KEY POINTS:
The wine industry is riding high on a wave of sauvignon blanc, the wondrous grape variety that in Marlborough is perfectly suited to industrial production on a large scale, driving profits for factory wine producers as energetically as it drives export volumes. But the first wine industry benchmarking report by international consultants Deloitte suggests that the fast ride to success offered by sauvignon blanc could lead to a fall unless wine producers tend to their long-term prospects.
Moet Hennessy New Zealand general manager David Ridley says: "If we go blindly after the golden goose we could be killed in its collapse."
Ridley is well placed to comment on the sauvignon blanc phenomenon as Moet Hennessy is not only the world's largest fine wine producer - with champagne brands such as Moet & Chandon and Veuve Clicquot as well as the ravishingly luxurious Chateau d'Yquem - it also owns Cloudy Bay, Marlborough's iconic sauvignon blanc brand.
Ridley also happens to have first-hand experience of the trauma of making fine wine in Australia, where industrial commodification of wine has been the industry standard in recent history. Watching highly respected brands such as Penfolds grovelling for scraps on supermarket floors from Melbourne to London via Milwaukee has made him highly sensitive to the ramifications of "succeeding by expanding volume at the cost of value".
The headline news offered by the Deloitte survey was that the smallest operators in the wine industry are not making a profit. Crimped by their small scale and high capital costs, producers making less than 200,000 litres of wine a year are losing money. As this relates directly to 89 per cent of New Zealand's 543 operating wineries, the survey results are of considerable concern, effectively confirming what has been painfully obvious for some years.
For Sam and Amanda Weaver, of Marlborough winery Churton, the struggle for profitability is all part of the plan.
"For us, the issue is that because we started from a small capital base, by the time we take interest and tax out, there is not much left over," says Sam Weaver.
But while cashflow is a principal concern for the business, the Weavers plan for that situation to ease as more capital is returned from profits, and margins increase as the Churton brand gains strength in its various markets.
"We have worked hard to develop and maintain markets where the quality and character of our wines is respected, where we can build on value," says Weaver, a veteran of the British and New Zealand fine wine trades.
Steve Green, of the Carrick Winery in Bannockburn, Central Otago, concurs.
"At the average vineyard yield that we can take from our vineyards, we have no place in the commodity market," he says.
"We can only succeed by having a presence in the fine wine markets around the world that are large enough to give us profitable niches."
This poses a problem for producers who have got into the wine business without understanding the demands of what are, by definition, sophisticated markets.
"The availability of contract winemaking has made finished wine cheaply available to many landowners who have not given serious consideration to the demands of the market," Green says.
"These are now the wineries under pressure, which is to be a natural commercial evolution.
"They have never been prepared for the whole wine business and they are being squeezed out by the commercial realities."
Ridley says being successful in the fine wine sector takes careful planning and a lot of determination.
"First you have to concentrate on getting the quality right," he says.
"This market will not be fooled by wine where quality is compromised at the production level.
"Next you have to target the audience that appreciates quality, and you have to keep focused on the audience and no other."
And compromising quality is, in Ridley's view, one of the certain consequences of engaging in commodity markets where the driving factor for producers is cost of production. "If you increase production to reduce prices under conditions of uncertain demand, you ultimately need to soak it up at the commercial end of the market," he says.
"The more your volume increases the more you compromise your prices, which is what has happened to the Australians.
"That is happening in New Zealand as well. Production of sauvignon blanc jumped between 2004 and 2006 and you can immediately see that in the decline of retail prices internationally and domestically.
"In New Zealand, brands like Montana Sauvignon Blanc were never seen below $10 prior to last year but now it is common to see them on offer in supermarkets at $8.99."
The problem is that New Zealand wine is dangerously exposed to the international trade in sauvignon blanc - this one wine's share of exports has risen by 18 percentage points since 2004 and accounted for 75 per cent of this country's total wine exports in the 2007 year.
"This crazy demand for sauvignon blanc seems insatiable but it is like a rollercoaster," says Green.
"And it does not have any advantages for developing other wine styles, other than its profitability. If you try to make pinot noir the way they do sauvignon blanc, pinot just doesn't compete. It's not an industrial sort of a wine."
Kim Crawford Wines' Erika Crawford has recently expressed her concern that New Zealand is not doing enough to develop alternatives to sauvignon blanc.
Ridley agrees with Crawford's evaluation and says we are losing an opportunity to maximise profitability because of the apparent international shortage of sauvignon blanc. Instead of increasing production to meet demand, we should consider limiting production and maximising profits in an under-supplied market.
Weaver is worried about the threat to New Zealand's brand and, ultimately, his own. "The biggest threat to our business is seeing New Zealand prices and quality being undermined by the big industrial producers. We are already aware of a growing feeling internationally that consumers are getting over New Zealand sauvignon blanc," he says.
"For us it could be another opportunity. We have already established our wines as being quality based individual wines from New Zealand. Different from the mainstream could prove to be good for us in the future."
* Keith Stewart is a freelance writer with 38 years' experience of the local wine industry.
