Gunter Heise, managing partner and chairman of the executive board of Rotkäppchen-Mumm Sektkellereien, on the future of German sparkling wine and the opportunities for investors in the former GDR - Managing Europe with Jürgen Jeske

JÜRGEN JESKE: Sales of French champagne, German sekt and Spanish cava increase before Christmas and New Year's. Why do people drink sparkling wine on these occasions?

GUNTER HEISE: Sparkling wine, sekt and champagne are always something special. Christmas and New Year's - they are special, too, and people want to honor special occasions. For generations now, people have reached for sparkling wine at such times.

If we as producers were to limit ourselves just to this New Year's and Christmas business, it wouldn't be enough. In recent years, the German sparkling wine industry has been working on boosting the number of occasions when people drink sekt. As we at Rotkäppchen say, this is how you can make the little moments of everyday life more beautiful. Why not drink a glass of sekt when your son graduates from secondary school? Or celebrate your wife's return from her spa with a glass of sekt? So we are simply broadening the occasions for drinking sekt beyond what used to be the case.

In the 18th century, sparkling wines were a beverage of the rich, powerful and beautiful. Madame de Pompadour, the mistress of French King Louis XV, once said that champagne was the only wine that women could drink and still be beautiful afterward. Today, sparkling wines are a product for ordinary people. What does that mean for producers, their strategies and their pricing policy?

On the one hand, the consumption of sekt in West Germany has increased enormously since the early 1970s. Even then, it was no longer something special for a public that had previously drunk sekt only once a year. The industry had to adjust to this increased consumption. At that time, bottle fermentation, that high-cost method of producing sparkling wines, lost its dominance in sekt production and people increasingly turned to tank fermentation instead.

On the one hand, it was good for the industry that the volume kept going up but on the other hand, this development made sekt too cheap.

In recent years, the German sparkling wine industry has tried to reverse this trend. It has been promoting brand names in a more vigorous manner again and in so doing, has improved the image of German sekt.

How does the image of German sekt compare to that of French champagne? Do German sparkling wines command the same high prices as champagne?

No, we don't reach that level. German sekt, after all, is produced from German wines, which have a certain image outside of Germany. German white wine is still viewed as sweet, palatable and cheap. German sekt suffers from that same reputation. In recent years, however, German Riesling, the dry variety, is "in" again. Exports are increasing.

We hope that German sekt can ride the coattails of this trend, and that its image outside of Germany will change. Today, the exports of German sparkling wine cellars to other European countries are on a relatively modest level. The reason for this is that these countries, France, Italy, and Spain, are synonymous with epicurean pleasure, while that is not necessarily the case with Germany.

What is the most expensive German sparkling wine?

Here, I can only talk about the brand-name sparkling wines, and not about special vintage sparkling wines from individual wineries, which are more expensive. Fifteen euros is about the limit for brand-name sparkling wines. During the Christmas season, you will see discounters selling champagne at a similar price so consumers buy the champagne. That is why it's hard for German sparkling wines to rise above a certain price ceiling.

Going by the number of bottles that producers fill under their own brand names, Rotkäppchen-Mumm Sektkellereien (Rotkäpp­chen-Mumm Sparkling Wine Cellar) is not only number one in Germany, with its 37 percent market share, but is also the second-largest sparkling wine cellar in the world, after the Spanish Freixenet Group. There has been a slight reduction, however, in sparkling wine consumption per capita. Where do you see opportunities for further growth?

At the beginning of the 1990s, after reunification, we were up to 5.1 liters per capita, and today it's 3.8 liters. But there are winners and losers in every market. Back then, because of the consequences of unification, we only sold about one million bottles of Rotkäppchen sekt. Today, though, we are up to a little more than 70 million. Since the overall market has become smaller, other brands have lost market share.

Today, we expect some additional growth in West Germany, for Rotkäppchen in particular. Currently, with our Rotkäpp­chen brand, we are number one in almost all regions of the old Federal Republic but we still have opportunities for further growth.

In recent years, we have introduced rosé sparkling wines in the Rotkäppchen line and also in one of our other brands, Jules Mumm. Rosé is momentarily "in" and growth is very strong. And Mumm of course is also a special sekt. It used to be the exemplary German sparkling wine. We think Mumm, too, can grow a little. But you are right. There is not all that much room for growth.

That is why we are trying to generate or attain revenue in other areas. We have been active in the wine business for well over a year. We are selling a brand-name wine - four varieties - that has had a very successful introduction. Expansion is also possible in liqueurs.

