Nice price

New Zealand’s wines are sitting pretty at the highest price points, but can these levels be maintained with the predicted substantial increase in supply, asks Giles Fallowfield

THE AVERAGE price paid for a bottle of wine in the UK off-trade is currently a pretty miserable £3.79.  Out of the top 10 countries exporting wine to Britain, four of them don’t even achieve an average price level that high.

While £3.79 may seem a pretty low figure – after bottling, taxes and transport there is only a tiny amount left for the wine – the average price wouldn’t even be that high if it wasn’t dragged up by New Zealand, the only country that commands an average of over £6 a bottle for its wines in the UK.

Montana’s Timara range and Nobilo’s White Cloud may still be just under a fiver, but with most entry-point Kiwi wines priced around the £5.99 mark and some £1 higher, the average price paid for New Zealand wine was an impressive £6.18 in the year to April 17, 2004 (ACNielsen MAT total GB off-trade), up 3p a bottle on the previous 12 months.

To put this into perspective New Zealand’s nearest rival, Australia, is nearly £2 behind with an average price of £4.38 a bottle, despite its comparative success in the £5-£8 price bracket. Among the remaining eight main exporters to the UK, the USA is the only other country to breach the £4 barrier, which it does by just two pence.

Having an average price of over £6 brings its own problems of course.  It immediately puts most New Zealand wine beyond the grasp of the majority of British consumers who simply won’t pay more than £5 and prefer to spend even less. Does this bother the Kiwis? Why should it?

Let the other southern hemisphere producers, from South Africa, Australia, Chile and Argentina, battle it out at £3.99 if they are daft enough to want to. In any case, up until this year’s harvest (2004), the main New Zealand producers haven’t had enough wine to meet demand, so why should they want to discount?

The only other obvious drawback to the relatively high entry-point price is the problem this causes at most of the major UK supermarkets in their ongoing competition for market share.

As the grocers tighten their stranglehold on wine sales and look for larger promotional support from a shrinking number of bigger suppliers, Kiwi wine, even that of brand leader Montana, has been finding it hard to maintain shelf space.

The supermarkets claim one of the reasons for this, to date, is the lack of continuity of supply.  Once shelf space is lost to another country while awaiting a new vintage to come on stream, it is clearly becoming harder to win it back, even for a country like New Zealand which has an enviable reputation for quality.

The grocers don’t like to build demand for a product and then be unable to supply it. "I’ve been looking around and the short vintage in 2003 has already made the shelves pretty bare of Sauvignon Blanc and other New Zealand varieties," says Warren Adamson, Villa Maria’s European wine manager.

"The UK is already a very hard marketplace to trade in and you don’t need additional hurdles like you can’t get enough of our wine."  All this may change over the next couple of years because the increase in vineyard planting is at last starting to bear fruit and the 2004 grape harvest in New Zealand is the largest ever.

The growth – volume is up 89,100 tonnes to an estimated total of 166,000 tonnes, a rise of 117% – is amplified further by the relatively small, frost-affected crop, produced in 2003.  But, more significantly, it’s over 40% and nearly 50,000 tonnes ahead of the record 2002 harvest.

Adamson agrees that it is more appropriate to compare the volume in 2004 with 2002 (see table 1), the previous largest harvest: "Volume is up around 40% pretty much across the board, even though average yields were higher in 2002 than 2004.

We can’t wait to get everything on stream, although it will still be getting on for 12 months before the new reds arrive, and to make matters worse, in 2003, Hawkes Bay Cabernet and Merlot was hit very hard."

If we compare the 2004 harvest with that of 2003, volumes of Sauvignon Blanc, Chardonnay, Pinot Noir and, although it’s only the seventh most widely planted export variety, Pinot Gris, are all up by over 100%. "Only in regions like Nelson and Otago, not badly hit by frost in 2003, is the level of growth less significant," says Adamson.

However, the comparison with 2002 is more illuminating. While Sauvignon Blanc production rose by 140% on 2003, climbing from 28,266 tonnes to 67,773, it was also nearly double (up 84.5%) the 36,742 tonnes harvested in 2002.

The second most widely planted variety, Chardonnay, also showed a big 129% or 20,000 tonnes increase in 2004 compared with 2003, but the growth on 2002 was only around 5% or 1,700 tonnes more.

Among the whites it’s Sauvignon Blanc – not Chardonnay – and Sauvignon in Marlborough especially, that has been most widely planted. Sauvignon accounted for 42% of production in 2004, followed by Chardonnay with 22% and Pinot Noir’s 12%.

Pinot Noir, which became the most popular exported red New Zealand style in 2003, taking over from Cabernet/Merlot blends, has also, like Sauvignon Blanc, seen impressive real growth in the volume produced as a result of new plantings.

While the 2004 Pinot Noir harvest was up by 114% and over 10,000 tonnes on 2003, it also jumped 93.7% and more than 9,700 tonnes on 2002 levels.  While other varieties like Syrah are growing, Pinot Noir is clearly the main red variety being backed by vineyard investors.

After years of eking out supplies for the UK and trying to keep customers happy as stocks dwindle through the year, the major producers are going to have considerably more wine to sell from the 2004 vintage.

