Article By PETER SAUNDERS wine writer, Wine Technology magazine
If 2009 was the year of survival, then 2010 should be more positive for winemakers who are prepared to show confidence and work for it.
It is coincidental that the larger grape crops of 2008 and 2009 came at the same time as an economic downturn, but it has clearly scared the wine industry in boardrooms all around the world.
Calls for capping yields, extracting vines and the increases in sales of bulk wine ironically come at the same time as record export income. It’s time to ask if perhaps the panic has been a little extreme.
The signals of economic reform are mixed and variable; read the unemployment figures around the world, study the housing market, the profitability of public companies, overseas government deficits − these all give varying signals. It is not insignificant that Ford announced in January a $US2.6 billion profit.
Rather than seeing a global economy that is struggling, it is time to see a global economy which is changing. Expectations of wine have changed. Wine’s place in modern society is different to the days just 20 years ago when Wilson Neill had two million dollars of Bordeaux and Burgundy along the walls of shops in Newton Road, Auckland and in Christchurch.
No longer is the fantasy of sipping Chateau Petrus the wish of a nation, any nation.
Yes there is prestige − and intrigue − about such wines but they are no longer the show-pieces they once were. The products of educated winemakers and modern technology have made very acceptable wines for far fewer dollars. Meanwhile Petrus has gone to prices the ordinary wine lover can no longer afford, thanks to rising wealth and wine interest in other countries.
The quality of wines that are available for less than $20 for whites and less than $40 for reds is a major step. Yes, sometimes the reds are released a little young or need a finance cost for longer storage. But this is relatively small. The New Zealand industry is serving very good international standard wine at very good prices.
Is this a sign of hope for New Zealand’s wine industry? It is in fact one of many. The growing signals of economic recovery is another. Last year, the British bought two per cent more wine than in 2008. Perhaps it was bought at different outlets (retail rather than on-premise) but the demand for wine remained on the rise, as it has in the United Kingdom for ten years. USA has had a big growth phase and it’s not just for local wine.
A change in global economics won’t make a less competitive market. But it has been highly competitive for two decades anyway. Six hundred and sixty wineries plus another 100 brands ensures that. Plus of course all the cheap imports from Australia’s surplus add to the frenzy. In reality, however, nothing has changed − it has been like this for a long time.
Excess supply?
Supply and demand has been a factor of the wine industry for centuries. The amount of wine in the chateaux of Bordeaux are part of the price setting for a new vintage and been that way long before Robert Parker had an extra-curricular influence. It remains so, even if the Parker team might either rant or rave about a vintage in a specific region.
In quantity terms, the more there is available, the lower the price. Using Bordeaux as a guide, even a top vintage can be under-priced for quality if there are volumes of wine from previous years still in the warehouses.
In New Zealand, we have had a couple of bigger vintages and may even top the record in 2010. No-one stopped planting two or three years ago. There have been many ways of handling this increase in production.
The brave; the publish-and-be-damned approach of those who know they are making top wine and continue to ask a good price for it. There are a number of wineries like this.
The innovative: Like the Gisborne growers who have muscled together amidst loss of contracts with major producers. The sympathy for this team when they have product may be as great as the support that came in behind Villa Maria in receivership in 1986. A problem then, but 23 years later who is smiling now?
The creative: Once there was just one brand of sparkling sauvignon blanc (Mount Riley). This past year has seen a bunch of such releases, from Allan Scott to Lindauer, Lake Chalice and more to come. What better than offering a new style of sauvignon blanc if there’s a bit extra around − add bubbles, give it a new position, a new place in drinkers’ options. Extra chardonnay? − a number of wineries have used sparkling here too; Blanc de Blanc style − and very nice they are.
The sharp-shooters: Howmany distributors of New Zealand wine have soaked up some surplus and made their own brands? An annoyance to some, a relief for many winemakers with over-flowing tanks.
The interesting point of this is that the distributors have been prepared to produce more labels to compete with those they sell themselves in a very competitive market.
