Close Menu

NEW ZEALAND SPOTLIGHT:On the up down under

In demand throughout the US, Australia and the UK, with an offering that goes beyond Sauvignon, New Zealand’s wine is becoming a major player, writes Patrick Schmitt

Like a laurel wreath placed upon your head, blue ribbon tied around your neck, or rosette pressed to your chest, you know you’ve won when Britain’s largest retailer awards you a section all to yourself. Not just a handful of bottles grouped on the shelf but your own bay. From mid August this year, New Zealand is being given a “module” for white wines in selected Tesco stores, a result of a major range review at the supermarket which has boosted New Zealand’s range “considerably”, according to James Davis, product development manager for wine at Tesco.

Why lead an analysis on a country’s global vinous performance with news from a single UK retailer? Because, aside from the fact that Britain is New Zealand’s largest market and within it, Tesco the biggest wine seller, this soon-to-be installed range expansion is tangible evidence of the country’s coming of age. A supermarket better known for reducing product duplication has increased the number of SKUs on a country with less than 2% volume share of the UK off-trade. Not only that, but New Zealand has hardly been famed for the diversity of its varietal line-up – it is virtually synonymous with Sauvignon Blanc, and from one region, Marlborough. Furthermore, New Zealand has as little as 24,000 hectares planted to grapes – less than Burgundy alone.

So why the increased on-shelf presence? New Zealand is able to justify further retail space in a market as crowded a Britain’s for several reasons. A strengthening image and rising average price is one. Second is the increased diversity of its wine offer, in terms of style and varietal range.

UK Market
For all the comments on price compression in the UK market, overall prices for wine are rising. According to Nielsen (MAT 16.06.07) the average price of a bottle of wine in the UK off-trade has risen by 10 pence to £3.98 and the market is up 5% in value and 2% in volume, amounting to 93,295,000 cases. New Zealand’s average price has grown from £6 to £6.08, its value share risen from 2.3% to 2.9% and volume share is up from 1.5% to 1.9%. This means New Zealand has now overtaken Argentina in volume share (it was already ahead in value), making it the nineth largest country category, and it is just 0.7% away from Germany’s market share. Impressively, New Zealand is up 31% in volume and almost 33% in value in the UK off-trade.

In the on-trade, Warren Adamson, UK director of New Zealand Wine, reports that New Zealand has held a 1.5% market share and has the highest average price at £16.60, up 8% from £15.35 last year. The Mayfair Connection, which measures sales in the London restaurant sector, shows New Zealand with a 2.9% market share, up from 2.6% last year.

Overall, growth areas in the UK are higher price points (£5-£10) and lighter wine styles (unoaked aromatic whites/less alcoholic reds) – two trends New Zealand serves perfectly.

Single vineyard approach
In particular, there is a proliferation of single vineyard Marlborough Sauvignons, exhibiting greater concentration and highlighting sub regional variation, as well as, of course, justifying higher prices. Montana has introduced its Terroir Series, Villa Maria is putting more emphasis on its Single Vineyard range, Oyster Bay is planning a line extension at £14.99, based on a single vineyard approach, while St Clair has had success with its Pioneer Block range of wines.

Also, it’s worth noting that at the regional (as opposed to sub-regional) level that Marlborough Sauvignon has seen its stylistic spread evolve and broaden from the grassy and gooseberry to sweaty and tropical, with everything in between. This has been encouraged not only by increasingly varied viticultural and winemaking practices but also by the encroachment of Marlborough’s vineyard area towards the coast, up the valley sides and into Awatere – places where weather patterns, average temperatures and soils are markedly different. The latter area, Awatere, south east of Marlborough’s Wairau plains, is notably home to a 1,000 ha estate recently planted by Peter Yealands, a long-time large-scale contract grower who is releasing his own label – Yealands Estate. (Also, 15% of Marlborough Sauvignon can come from outside the region).

However, significant growth in Marlborough is constrained by water availability, while spring frost can limit the size of harvests. “Newer players are especially vulnerable [to frost],” says John Stichbury, managing director of Jackson Estate. “There is a large difference in an established vineyard on the Wairau Plain where we are and the extreme reaches of the Wairau Valley or Awatere. Also starting to play a large part [in limiting expansion] is the availability of labour.” Add to this an appreciating NZ dollar and rising power prices and production costs are on the up for brand owners.

These issues aside, and apart from Sauvignon’s ongoing stylistic development, a further reason for added shelf space in the UK specifically is the increased international acceptance of New Zealand’s white aromatic varietals.

Pinot Gris/Grigio, in particular, experienced a 65% volume rise in the 2007 New Zealand vintage. This was from a small base – the grape represented 6,000 tonnes of the 205,000-tonne harvest, of which 100,000 tonnes was Sauvignon Blanc – but the rise, reflective of increased plantings of the varietal, proves the sensitivity of New Zealand’s growers to global trends. As Craggy Range’s Steve Smith MW says, “Pinot Gris is the darling white wine of the moment.”

