Export growth puts NZ wineries under pressure

Rabobank has predicted further growth for the New Zealand wine industry, but warned it would not be as evenly distributed among producers as in the past.

A combination of rising demand, limited scope for vineyard expansion within Marlborough and consolidation within distribution channels in the US market means that while larger producers are thriving, smaller wineries are struggling to keep pace.

Releasing its latest Wine Quarterly Report this week, analysts said: “In an industry that has matured considerably over the past ten years, what is becoming increasingly evident is that the rising tide of export growth might not be sufficient to lift all boats in the same way that it has done in the past. Nevertheless, New Zealand wines remain well-positioned to take advantage of well-established consumption trends”.

In the 12 months to December 2015, volume sales of New Zealand wines grew by 12%, with the US nudging past the UK to become the country’s biggest export market by volume, followed by Australia, Canada and Germany.

In the US, all wine imports grew by 5% in volume and 2% by value, largely driven by a trend for “premiumisation”, which sits well with New Zealand’s own positioning.

However increasing consolidation within US distribution channels has “left little room on distributors’ lists for the multitude of brands that wish to make their fortune in the US market”, say analysts.

“Even some of New Zealand’s larger independent wine companies are struggling to find effective distribution in order to keep pace with those New Zealand brands owned and handled by the big US-based companies.”

A second factor restricting growth is the limited scope for vineyard expansion, especially in Marlborough where the majority of the country’s flagship Sauvignon Blanc variety is grown. This has made it even harder for smaller wineries to expand, believe Rabobank analysts.

“What is becoming increasingly evident is that a combination of more limited market opportunity an limited access to cost-competitive supply is placing pressure on the profitability of small to mid-sized wine companies,” the report read.

As the country continues its “remarkable growth” story, analysts warned of the necessity for New Zealand to maintain its “premium perception” amid rising exports, if it is to evolve positively.

“The ability to manage supply for any premium product cannot be overstated, and the premium positioning of New Zealand wines in global markets is essential to the sustainability of its business mode”, read the report.

“While this risk is slightly lower today than in the non-too-distant past, when significant new vineyard plantings were still entering production and maturing, it presents a very real threat to the premium perception of new Zealand wines, which remain the envy of wine producers the world over.”