New Zealand – Little wonder
So confident is NZ of maintaining its wine export growth that new vineyard plantings are continuing apace. And who wouldnâ€™t feel confident with Australia as your fastest growing market, asks Penny Boothman
Punching above your weight. Underdogs fighting back. Meek inheriting the earth. There are all kinds of metaphors for small things, people or places coming out on top. And New Zealand is a small country, full of small things. Kiwi fruit are small, hobbits are small, the aeroplanes you have to fly around the place in are positively tiny. Most of the countryâ€™s wineries are petite, and their total wine production is a mere drop in the ocean. But when it comes to wine exports, New Zealand is playing David to the global wine industryâ€™s Goliath.
Perhaps a little bit of context would be useful here. New Zealand has a smaller vineyard area than Japan, and produces less wine each year than Uruguay. In fact, Hardys has a single winery in South Australia that processes more wine than the entire New Zealand industry does each year. You see, theyâ€™re really not playing in the big leagues. Or rather they are, but thatâ€™s whatâ€™s so laudable.
The latest figures from New Zealand Winegrowers show that total exports in June 2006 were up 44% on June 2005, to 5.6 million litres. This strong export month made for a very positive finish for the 2005/06 financial year: exports for the year end were up 16% on last year, totalling 59.4m litres. A figure New Zealand Winegrowers hopes to see doubled by 2011. Indeed their 2005 export projection survey forecasts exports of as much as 78m litres for the June year-end next year.
Last year was a milestone year for New Zealand for many reasons. Global sales of its wines exceeded 100m litres for the first time, while the 500th winery joined the New Zealand wine community. And this year the 2006 grape harvest soared to a new record of 185,000 tonnes. But while all this growth has been taking place the world has become tougher for wine producers, particularly small ones. Has New Zealand come too far, too fast?
Philip Gregan, CEO, New Zealand Winegrowers, has been with the generic organisation since 1983. Back then there were just 90 wineries in New Zealand and 90% of their production was consumed domestically. â€œWhen I joined the industry was practically bankrupt, it just wasnâ€™t internationally competitive at all. But now weâ€™re continually surprised by the demand for our product and weâ€™ve never, ever caught up. The market is really incredibly strong.â€
To cater for these rising export figures New Zealandâ€™s vineyard expansion continues apace. With well-publicised wine surpluses in both Australia and Europe, should producers perhaps be treading carefully when it comes to increasing planted area? â€œThere are 22,000 hectares in production this year and thatâ€™s rising by 1,500 to 2,000ha a year, and I think that will continue,â€ comments Gregan. â€œEvery indication Iâ€™ve had is that growers are comfortable with the level of production this year.â€
Louise Hill, marketing manager at Stratfordâ€™s Wine Agencies, who looks after Cable Bay and Lincoln Vineyards in the UK, sees no dangers ahead for the increased volumes the country is producing. â€œItâ€™s a big world and New Zealand will only ever carve out a tiny niche in any market. Talk of an over-supply of New Zealand wine is completely out of context. New Zealand wine can, must and will remain a premium niche category,â€ she says.
And the niche market is exactly where New Zealand Winegrowers has been focusing its efforts in the UK, by targeting the independent retail sector with a competition to win a trip to New Zealand. â€œWe have 61 independents taking part in the promotion and it is something that we wish to grow for the coming years. We are looking at extending the programme to other countries since it has been so successful,â€ says Warren Adamson, UK marketing manager, New Zealand Winegrowers. This sector is indeed the most sensible target for many New Zealand wineries who are producing in volumes that would be too small, and at prices that would be too high, for larger chains. The on-trade is also a suitable target
for such wineries, and Adamson has planned a campaign to focus on this sector next year.
The UK is still, unsurprisingly, New Zealandâ€™s number one target market, taking about 39% of exports â€“ thatâ€™s over 19% of New Zealandâ€™s total wine production. Even so it represents just 1.5% of UK retail volume and 2.3% by value, with retail sales of about 1.3m cases. In 2000 this figure was just 607,000 cases with a 1% share, an impressive rise for five years in a competitive market. With an average price of Â£5.96, the nearest competitor, Australia, is a whole Â£1.68 behind (at Â£4.28) and New Zealand wines are still well ahead of the market average of Â£3.86.
However, in times such as these, producers are naturally keeping their eyes open for other opportunities around the world. North America, New Zealandâ€™s second largest market with a 25% share of sales, saw exports rise 13% (by volume) in the year to the end of May 2006. Canada and the Netherlands were both up 23%, and sales to Ireland leapt an impressive 63%. Australia currently takes about 20% of NZ exports, but is in fact the fastest growing market with shipments rising 40% on last year.
Nobilo, New Zealandâ€™s second largest wine producer, has been in the UK market since the early 1990s. But Australian parent company Constellation has also been busy exploring other markets. â€œIn the last six or seven years weâ€™ve had the benefit of massive investment from Hardys and Constellation, which has made a big difference to distribution and continuity,â€ says Tom Maling, export director for Nobilo, Constellation Europe. â€œThe industry canâ€™t keep up with demand from the US and Australia. Canada, Germany, Denmark and Ireland are also posting good increases. Our main challenge is taking a disciplined approach to developing new markets.â€
Bigger companies are playing an increasing role in the New Zealand industry, and now 60% of all New Zealand exports by volume are through the big five companies: Montana, Villa Maria, Nobilo, Delegats and Matua Valley. The recent absorption of Montana into Pernod Ricardâ€™s portfolio shows that even New Zealand is not immune to the global trend towards consolidation.
