KEY POINTS:
When it comes to success in the wine industry, big is beautiful and the economic slowdown could trigger more consolidation, according to a report by Deloitte.
Bigger wineries show advantages of economies of scale, resulting in higher profitability, says Deloitte's Paul Munro.
"Wine companies at the upper end of the size scale demonstrated the highest earnings before tax with those generating in excess of $20 million [in revenue] delivering an outstanding return of 24 per cent," Munro says.
Those with revenue of between $1 million and $5 million only managed a 1.4 per cent return of earnings before tax.
The slowing economy could prompt further consolidation. "Although some smaller operations bucked the trend this year, scale is very definitely a factor behind profitable financial performance.
"With the credit crunch extending into 2008, smaller wineries may find themselves wrestling a little harder for their capital."
Industry figures for the year to June 30 show total wine sales of $1.25 billion and include a 14 per cent rise in exports to a record $797.8 million.
The report, prepared for New Zealand Winegrowers, says the industry is better positioned than last year and a bumper harvest for 2008 should provide an excellent opportunity to further develop export potential.
New Zealand Winegrowers chief executive Philip Gregan says good weather and more land coming into production have boosted the 2008 harvest by 39 per cent from last year to 285,000 tonnes.
The wine industry is targeting $1 billion of exports by 2010.
Grape production has grown from about 6000 hectares in 1995 to 28,000 hectares and Gregan expects continuing annual increases of about 2000 to 3000 hectares.
"We've got a very good base to build from and there is very strong demand for our wine in the key markets," Gregan says.
"However, the 08 vintage is a lot bigger than 07 and it was bigger than the industry expected, so without a doubt there's going to a big marketing challenge over the next 12 months," he says.
There were just under 600 wineries nationally, with probably 400 generating revenue of less than $5 million, Gregan says.
"We are seeing a little bit of consolidation but it's not marked but we're also seeing continuing new players coming in."
The survey was based on responses from 32 participants, who account for about 18 per cent of industry revenue.
