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Champagne's long association with luxury gives it premium pricing, but it may also be taking the fizz out of sales. "Champagne is the first casualty of a recession," said Spiros Malandrakis, senior analyst for alcoholic drinks at market researcher Euromonitor International.
"The problem with champagne is first the perception of luxury and higher-end consumption. It doesn't fit with the zeitgeist of Europe right now." Western Europe still pops the cork on the lion's share of champagne, buying around 169.9 million liters in 2012, or more than 70 percent of the year's total sales of 232.3 million liters, according to data from Euromonitor.
(Read more: Bottle of 1914 Champagne could fetch $5,000)
A standard bottle of wine and champagne is about 0.75 liter, while a magnum contains 1.5 liters. "Western Europe will remain gripped by recessionary forces, high unemployment and austerity for the foreseeable future," likely weighing on sales there for quite some time, he said.
The industry is still reeling from the financial and Eurozone crises, with global champagne consumption down more than 5 percent in 2012 from its 2007 level, although it has come off its 2009 trough, according to the data.
By comparison, the still grape wine category's 2012 sales were up more than 6 percent from 2007 levels at 21.76 billion liters, the data show. The champagne industry is conservative and has been slow to target new markets, Malandrakis said.
(Read more: Sobering thought: Low-alcohol wine set to boom?)
"They stick to what they know and tradition plays such a big part that they are afraid to move away," he said. But he noted, "an extreme focus on luxury is not speaking to the needs of Western Europe at the moment, but it could become a big selling card in some emerging market nations where bling is still relevant and accepted."
Unlike cognac, which has made inroads into China for the last 20 years, champagne has only recently started targeting that market, he said. Despite a booming wine market on the mainland, champagne is facing headwinds, he noted.
Only 1.5 million liters were sold in China in 2012.
Although that was up from 600,000 in 2007, it is dwarfed by the 2.07 billion liters of still wine sold there in 2012, the data show. "Champagne or sparkling wine doesn't translate in Chinese. It creates problems on the marketing side," he said.
The industry also faces a hit from the generally less-expensive sparkling wine category, he said. "It's hot on champagne's heels," he said, as some sparkling wine offerings, if not in the luxury category, are flirting with the higher end.
(Read more: Burberry confident in China despite luxury crackdown)
"They are converging slowly," he said. In contrast to champagne's declines, the category saw 2 percent volume growth in Europe in 2012 and more than 6 percent in North America, he said.
To be sure, some champagne producers are seeing a slow recovery.
LVMH, owner of the Moet Hennessey brand, sold 21.2 million bottles of champagne in the first half of this year, up from 21.1 million in the year earlier period. The 56.8 million bottles sold in 2012 is still down from the 62.2 million sold in 2007.
But while in 2007, around 37 percent of LVMH's spirits sales were concentrated in Europe, with only around 16 percent in Asia ex-Japan, by the first half of this year, only 21 percent were in Europe, with 35 percent in Asia ex-Japan.
— By CNBC.com's Leslie Shaffer. Follow her on Twitter