1860 Ay Grande Cuvée Société Jacques (Vintage) Bollinger[2]Billecart-Salmon 1818 Mareuil-sur-Ay Brut Réserve IndependentBoizel 1834 Épernay Joyau de France Groupe Boizel, (Vintage) Chanoine, Champagne (BCC)Bollinger 1829 Ay Vieilles Vignes Société Jacques Françaises (Vintage) Bollinger R.D. (Récemment Dégorgé) (Vintage)Boulard 1952 La Independent Neuville-aux-LarrisBrice 1994 Bouzy IndependentBrun 1898 Ay IndependentBruno Paillard 1981 Reims Nec Plus Ultra Independent (Vintage) brut première cuvée (Vintage)M o e t & C h a n d o n! International Audit 27
  • Burtin - Besserat de 1843 Épernay Cuvée des Moines Lanson-BCCBellefonCanard-Duchêne 1868 Ludes Grande Cuvée Groupe Thiénot Charles VIICattier 1918 Chigny-les-Roses Clos du Moulin IndependentChanoine Frères 1730 Reims Gamme Tsarine Groupe Boizel, Chanoine, Champagne (BCC)Charles Heidsieck 1851 Reims Blanc des Rémy-Cointreau Millénaires (Vintage)Veuve Cheurlin 1919 Celles-sur-Ource IndependentComte de 1880 Chenay IndependentDampierreCuperly 1977 Verzy IndependentDe Castellane 1895 Épernay Commodore Laurent Perrier (Vintage)De Cazanove 1811 Reims Stradivarius Groupe RapeneauDe Telmont 1912 Épernay Commodore Laurent Perrier (Vintage)De Venoge 1837 Épernay Grand Vin des Groupe Boizel, Princes (Vintage) Chanoine, ChampagneDelamotte 1760 Le Mesnil-sur-Oger Laurent-PerrierDeregard Massing 1936 Avize IndependentDesmoulins 1908 Épernay IndependentDeutz 1838 Ay Amour de Deutz Louis Roederer (Vintage)Dosnon & Lepage 2007 Avirey-Lingey IndependentDuval-Leroy 1859 Vertus Femme de Family-owned Champagne (above average years only) Fleur de Champagne (above average years only)Gardet 1895 Chigny-les-Roses IndependentHenri Giraud 1975 AyGosset 1584 Ay Celebris (Vintage) Renaud-Cointreau Grand Millésime (Vintage)Alfred Gratien 1864 Épernay Henkell & SöhnleinGueusquin 1994 DizyHeidsieck & Co 1785 Épernay Diamant Bleu Vranken-PommeryMonopole (Vintage) MonopoleHenriot 1808 Reims Cuvée des Independent Enchanteleurs (Vintage) brut Souverain (Vintage)Irroy 1820 ReimsIvernel 1963 Ay Renaud-CointreauJacquesson 1798 Dizy Avize Grand Independent Cru(Vintage)Jacquinot & Fils 1947 ÉpernayJeeper 1944 ÉpernayJoseph Perrier 1825 Châlons-en-Champ Groupe Thiénot agneM o e t & C h a n d o n! International Audit 28
  • Krug 1843 Reims Krug (Vintage) LVMH Clos du Mesnil (above average years only)Charles Lafitte 1848 Épernay Orgueil de France Vranken-Pommery (above average years Monopole only)René-James Lallier 1966 AyLanson 1760 Reims Noble Cuvée Lanson-BCC (Vintage)Laurent-Perrier 1812 Tours-sur-Marne Grand Siècle Laurent PerrierLemoine 1857 Tours-sur-Marne Laurent PerrierLenoble 1920 DameryLombard & Cie 1925 Épernay IndependentMansard Baillet Épernay RapeneauMarie Stuart 1867 Reims Cuvée de la Alain Thiénot Sommelière Brut Millésimé (Vintage)G.H. Martel & Co. 1869 Reims RapeneauMercier 1858 Épernay Vendange (Vintage) LVMHCharles 1995 Épernay Stock companyMignon-LéonLaunoisPierre Mignon 1970 Le Breuil IndependentMoët & Chandon 1743 Épernay Dom Pérignon LVMH (Vintage)Montaudon 1891 Reims LVMHMoutard-Diligent 1927 Buxeuil Vieilles Vignes Independent "cépage Arbane" Cuvée "6 Cépages"Mumm 1827 Reims Mumm de Cramant Pernod RicardPerrier-Jouët 1811 Épernay Belle Époque Pernod Ricard (Vintage)Philipponnat 1522 Mareuil-sur-Ay Clos des Goisses Lanson-BCC (Vintage)Piper-Heidsieck 1785 Reims Rare Rémy-CointreauPol Roger 1849 Épernay Sir Winston Independent Churchill (Vintage)Pommery 1836 Reims Cuvée Lyesse Vranken-Pommery (Vintage) MonopoleEugène Ralle 1925 VerzenayLouis Roederer 1776 Reims Cristal (Vintage) Family-ownedRuinart 1729 Reims Dom Ruinart LVMH (Vintage) Ruinart blanc de blancs (Vintage)Louis de Sacy 1967 Verzy IndependentSalon Le Mesnil-sur-Oger Champagane Laurent-Perrier Salon(Vintage)Cristian Senez 1973 Essoyes IndependentA. Soutiran 1990 Ambonnay IndependentTaittinger 1734 Reims Comtes de Taittinger Champagne (Vintage)M o e t & C h a n d o n! International Audit 29
  • Thiénot 1985 Reims Cuvée Alain Groupe Thiénot Thiénot(Vintage) Cuvée Stanislas(Vintage) Cuvée Garance(Vintage) La vigne aux Gamins(Vintage)Veuve Clicquot 1772 Reims La Grande Dame LVMHPonsardin (Vintage) Carte jaune (Vintage) Clicquot Rich Reserve (Vintage)Vranken 1979 Épernay Demoiselle (above Vranken-Pommery average years only) MonopoleSOME DEFINITIONS1- Still Light Grape WinesStill light grape wine is the total sum of the stil red, white and rosé wine2- Sparkling wineIs the aggregation of champagne and other sparkling wine3- ChampagneA sparkling wine (white or rosé) produced in the Champagne area (around Reims and Epernay) inFrance.Only products made in this area can be called champagne.4- Other sparkling wineA sparkling wine not produced in the champagne area. Examples include Sekt in Germany, Cava in Spain,Spumanti in Italy and many varieties from US and AustarliaM o e t & C h a n d o n! International Audit 30