A vintage year for liquor industry

By DITA DE BONI

The year 2000 may have begun with a drinking fest of Bacchanalian proportions, but the liquor industry is banking on a more subtle - and infinitely more lucrative - change in the nation's drinking habits.

Every Kiwi who calls for a glass of merlot to go with his or her veggie quiche in a rural backwater is another till ringing for one of the country's 350-plus wineries.

Every harried mother picking up a six pack for her husband at the supermarket makes the nation's brewers dance with glee.

Every 18-year-old who now legally drinks a KGB (vodka and lemon) in a nightclub at the Viaduct is breathing life back into spirits takings that have been declining for a decade.

The liberalisation of liquor laws in late 1999 opened the curtain on a prosperous year for the alcohol industry. Events such as the America's Cup and the millennium also provided a booster shot for last year's takings.

Sunday wine sales, beer in supermarkets and the lowering of the legal drinking age have introduced whole new groups to liquor, with more law changes being sought to further boost sales. The wine industry has held national workshops to harmonise wine legislation and protect our national marketing platform. The spirits lobby continues to push to be allowed to sell through supermarkets.

But behind the shelves and six-packs, change was also stirring at corporate level.

Large-scale consolidation and manoeuvring - mostly overseas - has affected the local industry and made large players larger. But increasing sophistication means the niche product is also gaining ground, especially in beer and wine.

In wine, Australian companies cast a serious eye over local producers and prompted Lion Nathan to pounce to protect its New Zealand distribution chain. Where Lion added wine to its portfolio with a stake in Montana, DB disposed of the country's second-largest wine producer, Corbans. Overall, New Zealand wine exports cannot keep pace with overseas demand - a phenomenon that shows no immediate signs of abating.

Our two main brewers are now Japanese owned and domiciled in Australia (Lion Nathan) and Dutch owned and controlled out of Singapore (DB Group). Fair dinkum Aussie import Foster's, which Lion Nathan wages pitched battles against in Australia, said it would "get serious" and rebranded New Zealand a "foreign" market.

Spirits corporations that have merged and consolidated overseas have cast a long shadow into the domestic market. Local players survive and thrive on winning the right to distribute iconic global spirits brands. Bottle stores, which have lost great chunks of business to supermarkets, are fighting to retain their competitive advantage and are gearing up to fight plans to sell spirits in supermarkets.

For all this metamorphosis, liquor volumes have remained relatively flat.

A truly booming export market for our wine occasionally obscures the fact that the domestic wine market is growing at only about 3 per cent a year, with bulk imported wine growing fastest within the category. Domestic beer volumes are also relatively flat, although more are "trading up" to premium varieties.

Snazzy ready-to-drink spirit mixes - aided by marketing campaigns liberally doused with sex and rock 'n' roll which appeal to the newly legal drinker - have reversed a decline in that sector.

WINE


2000 marks the year the country's largest brewer, Lion Nathan, decided wine was where it was at and applied for, and received, permission to buy 100 per cent of the country's largest producer, Montana Wines. Montana's position as a prize asset was cemented when it bought Auckland-based Corbans Wines in September for $154 million.

Lion Nathan moved in on Montana after catching wind of rumours suggesting Australian wine giants Southcorp and Foster's had sat at the bargaining table with a clutch of local wineries. A rival bid put forward by Montana chairman Peter Masfen for control of his company, and a pricey valuation advanced by PricewaterhouseCoopers, has stopped the Lion in its tracks for now.

Fosters has moved on to bigger pastures, choosing instead to buy Napa Valley-based Beringer Wine Estates for $A2.6 billion ($3.47 billion). BRL Hardy made an offer for Nobilos and swallowed it up; Villa Maria remains the only private, locally owned winery producing substantial volumes of wine.

Boutique wineries continued to multiply, numbering 358 at the end of 2000. A comprehensive wine legislation review was started by the Wine Institute and MAF with the aim of instituting compulsory standards, to keep wineries in line and protect New Zealand's global reputation as its exporting efforts intensify.

In the first four months of the 2000-2001 year, starting in July, exports jumped 27 per cent in value and almost 8 per cent in volume to $82 million ($64.7 million at the same time last year).

