Dialogue: Lion, Allied - why not both?

Montana would benefit from friendly cooperation between rival bidders for control of our largest wine-maker, writes TERRY DUNLEAVY*.

The confrontational focus in daily media reports about the battle between Lion Nathan and Allied Domecq for control of New Zealand's largest wine-producing company, Montana, obscures the fact that this is an issue for all New Zealanders.

Not because of the implications for trade in shares on the New Zealand Stock Exchange, nor for any resultant perceptions overseas about the way we treat investors. Rather, for the economic impact of the wine industry in the development of New Zealand, and overseas perceptions of our country's passion and potential for excellence.

Wine may never rival the enormous impact of our great dairy industry, and it may not project the technological pizzazz of Air New Zealand as our national flag carrier, but it is fast becoming our nation's No 1 label carrier. Increasingly, a widening range of New Zealand comestibles is arriving on dining tables around the world, all stripped of evidence of their origin except for the bottle of New Zealand wine, with its label intact, proclaiming its Kiwi provenance.

I'm reminded of being on the New Zealand pavilion at the colossal Anuga Food Fair in Cologne in 1988, and serving one of our white wines to the head buyer of a large German supermarket chain. The following conversation ensued:

TD: May I offer you a glass of our wine?

SB: Neuseeland makes wein?

TD: Ja.

SB (sniffs, then tastes, raises eyebrows): But it's gut.

TD: Ja, of course.

SB (reflectively): A country which can make wine of this quality must do all things well.

And off he went, back to every stand in the New Zealand pavilion with a heightened awareness of the true quality and distinctiveness of the foods and beverages being offered.

In that year, 1988, New Zealand's total exports of wine were 2.9 million litres, earning $11.6 million.

In the year to last March, that figure was 20.1 million litres, earning $204 million.

The Wine Institute recently surveyed the top 15 wine exporting companies, whose combined estimates indicate a doubling of present export levels by the end of the June year 2005, just four years away.

Grape vines already planted but not yet bearing, and known investment in winery buildings and plant back up the growth expectations of the industry.

In all of that, Montana is the standard-bearer, committed to, and capable of, maintaining its 40 per cent share of total exports.

There is not a winery of any size in New Zealand that does not applaud and respect Montana for the leadership given by our largest company in blazing the export trail in so many markets.

Development of any new export market requires continuity of supply and consistency of product quality.

New Zealand is fortunate in being one of the few wine countries that can hail its largest company also being one of its best in terms of wine quality. Montana's volume, backed by the efficiency of its distribution in key overseas markets, has meant that there has always been at least one New Zealand label available in every worthwhile wine-selling establishment in most large cities in the countries targeted by the industry.

Montana's breakthroughs have made it easier for smaller brands to gain entry to foreign shelves.

In the almost infinite diversity of the international wine market, New Zealand is, and will always be, a boutique wine country, committed to quality and distinctive styles and flavours, keen to retain records like the one it has held in the pace-setting British market for each of the last six years, that of having the highest average retail price per bottle of all wine countries entering Britain.

But our boutique wine nation boasts one player of international stature: Montana. It is readily accepted internationally that Marlborough sauvignon blanc leads the world in that variety, but few realise that Montana alone this year will ship 400,000 cases (400 containers) of Marlborough sauvignon.

Even fewer know that in pinot noir, fastest-growing in popularity of red wines, Montana is already the largest single producer in the world.

And this is set to double within four years. No wonder Lion Nathan and Allied Domecq are squabbling about ownership rights.

The pity is that each of the contenders, in its own way, has a lot to offer both Montana and New Zealand.

The export growth is necessary because the domestic market has remained static. Like meat, dairy products, pipfruit and kiwifruit before it, wine has a capacity and a need to expand hugely beyond New Zealand.

Among their various brands, in beers and spirits, both Allied Domecq and Lion Nathan are accustomed to production of labels under licence in another country, in accordance with market demand.

But wine is different: New Zealand wine can be produced only in New Zealand. The traditional insistence among wine-lovers that wines should be true to geographic label is reinforced by laws governing the sale of wine in all the countries in which we market.

The growing demand can be filled only from within New Zealand, regardless of who owns the vineyards or the wineries. The extent to which that demand can be encouraged and supplied depends to a large degree on the capabilities of the distributors in target market countries.

In the case of Montana's fine wines, the question is not who would do the better job, Lion Nathan or Allied Domecq, but rather, what they could achieve working together.

Lion's bases are Australia, New Zealand and China, and with majority shareholder Kirin, a direct pipeline into growing markets in Japan and elsewhere in Asia.

Allied's principal bases are Europe (including Britain), and North and South America.

Between them, they encompass the present and future world markets for fine wine.

In the "good old days" the drinks industries had friendly liaisons (not least between New Zealand Breweries, Lion's predecessor, and Allied Breweries in Britain). A return to that spirit, between Lion and Allied Domecq, could ensure that both contribute to developing the total possible markets for Montana wines (and by implication for smaller New Zealand wine brands) and share in a total revenue from distribution margins much greater than either could generate on its own.

Is it too late for such friendly cooperation? All New Zealanders, not just the wine industry, would hope not.

* Terry Dunleavy, as inaugural chief executive of the Wine Institute from 1976-91, helped to develop exports. He was made an MBE in 1990 and a Fellow of the institute in 1996 for his contributions to the industry.