â€œNo doubt further consolidation will take place as our domestic market is too small, and to compete successfully in export markets usually requires scale of production,â€ predicts Joe Babich, MD, Babich Wines. â€œA few small wineries with strong reputations might buck this trend. Some consolidation will come about through overseas mergers or acquisitions.
Constellation taking over Vincor put Nobilo and Kim Crawford in the same camp for example. Recently Goldwater merged with the New Zealand Wine Fund, which owns Vavasour. Canterbury House has been taken over by Waipara â€“ I would expect such events to increase, not to decline. The impact on the industry will most likely pattern Australia where the big get bigger and in most cases stronger, while the small might well struggle to survive.â€
Villa Maria, which also owns the Vidal and Esk Valley brands, has a wine to fit more or less any channel in any market. â€œConsumers see [Villa Maria] as a reliable, high quality brand that they can trust and we see demand for it in all trade channels,â€ explains Lynn Murray, marketing controller, Hatch Mansfield. â€œBut it is critical that New Zealand tries to maintain its premium image. It has a unique position which is the envy of many other categories. To remain competitive it is important that producers donâ€™t sacrifice quality to achieve volume aspirations. Producers can still remain competitive and do not necessarily have to go down the â€˜pile it high, sell it cheapâ€™ route.â€
Gerard Barnes, wine quality and product development manager, Raisin Social agrees: â€œNew Zealand producers should resist the temptation to get caught up in the downward spiral of discounting and should continue to offer the consumer an interesting range of high quality wines offering a good price/quality ratio. New Zealand wines should also play to their strengths such as the regional points of difference and the interesting range of varietals they can produce from Sauvignon Blanc to Pinot Gris, Riesling and Pinot Noir.â€
New Zealandâ€™s export fame may have begun with, and indeed is thriving on, Sauvignon Blanc â€“ the grape still accounts for over 70% of total exports (MAT May 2006). But thereâ€™s no doubt that the country has more to offer than this and many producers are now putting increasing emphasis on other varieties in their portfolios. In 2000, 22,000 cases of Pinot Noir left New Zealandâ€™s shores and by 2005 this had rocketed to 450,000 cases, an upward trajectory that is expected to continue. Pinot Noir is, in fact, overtaking Chardonnay as the second most exported variety. Gregan is certain it will overtake at some point. â€œI mean weâ€™re not riding around on horses any more are we?â€ he says. â€œThis is progress, weâ€™ve got to move with the times and that means we need to leverage other styles. Nothing stays the same for long around here.â€
Life beyond Sauvignon
In fact Pinot Noir is not the only red grape variety to be making a name for itself. Hawkeâ€™s Bay, once famed for its Cabernet/ Merlot blends, has now become the home of New Zealand Syrah. â€œOne key issue with New Zealand is that it is still only seen by consumers as a producer of Sauvignon Blanc and the occasional Pinot Noir. However, through the recent regionally based tastings New Zealand is slowly gaining recognition for the diversity of grape varieties it can produce. In a competitive wine market, to avoid being dragged into the mass-market price wars, a clear differentiation strategy is essential,â€ says Tim Veale, marketing manager, Louis Latour Ltd, which has recently been appointed UK agent for Craggy Range, as well as the popular price level Wild Rock brand.
Generic marketing certainly has its place when it comes to raising the profile of a wine producing country â€“ especially one as small as New Zealand â€“ but when a certain level of awareness is created, people start looking to add a second level of value. Wine Australiaâ€™s promotion of its countryâ€™s â€œregionalityâ€ is a case in point. â€œGeneric country promotion is really important for New Zealand, but because the category is still fairly limited, efforts need to be focused on highlighting the quality and variety of wines and the key differences and strengths of the regions,â€ says Chris Seifried, head winemaker, Seifried Estate, in the South Islandâ€™s Nelson region. â€œIt is critical for the future success of New Zealand wines that all
of the key wine producing regions become more widely recognised, and that consumers start to understand that New Zealand is more than just Marlborough Sauvignon Blanc.â€
Thereâ€™s no denying that New Zealand has more to offer than Marlborough Sauvignon Blanc. But creating a global export industry off the back of a single grape variety, from a single region, is an achievement. It just goes to show, even if you are punching above your weight, you can still be a knockout.
Â© db August 2006
UK market leader Montana is currently being analysed by new parent company Pernod Ricard to â€œdefine its positioningâ€, according to Adrian Atkinson, wine development director for Pernod Ricard UK. Consumer research is taking place to uncover â€œthe essence of the brand and where it sits in the consumerâ€™s eyesâ€.
This will help Pernod to â€œdevelop a consumer platformâ€ for Montana as well as differentiate the brand from other Pernod-owned NZ wine Stoneleigh.
The range is also being extended with the addition of a Pinot Gris and a sparkling wine, made from 80% Chardonnay and 20% Pinot Noir. The style is deliberately different from Pernodâ€™s Kiwi sparkler Lindauer, which is Pinot Noir-dominated.
Â© db August 2006