Of the biggest players in the British market Pernod Ricard will be adding a Pinot Grigio to its Montana line-up in Britain from August, while both Oyster Bay and Nobilo will be bringing one to the UK soon. Southbank Estate are already selling one through The Thresher Group. Not all agree, however, that New Zealand should be labelling these wines Pinot Grigio. For example, Patrick McGrath MW, managing director at Hatch Mansfield, UK agents for Villa Maria, believes strongly that New Zealand should opt for Gris because “Pinot Grigio’s image has been cheapened”.

On the other hand, Pernod Ricard’s wine development director Adrian Atkinson argues: “There’s a trend towards more premium Pinot Grigio coming through – the average price of Pinot Grigio is rising – and the market is 70 times larger than Pinot Gris.”  The choice of terminology has stylistic implications with Gris suggesting a richer texture to the wine.

How should New Zealand define its style? “In the scale from Alsace to Italy there is a great opportunity for a New Zealand style of Pinot Grigio in the middle,” says Atkinson. Certainly Montana’s mostly Hawkes Bay sourced Pinot Grigio has residual sugar levels similar to its Sauvignon Blanc – between 5 and 8 g/l – and “is aromatic but not cloying”, according to Atkinson.

With the larger brands – Montana, Oyster Bay and Nobilo – taking the drier, lighter Pinot Grigio route it won’t be long before consumers see that as the default style for this variety from New Zealand.

Riesling shares much with Pinot Grigio in New Zealand. It is working to broaden the country’s international footprint beyond Sauvignon, while the Riesling harvest in 2007, like Pinot Grigio’s, represented 6,000 tonnes. Riesling also suffers something of an identity crisis in New Zealand due to the range of styles that exist. A few, such as Craggy Range, Villa Maria, and Felton Road, make 10% ABV off-dry “classic” Rieslings as well as dry Rieslings – the more mainstream style from New Zealand. 

Riesling volumes were down by 11% in 2007, mainly because of frost at fruit set in Waipara where two thirds of New Zealand’s Riesling is grown. Montana in particular have large plantings in this area, where, according to Paul Hewett, winemaker at Torlesse, vineyard prices are inexpensive, if rising. He suggests that bare land

costs, per hectare, NZ$5,000 (£1,900) in Waipara, compared to NZ$100,00 (£38,700) in Marlborough and NZ$120,000 (£46,400) in Central Otago, along the Felton Road. Low capital costs, suitability for Riesling, as well as Pinot Gris and Noir, explains why Waipara is the fastest growing region in New Zealand, according to Baden Ngan Kee, CEO of Waipara Hills/The Mudhouse Wine Company. He notes that Villa Maria and Constellation are joining Montana with large vineyard plantings in the area. Interestingly, he also says his group is top grafting Pinot Gris from Waipara Riesling because “we think there is a better chance for Pinot Gris”.

Growth markets

While the UK market for New Zealand is still in rapid growth and some way ahead of its nearest competitor, the US, several believe America will overtake Britain to become New Zealand’s largest export market by the end of 2007. Why? Because the US wine consuming population is large and increasing; New Zealand has only recently begun to really focus its attention on the US market, and New Zealand’s wine styles have a perceptible difference to those produced in California, tapping into a trend towards lighter, fresher wines, and the seemingly insatiable demand for Pinot Noir.

Driving volume growth in the US market for New Zealand has been Constellation’s Monkey Bay Sauvignon Blanc at US$9.99, according to Baden Ngan Kee, CEO of Waipara Hills/The Mudhouse Wine Company. “I call it Monkey Tail,” says David Babich, general manager at Babich Wines. “It’s like the Yellow Tail of Marlborough.”

As for Montana, Adrian Atkinson, wine development director at parent company Pernod Ricard, admits the company “has been spending the last 18 months developing a dedicated wine sales and marketing team in the US”. He reports a strong demand for Pinot Noir and Grigio in particular.

And while Nigel Greening, owner of Felton Road, explains that in the US, “New Zealand Pinot Noir is third in line: first is domestically-produced Pinot Noir, then Burgundy, then New Zealand,” Babich draws attention to the price advantage of New Zealand Pinot: “The Americans can’t believe the quality and price of New Zealand Pinot,” he says noting the high cost of good Californian Pinot, as well as Pinot Noir from Burgundy and Oregon.

Allan Scott, proprietor of Allan Scott Vineyards in Marlborough, explains the attraction of the US market for New Zealand producers compared to Britain: “For us the US market has become more of a focus than the UK because it is simply growing into a much larger and more diverse sales arena than the UK. With the UK market driven by supermarkets that demand ever decreasing prices and conditions it becomes almost impossible to make the UK a viable financial proposition.”

