Wine hangover - lessons from Oz

Bill Hardy, brand ambassador for Hardy's Wines in South Australia, says the Australian wine industry hit the 2025 sales target in 2005. Photo / Martin Sykes

It's bargain time for wine shoppers but a bumper grape harvest last year has left vineyards up for sale and grapes rotting on the vines.

Good weather and land coming into production helped boost the 2008 grape harvest by 39 per cent to 285,000 tonnes, resulting in oversupply after years of shortages.

Tony Carter, managing director Foodstuffs Auckland, which operates the Pak'nSave supermarkets, said it was the most competitive wine pricing seen in recent years.

"It's clearly supply and demand and when you get a surplus of product that's in the market you're going to get prices that we're seeing today."

New Zealand Winegrowers deputy chairman Steve Green said established wineries were facing more competition with new operators starting up.

"Smaller wineries might be struggling to establish themselves so they're selling wine at lower prices simply to generate cashflow, which is having an effect on more established wineries," Green said.

"That's compounding on other issues in the industry, such as the economic downturn."

One of Central Otago's best-known wineries, William Hill Winery, was this week put into receivership and Green warned there could be more casualties.

"This is a relatively minor glitch, rather than a long-term sustained problem and it will correct," he said. "There will be some stronger wineries that come through this."

John Hoare, rural manager for Bayleys Marlborough, said more people were wanting to leave the industry "simply because they were probably in there for speculative reasons".

"The long-term players won't be going, they'll be buying more," Hoare said.

Bayleys Marlborough had about 50 per cent more vineyards on its books than normal, with about 20 properties seriously looking to sell, plus a few smaller wineries which had indicated they would sell.

"It's not excessive considering the total plantings, which are 23,000ha in the region."

If there was going to be a correction it would be in the price of vineyard improvements, he said.

Between 2006 and 2008, vineyards in Marlborough sold for $200,000 to $250,000 a hectare, depending on variety, location and water, but recent prices have been $180,000 to $200,000 for sauvignon blanc on very few sales.

"The vendors are still up there but the market's not."

Hoare was not aware of any distress sales.

"We haven't got anybody with a bank ringing us up like we get with houses saying 'get this sold'," he said.

The industry needed better communication between grape growers and winemakers.

"Obviously, no one knew the gap between production and market," he said. "That's the part that's really confusing the growers."

New Zealand Winegrowers chief executive Philip Gregan said wineries simply underestimated the crop.

"If you look at it from the other side of the equation, up until now you would say that we haven't had any real idea of the true size of demand for sauvignon blanc and New Zealand wine because there's always been supply constraint," Gregan said.

The industry was adjusting after years of growth based on strong overseas demand.

"That demand without doubt still exists but in 2008 we got a little bit ahead of ourselves in terms of production and we're going through the process of realigning production to market demand."

The pre-vintage forecast for a slightly smaller 275,000-tonne harvest this year would be in the ballpark, reflecting work to thin the crop, Gregan said, despite up to 3000 more hectares coming into production.

However, a significant amount of grapes would be left on the vine.

"In terms of getting the right balance between supply and demand, it was a must do and the vast majority of people in the industry have done exactly that," he said.

New Zealand wine exports grew 19 per cent last year to $904 million, with a $1 billion target brought forward to this year.

Export volumes were up about 26 per cent to the end of March this year and the average price per litre was $9.13 compared with $8.98 last year.

Gregan said that in light of the recession he was pleased with the sector's performance overall.

Geoff Wilson, executive officer of Gimblett Gravels Winegrowers Association, whose members included Craggy Range Winery, Delegat's Wine Estate and Esk Valley Estate, said there was tremendous affinity for New Zealand wine and recognition of great integrity.

"In the economic situation where perhaps people are paying a little bit less for their wines, I think that lends well [to New Zealand wines]," Wilson said.

"I think we're going to start to see a little bit more of a shift away from the classic European wines to New Zealand."

The industry was not in a crisis but, like any market, there would be winners and losers, he said.

"Ultimately, strong brands and the quality in the bottle will dictate the future for those brands."

Gimblett Gravels aspired to increase production to satisfy international demand, he said.

"Certainly from a Gimblett Gravels perspective, because we are all focused collectively on the quality aspect, we hopefully will never be in a position where we're overproducing, but, yes, it's incumbent upon us to establish new markets absolutely and internationally. That's probably our focus for the foreseeable future."

Wilson was in London this year for a master-class taste test of Gimblett Gravels wine against French counterparts, with astounding results.

France grabbed the top three spots with New Zealand wines coming in fourth and six place.

However, the cheapest and most expensive French wines in the top six cost £295 and £975 a bottle respectively, compared with only £15 and £18 from Gimblett Gravels.

New Zealand wine demonstrated high value and quality for the price, Wilson said.

"There will undoubtedly be a little bit of pressure but I think the opportunity is still there for the New Zealand product to maintain that quality price ratio."

Bill Hardy, brand ambassador for Australian company Hardys, said New Zealand could learn from experiences across the Tasman.

"It's easy while things are growing so fast to become a little overenthusiastic, everyone wants to get into a business which looks as though it's growing fast and there's a tendency to overplant, everyone thinks they're going to be part of this success and people get ahead of themselves."

Hardy - a descendant of Thomas Hardy, who founded the company in 1853 - said the Australian industry hit a 2025 sales target by 2005.

However, Australian wine exports for the year ending April dropped 0.7 per cent by volume and 14.2 per cent by value to A$2.4 billion.

"I think our major markets have said, 'Yep, we've given the Aussies a bloody good run for the last 10, 15 years, let's try some Chilean sauvignon blanc or let's try some Argentinian malbec'," Hardy said.

"This tough cycle at the moment, I'm holding my heart with this one, but I'm hoping it's only a three-year down [and] rebuild again."

The fact that so much of New Zealand's export success was predicated on one variety from almost one area presented another risk, he said.

Sauvignon blanc accounted for 59.5 per cent of the 285,000 tonnes of grapes harvested in New Zealand in 2008, with Marlborough accounting for 68.3 per cent by region.

"Another point that I think Australia missed the boat on is we were being so successful in certain markets like the United Kingdom and the US, we didn't really look at many other markets."

Australia, the UK, US and Canada collectively accounted for 87 per cent of all New Zealand exports by value for the year ending June 2008.

Australia had developed a dual reputation in the US with highly rated wines but real volume coming from competitive prices at entry level.

Globally, New Zealand wine held a premium position.

Scan data from British retailers covering about two-thirds of New Zealand sales showed an average price per 750ml of £6.53, compared with the next highest-priced nation, France, at £4.49.

"It will be incredibly hard for you [to maintain that premium position], I think, because financially there will be operators out there who will need to move some of that juice or that wine," Hardy said.

Colleagues in Australia were being offered Marlborough sauvignon blanc at very competitive prices. "So that threat of someone going out and creating a price point which almost pulls everybody down is very, very real. I'm not entirely sure how you fight against that."

However, the consumer conception of New Zealand was very positive, far more so than for Australia, Hardy said.

"The relatively small base of varieties on which the New Zealand reputation is based, that is probably something that needs to be addressed fairly soon otherwise that tiredness might creep in," he said.

"But I don't see that happening for the New Zealand wines in world markets for probably another five years."

- OTAGO DAILY TIMES