At least that is true of ‘04 Sauvignon Blanc and, while there has been massive publicity in the trade for Kiwi Pinot Noir, Sauvignon Blanc remains New Zealand’s benchmark variety. "Sauvignon Blanc is very important for New Zealand and I should be very surprised if that wasn’t always so," says Adamson.

"We must keep improving and refining the wine, but it’s a unique style consumers have become comfortable with and it remains what they associate New Zealand with first."  There may have been a lot of talk in the trade about Pinot Noir, but white wine continues to dominate export sales – in the year to the end of June 2003 red wine still accounted for only 8% of the volume shipped to the UK, the same as sparkling.

Consumers may have the confidence to try New Zealand Chardonnay, perhaps even Riesling or Pinot Gris, but it’s the consistent quality of Sauvignon Blanc that gives them that confidence, says Adamson.

As the first people to introduce Sauvignon Blanc to New Zealand 30 years ago, brothers Ross and Bill Spence at Matua Valley are especially proud to see how the variety has flourished "to the point that New Zealand now sets the standard for Sauvignon globally", says Ross.

And he believes 2004 will be a watershed year for this variety.  "The large harvest gives us over 50m litres of Sauvignon Blanc, that’s more than 5.5m cases of wine, a 3.5m case increase on the 2003 vintage," he says. What’s more, the extra volume "does not come at the cost of quality.

It is undoubtedly the most stunning quality I have seen in my three decades of producing Sauvignon Blanc," he adds.  "The aromatics and flavours are ripe and lingering with beautiful piercing acids.

These wines will make a huge impact in world markets." Historically, Matua has been unable to fulfil international demand, particularly for its Sauvignon Blancs, and the company is confident that, despite having more than twice as much wine, It will have no problem selling it.

The large increase in the 2004 harvest has also encouraged industry leader, Montana, to re-introduce the Stoneleigh brand – inherited at the time of its takeover of Corbans, back in 2000 – which hasn’t been sold in the UK and USA markets in recent years due to the shortage of suitable grapes.

Four wines will be available under the Stoneleigh label in the UK from next month (September 2004) – Chardonnay and Riesling from 2003 and a 2004 Sauvignon Blanc priced at £6.99, plus a Pinot Noir (2003) at £7.99 – all four using Stelvin closures.

Allied Domecq spokesman, Matthew Hudson, comments, "With more UK consumers spilling over the £4.99 price point Stoneleigh’s wines are now within the reach of a great mass of consumers.  They also hold immediate appeal to all converts to New Zealand’s quality wines." 

The question mark that hangs over New Zealand, given that it will shortly have significant extra volumes of wine to sell, is can it succeed without discounting? From their slightly different perspectives, Adamson at Villa Maria and Bryonie Grieveson, brand development manager for Nobilo at Constellation Europe, agree that New Zealand will have to swiftly make the transition from "allocators to marketeers", as Grieveson puts it.

"We can be proactive now, whereas historically we were not in a position to look for new business."  But price-cutting to gain extra sales isn’t an option, she believes.  "If you have a product selling well at £6.99 you aren’t going to bring it down in price.

It may be that smaller producers coming new to the market with no previous brand position are forced to do that, but the relatively high price of grapes hasn’t come down as more vineyards have come on stream."

Nobilo will be focusing its attention on getting wider distribution for its Regional Collection, comprising a Marlborough Sauvignon Blanc, an East Coast Chardonnay from Gisborne, plus a Hawkes Bay Merlot.

These three wines priced at £6.99 have all been repackaged and given a Stelvin closure for the first time and will be sold through Tesco and Sainsbury’s. Nobilo is also introducing Stelvin closures for its big-selling brand White Cloud, which will get a different focus.

"We already have good distribution but now we will be looking to feature more on gondola ends or promotions near the fish counter," says Grieveson.  At the Villa Maria group, which includes Esk Valley and Vidal wineries, £6.99 is a starting price and Adamson doesn’t expect this to change, given the continuing high grape prices and the fact the group has to buy in over 90% of its grape requirements.

He’s pleased to have extra volume of the higher quality Sauvignons and more of the other varieties.  "Without extra volume we can’t educate the market.  We now have 12 months to show, for example, that New Zealand can produce ripe, luscious fruitdriven reds, to plant the seeds for further growth.

The UK market still has more potential and, although we’ve had an operation in the USA for three years, we’ve had no wine to sell there up until now.  So it has amazing growth potential, and Australia is fairly new for us too.

There’s an opportunity to duplicate what happened in the UK where Montana and Cloudy Bay made New Zealand Sauvignon the benchmark style.  Other markets are just at different stages of development," says Adamson.

One of the great advantages New Zealand has is that Montana, by far its largest producer, makes quality wines across its range. Poor New Zealand wines are difficult to find in the UK currently and, with the same approach, other markets are bound to grow, reducing the reliance on the UK.

But while UK sales look set to expand, New Zealand is likely to remain a niche player in Britain where it currently accounts for only around 0.8% volume and 1.3% of the value of total offtrade light wine sales.

But don’t expect to see too much discounting from the Kiwis. Philip Gregan, chief executive of New Zealand Winegrowers, predicts that proportionally the UK’s share of New Zealand’s wine exports, which stood at 45% in 2003, will fall to 36.8% by 2007 as other markets develop.