In defence of Britain, Warren Adamson, UK director of New Zealand Wine says, “The NZ dollar is very hard and it is worse against the US dollar than the pound. Also, the US is still an immature market for New Zealand and while it has a better FOB it hasn’t got the spread – there are 175 wineries trading in the UK.”

Other than the UK and US, Australia is presenting a serious opportunity for New Zealand. Not only does New Zealand have cultural similarities, but Australia is apparently turning to Sauvignon Blanc.

“Australia likes the freshness of New Zealand Sauvignon and they can’t do it themselves,” explains Babich. Ngan Kee adds, “For the first time ever Australian white wine consumption is down because of the growth of New Zealand Sauvignon Blanc.”

A broad range
New Zealand is also proving successful with Gewurztraminer, in particular from Gisborne, which enjoyed “a sublime vintage in 2007”, according to Warren Adamson New Zealand Wine’s UK director, while Chardonnay, which Gisborne is also famed for, was up 44% in volumes in ’07.

As David Babich, general manager of Babich Wines, says: “I certainly don’t think Sauvignon Blanc is running to an end but it is good to be known for something broader, and aromatic whites – Pinot Gris, Riesling, Gewurztraminer, as well as Sauvignon Blanc and unoaked Chardonnay – is a good platform.”

As leading brands from New Zealand extend ranges, and therefore shelf presence, more Pinot Gris, Riesling, and Chardonnay from the country is ending up in Britain, accelerating the impression there’s more to New Zealand than Marlborough Sauvignon Blanc.

Of all these varieties though it seems only Chardonnay can meet market demand. Tom Maling, business manager for Europe at Constellation’s Nobilo Wine Group, admits, “We have definitely had a Chardonnay surplus in New Zealand, but it relates to a decline in the domestic market and it’s not chronic.” Back in the UK, many point out that New Zealand Chardonnay can’t compete on price with Australia and fails to offer a genuine point of difference to justify its higher cost. However, Tesco’s Davis feels differently. “While the New Zealand offer is Sauvignon Blanc based – and that is where the significant growth is coming from – Chardonnay is still very popular and the New Zealand style is different from other New World countries such as Chile, South Africa and Australia. It has more poise, more citrus character.”

Proving a less effortless sell for New Zealand are red wines in the UK market, that is apart from Pinot Noir. “Jumping from New Zealand Sauvignon to Merlot is as hard as moving to New Zealand vodka,” says Babich, unaware that Bacardi’s 42 Below New Zealand vodka has a following among bartenders in Britain.

In short, rich reds from New Zealand, although consumed widely in the domestic market, are struggling to find favour elsewhere. “Selling Bordeaux reds is so hard,” says John Hancock from Trinity Hill in Hawkes Bay. “Cabernet and Merlot are not sexy at the moment and the only technique is to come up with brand names for those wines, for example, Trinity.”

On the other hand, Rufus Weston, UK national sales manager for Delegat’s Wine Estate, claims that Oyster Bay’s Merlot sales are up 80%, in line with the brand’s Sauvignon. “Oyster Bay is driving most of the red wine growth for New Zealand in the UK,” he says.

Furthermore, in New Zealand at least, there is much excitement over the Syrah emerging from Hawkes Bay. Described by Craggy Range’s Smith as a “cross dresser – between Australian Shiraz and Rhone Syrah”, these wines could provide “a springboard for rediscovering the likes of Merlot and Cabernet”, according to Adamson. Presently, however, volumes are not at commercial levels. McGragh also admits that “Syrah is not selling as well as we had thought”, while the varietal suffers from the Pinot Gris/Grigio issue of whether to settle on Syrah or Shiraz. “My heart says Syrah, my head Shiraz,” admits an undecided McGrath.

Clean and Green?
The success of New Zealand Pinot Noir in international markets is opening up a wider interest in the country’s red wines, while Sauvignon Blanc’s established reputation has provided a solid basis to introduce white aromatic varietals to consumers across the globe. But does the current strapline – “riches of a clean green land” – encapsulate the diversity of the New Zealand offer? Certainly the words “clean” and “green”, while apt for Sauvignon Blanc, are hardly suitable for selling Merlot or Syrah. Also, while New Zealand is relatively “green” in an environmental sense – 65% of its electricity comes from renewable sources – in viticultural terms the country is some way behind drier places like mostly organic Chile.

So, after 10 years, and plenty of consumer research in Britain, Australia and the US, New Zealand Wine is to change its generic message. The new line is “Pure Discovery”. “Pure” relates to the unspoilt nature of the New Zealand landscape, or the clean and green aspect of the previous message. “Discovery” promotes the idea that New Zealand is a landscape to explore, with regional variation and varietal diversity. The emblematic fern and white and black colouring will remain.