Added sales, not replacement sales: And of course off-shore markets have also created new brands using ‘surplus’ wines, to compete in some cases with low-cost Australian wine. For the winery − one delivery, one payment; the beauty of these sales from a winery perspective is that although the price may appear low, the sale represents a discharge of marketing and sales expenses (and time) which becomes the job of the new brand-owner.
The builders: Strong brands continue to work well in markets they were designed and positioned for. If ever there was a time to reinforce the brand, the label image, the positioning, now is the time. Leave it to the medal results? Not enough. People who hand-sell the wine need to know of the good show results at trade, restaurant and retail level.
The public, however, cannot handle the volume of gold medals from eight New Zealand wine shows and another half dozen around the world. That is thousands of gold medals and trophies each year. People buy one wine at a time and having a retailer or sommelier, a distributor or overseas importer able to converse about what this wine has done is very important in brand building. The bottles need to be seen, but supported through distribution.
Profitability
High-volume vintages can affect profitability two ways − up and down. Protect the premium brand and this can work normally, safely. A little extra provides economies of scale; extra volume is only minimal extra work, an extra truck load, an extra tank as appropriate. Those with twin children know that two are not twice the work load.
So enjoy the volume and find an outlet for a percentage of the volume which may not be as profitable as the main label, yet with the economies delivered by the extra volume, do give scope for using the options outlined above. Lower margins on this part of the vintage can be managed without the marketing costs of the main label.
The options are numerous and varied − from your own second label to one-drop, one-payment outlets like Vineonline who buy the wine; or the more labour intensive Blackmarket, where they get the orders and you send the case.
Thus with the main brand functioning normally for normal volumes, the extra volume can drop production costs (per litre) which can then work on lower margins. Let’s remember too that next year may be frosty and a little extra wine in the tank this year can help pay the rent and the wages next year.
Is New Zealand alone?
Spain has pulled out 40,000 hectares of vines in the past twelve months and Australia is headed the same way. Doug Lehman of Peter Lehman Wines in the Barossa has said: “Thirty-five thousand hectares need to be out before ripening for 2010”. In both cases the figures amount to more than the total existing plantings in New Zealand.
The French we know are in a panic, questioning appellation rules, recent plantings in the Languedoc, certifying the use of varietal names on labels, changing their strict opposition on screw-caps.
From the new involvement of big companies and large financial advice and commentary, let us see the other side. Agriculture and horticulture carry variables. We know this very well in New Zealand, but because we don’t buy a new car this year because of the tribulations of the season, next year we might, and we might see a good Broadway show as well.
The strength of the New Zealand dollar (and let’s underline strength here) although an impact on sale prices for those quoting in variable currency terms, there is a confidence not just in New Zealand wine but in New Zealand industry as well.
This is a time to stay steady, as the industry has done over three decades, and keep the hand on the tiller, not jump for the life boats.
Yes, there are some issues that some parts of the industry are not happy with, but let’s not blame it on ‘investors’ − was not every family investment in grapes or wine as much a risk-gain situation as that of the big guys?
Multi-product multi-nationals
Much criticism has been aimed at the larger companies which distribute big volumes of wine throughout the world, yet who may think of their core business as beer or spirit marketers. And indeed, some companies have self-destructed their wine division by muddled thinking, and tried to manage wine in the same way as they successfully managed other, quite different products.
It was significant that Fosters last month separated wine from the main company and staffed the new wine division with wine people − not beer people who are expected to market wine.
2010
Remember the stock market crash in 1987?; the millennium crisis around the year 2000?; the Asian crisis four years ago and many more? They come and they go. Now the global economic pressures are another in a series − and will pass, like a frosty vintage.
It wasn’t the global economic issue that gave us record grape harvests in 2008 and 2009 (and probably 2010) nor was it that crisis which lifted exports to a billion dollars in the middle of it or filled a pinot noir conference with enthusiastic international guests.
As the West Side Story song goes, ‘there’s a place for us’ and to some extent New Zealand wine has found it. Now it is important too that we keep that confidence, adapt where necessary but not lose faith in what is a tremendous product in different colours that that the world likes.