During the 1893 Chicago World's Fair, the company - then known as Kloss & Foerster - received the "award for very good sparkling wines." What significance does the U.S. market have for you today?

Unfortunately, no significance. We're concentrating on Germany. In other German-speaking countries - that is, Austria and Switzerland - we are trying to get something going with marketing partners. However, our focus is on the German market. Today, German sparkling wine producers are exporting a total of about 16 million bottles all over the world. For decades, everyone has been trying to increase their exports but with only modest success.

Since the end of the 1990s, U.S. wine production has gained importance. Are competitors emerging there for sparkling wines as well?

At the current time, that is not yet an issue.

Although Americans do enjoy drinking champagne.

They are even drinking it from cans. There are all sorts of things over there. But competition - no.

In 1894, the sparkling wine cellar in Freyburg, still known at that time as Kloss & Foerster, had to give up its successful brand name "Monopol" after a trademark dispute with the French champagne company, Piper Heidsieck. That led to the creation of the brand name Rotkäppchen (Little Red Riding Hood), from the red seal on the bottle. Rotkäppchen is a well-known German fairy-tale figure, the little girl who meets the big bad wolf in the forest. Initially, that is also how you advertised the brand. In the 20th century, the fairy-tale figure evolved into a self-confident, attractive young women with a red head covering or a red evening gown. Did this change in the advertising benefit the image?

We had a hard time working with the fairy-tale figure, Little Red Riding Hood, from the very beginning - because Little Red Riding Hood is a child, and children shouldn't be linked with alcohol.

So before very long - that is to say, early in the 20th century - we were advertising with vivacious women, particularly in the roaring twenties. After reunification, we had a traditional German sparkling wine brand that had been reduced to selling in East Germany because of the course of history. So from the beginning, we wanted to reposition Rotkäpp­chen as a national brand again, a brand with a strong tradition and regional roots but also with the potential to do well in this new age. So today, Rotkäppchen is young, self-confident and a little sexy in advertisements.

Rotkäppchen-Mumm Sektkellereien was expropriated and nationalized in 1948, in what was then the Soviet occupation zone. After reunification, the sparkling wine cellar was privatized again through a management buyout. As the longtime manager of operations, you had a part in that. What was the greatest challenge that you had to overcome back then?

Most of us in East Germany were very happy when the Berlin Wall was opened on Nov. 9, 1989. We had no idea what the economic effects would be. After the monetary union in 1990, West German brands entered the East German market. Many brand-name products from West Germany were known in the East, for example, from Christmas packages and things that visitors would bring with them. Now the East German consumers said, "I'm now going to try the new products that I could never, or only rarely, have before." So the consumers deserted us.

A second problem was that, all of a sudden, the distribution channels in eastern Germany, the national retail chains, Konsum and HO, were gone. West German chains arrived and they brought their own products. They didn't need us at all. In addition, we East German companies had very large payrolls and no sales volume.

It was enough to make you despair. But then we said to ourselves, there has to be a way. Getting up our courage was what proved decisive. We trusted our brands - and, after a certain point - our own abilities, our own strength. And so we reentered the market relatively quickly. To my knowledge, Freyburg never went in the red. However, transforming the company to free-market structures did mean that we had to part with 300 employees relatively quickly.

There are only a few companies in East Germany that have your history of success. What is the reason for that, in your opinion? Others could have taken paths similar to yours.

There are a whole series of successful East German companies that are not nearly as visible as we are and that also do not have a product like ours. The fact that not all companies could assert themselves as successfully also had to do with the mind-set of depending on the state to take care of things. In my view, there could have been more management buyouts if people hadn't been afraid of their own shadows and had said: I'm sure I can do it.

Seventeen years have now gone by since reunification. The number of unemployed is still high in large areas of eastern Germany. When will things return to normal?

In the past 17 years, eastern Germany's infrastructure has greatly improved. However, solving the unemployment situation is a process that will take many years, if not decades. It's important for people to see that progress is being made, that their children and grandchildren now have a future.

If an American or Asian investor were to come to you now and ask you if it would pay to establish an operation in eastern Germany, what would you tell this person?

I would say, yes, definitely. How can I help you? The work force in eastern Germany is well trained; they are highly qualified and - and this has to be said - very willing. Anyone would be well advised to come here.

- Jürgen Jeske is a well-known German economic journalist and former executive editor of the Frankfurter Allgemeine Zeitung. His interviews with business leaders appear regularly in The German Times.