In demand

Commerciality is also proving something of a problem for New Zealand’s Pinot Noir – not in terms of demand but supply. Not only is there not enough of the grape to meet rapidly rising requirements, but consistency from vintage to vintage is notably lacking. The grape, which accounted for 10% of New Zealand’s 2007 harvest at 20,700 tonnes, was down by 6% in volume on 2006 (despite increased plantings). In particular, “Central Otago got hit hard by frost and was 26% down year on year,” explains Adamson. Hence, as McGrath says, “We are trying to get as much Pinot Noir as we can – we can sell it all and more – but everyone is desperately short and you can’t pick up Pinot at all on the open market.”

Demand for this varietal is certainly growing in the UK and Australia but is most acute in the US. “There is a lot more Pinot being planted because the uptake in the US is phenomenal,” says Brent Marris, ex managing director of Wither Hills and founder of The Ned brand.

UK agents are becoming worried they may have their share of this variety cut as the US is prepared to pay more for Pinot. “Unless the UK pays the right price it won’t get the allocation,” says McGrath.

Marlborough is one region that is proving able to supply consistent volumes of this varietal, and Babich describes the region as “the workhorse for Pinot Noir”. Increased plantings have been aided by the introduction of the Southern Valleys irrigation scheme which, as Jackson Estate’s Stichbury says, “provides water to the vineyards on the southern side, opening up valleys and rolling foothill areas suitable for Pinot Noir production”.

However, there is a problem persuading growers to plant it. Patrick Materman, Marlborough regional winemaker for Pernod Ricard New Zealand, explains: “Pinot Noir has two to three times the input costs of Sauvignon Blanc and it is very site specific. While Sauvignon averages 10 to 12 tonnes/ha, Pinot Noir averages seven tonnes/ha.” Presently, “Sauvignon subsidises Pinot Noir production,” according to Cloudy Bay’s Eveline Fraser.

Outside Marlborough, plantings of Pinot are increasing in Canterbury/Waipara, while there is competition between Central Otago and Martinborough for Pinot supremacy. However, these regions frustrate the large brand owners due to vintage volume variation. “Pinot Noir, to supply the market, needs to come out of Marlborough – the others are too inconsistent,” says Materman. As for Davis at Tesco, “Pinot Noir sales are definitely up, but it is one of those grapes we would get behind more if we could get greater availability.” Currently, large scale volumes at commercial price points for Pinot are emerging from Chile. In the UK off-trade the largest branded Pinot Noir is Chile’s Cono Sur with 42,000 cases. In second place, Montana is managing to shift 19,000 cases of Pinot Noir (Nielsen MAT 19.05.07).

Overall, Craggy Range’s Smith, chairman of New Zealand’s Pinot Noir 2007 conference in Wellington in January this year, believes, “Pinot Noir will never be a wine of manufactured proportions.” For him, and others, the aim is to “make sure that when the word Pinot Noir is mentioned so too is New Zealand”. He also stresses the need for New Zealand Pinot not to evolve as a Burgundy lookalike, but “develop its own expression”. Certainly Marlborough Sauvignon never suffered because it was unlike Sancerre.

The most important role of Pinot in New Zealand’s development was perhaps identified by Villa Maria’s Neil Hadley MW. “Pinot Noir opens the consumer’s mind to the idea that New Zealand sells varieties other than Sauvignon Blanc and that is vital in the strategic plan for New Zealand.”

Certainly for New Zealand as a whole, Smith says: “I have a passion that New Zealand can become the world’s leading grower of aromatic whites, and if there is a place for aromatic reds as well, then it is our place to own it.”

2007 in numbers
The 2007 vintage in New Zealand was below expectations. Totalling 205,000 tonnes it was up 11% from 186,000 tonnes last year, but this disguises significant regional volume variations and fails to correct New Zealand’s demand-supply imbalance – exports are up around 30%. Total hectares are increasing by approx 1,500 ha each year and currently total 24,000 ha. There are currently around 530 wineries in New Zealand, of which 175 trade in the UK.

Proportion of 2007 harvest by region
Marlborough – 60%
Hawkes Bay – 21% (up 26%)
Gisborne – 13% (up 44%)
Others – 6%
(Waipara/Cantebury – down 44%, Central Otago – down 26%)

Proportion of 2007 harvest by varietal
Sauvignon Blanc – 51% (up 6%)
Chardonnay – 19% (up 44%)
Pinot Noir – 10% (down 6%)
Merlot – 6% (up 5%)
Rest – 14%
(Pinot Gris increased by 65% but only 6,000 tonnes were harvested versus over 100,000 tonnes for Sauvignon Blanc, while Riesling decreased by 11% to represent 6,000 tonnes)

© db August 2007

It looks like you're in Asia, would you like to be redirected to the Drinks Business Asia edition?

Yes, take me to the Asia edition No