America is becoming an increasingly important export destination, although Britain remains top.

A meeting of the New World Wine Producers in February placed New Zealand in a "bloc" of producers with South Africa, Australia, Argentina and Chile in a battle for global share.

Vintage 2000 was slightly smaller than expected - down by around 10 per cent because of weather - and acts of God such as freak frosts in Hawkes Bay and fire in Blenheim reminded producers and investors that, while sexy, wine is, after all, an agricultural product subject to nature's vagaries.

Wine tourism also made hesitant steps in 2000, with an inaugural wine tourism conference in Blenheim. The purchase of 90ha of Marlborough grape-growing land by French wine company Henri Bourgeois or Novotel-owner ACCOR Asia-Pacific's pledge to build an 80-room hotel in Blenheim is part of "millions" of foreign investment dollars pouring into the industry, according to the Wine Institute's Phillip Gregan. Local producers also played their part, with Villa Maria and Montana opening multimillion-dollar wine tourism centres in Marlborough.

BEER


Three words sum up beer in 2000: supermarkets, supermarkets and supermarkets.

Supermarkets have delivered female shoppers, have increased the percentage of premium brews sold, and have allowed shoppers to buy beer any day at almost any hour. But volumes continue to be static, despite a growth in premium beers, because sales of mainstream brands like Lion Red and DB Draught have fallen, dragging the whole category down.

Luke Nicholas, former brewer and editor of realbeer.co.nz, says changes on the corporate side have been extremely significant. After decades of Lion and DB being essentially the same animal, the two have taken different paths. Lion has moved to Australia, invested in Montana, poured money into building market share in Victoria through buying hotels, and persevered in China.

"The question is, will Lion be as committed to beer in New Zealand now there are other interests which could be seen as distractions?"

While Lion's main beer trade is not in New Zealand, it has taken an innovative approach to new segments of the market by brewing Stella Artois in Auckland, opening beer cafes and developing limited-edition brews.

DB, on the other hand, has been virtually swallowed by Dutch brewer Heineken and has let go all non-core assets. Mr Nicholas says DB is "in an excellent position with the strength of their two major brands - Export Gold and Heineken - both of which are riding the wave of growth in the premium lager segment."

Thrown into the mix is Foster's, which instituted a full review of its operations under new boss Andrew Bonner in July. Its mainstream brew - Stripe - has had a mixed reception, but Mr Bonner is very happy with it "although we've had a few cross-cultural issues to deal with." Foster's Crown and Victoria Bitter have also gained from the shift to premium brews.

On a lighter note, light beer made a tentative comeback. Lion launched Steinlager Light, while Foster's followed with a light Cascade.

SPIRITS


When DB wound up Allied Liquor Merchants in March 2000, the country's remaining spirits merchants were left to divide the spoils.

Kentucky-based Brown-Foreman took over its own brands, including Jack Daniels and Southern Comfort, Paris-based Maxxium set up shop in New Zealand to administer the likes of Jim Beam and Remy Cointreau, Foster's took over Absolut Vodka and Seagrams Gin and Lion-owned New Zealand Wines & Spirits got the rest.

DB also left retail store management in March and established Liquorland as a standalone retail franchise. NZ Wines & Spirits remains New Zealand's largest importer, manufacturer and distributor of spirits and liqueurs, and Lion Liquor Retail owns and manages 32 retail outlets under the Liquor King trade name, as well as five discount outlets.

In the past few years, Lion has largely given up retail, selling nearly all its hotels and off-licence outlets to owner-operators.

Retail chains have taken a hammering from the sale of beer through supermarkets. But Thomas Chin, of the Distilled Spirits Association, says upmarket retailers who have quality service, product knowledge and quality and range of stock are in no danger.

He says a key event for the spirits sector was the defeat of the Dianne Yates health warning bill, which would have seen warning labels on all liquor vessels regardless of size.

And for 2001 the challenge will be getting spirits into supermarkets.

Herald Online features:

2000 - Year in Review

2000 - Month by month

2000 - The obituaries