Sector overview

Following the global financial crisis, the dynamics of local and international wine markets have been reinvented. Consumer preferences and supply chain relationships that endured up until 2008 have been replaced by a major trend toward bulk exports and bulk retail distribution. It is apparent that this trend, which has been of concern to the New Zealand industry, is not going away and many involved in the industry globally will have to make adjustments to their business model.

The ratio of packaged to bulk wine exports has consolidated at about 70/30. Despite a high New Zealand dollar, the average FOB price of export wine was down just 3.5% to $7.07/litre – whilst the average price of export bottled wine remained strong at $8.73/litre.

Domestic consumers remain the biggest single market for New Zealand product – accounting for 66.3 million litres (equating to 28% of the total production). For many smaller wineries domestic consumers are the only market. New Zealand wine consumption (in-country) per capita increased to its highest level yet at 15.1 litres. Total per capita consumption of all wines in New Zealand increased to 21.3 litres.

Notwithstanding the global financial turmoil and a strong local currency, sales of New Zealand wine performed strongly during 2010-11. Sales volume reached 221 million litres (an 11% increase on the previous year) and export value increased to just under $1.1 billion. The outcome means that production excess carried over from 2008 has now been absorbed by the market. The UK continues to be New Zealand’s biggest market with 34% of exports by volume and Marlborough and Hawke’s Bay wines rank second and third amongst new world regions for UK market penetration. Other strong export markets are Australia (29.5%), the US (21% by volume and 22% year-on-year growth) Canada, Netherlands and the growing South East Asian markets.

Production from the 2011 vintage is estimated at 235 million litres which implies a 7% increase in sales to maintain supply/demand equilibrium. Based on average sales growth since 2002 of 15% p.a. this should be achievable. Marlborough production was up 34% to 245,000 tonnes – representing some 75% of the total New Zealand vintage. The boutique regions of Waipara, Nelson and Central Otago also produced good crops representing circa 9% of the total vintage. Despite the average price of grapes (at $1,172/tonne) being the lowest for about 10 years, independent growers harvested more grapes than ever before. The overall share of the total vintage was split roughly 50/50 between grower-sourced grapes and winery-owned grapes. The dominant variety is Sauvignon Blanc which accounts for 69% of the total vintage and 8 out of 10 bottles exported. Pinot Noir accounts for 10% of the total vintage followed by Chardonnay (8%), Pinot Gris (5%) and Merlot (3%).

Excise tax has increased to $2.72/litre and represents a significant barrier to both market growth and profitability. The burden of excise tax rests mainly at the winery level due to the fact that 70% of the retail market is controlled by just two supermarket groups who sell 90% of their wine product on promotion (making it difficult to pass on the increased cost of excise tax to consumers).

Overall, the industry has performed very well despite the many challenges and the inexorable global shift toward bulk wine. New opportunities for the local industry include increased interest in sustainable production, changing tastes and economic growth in Asia, unrealised potential markets in Europe and downstream benefits from on-going trade deal negotiations with emerging economies.

Data source: New Zealand Winegrowers Annual Report 2011