Next wave: Budding winemaker not short of bottle

By DITA DE BONI liquor writer

The scene could be from 1901, 1951 or 2001: a room full of farming couples, hob-nobbing with the rest of the rural community, raise their glasses to a new venture that promises to transform their local economy.

Men in suits run the presentation. The farmers - who harvest the crops these "suits" will draw on for their venture - are watching a vision for their region play out.

This is not the hawking of tractors or milking Machines. This week in Christchurch, the farmers learned that the tablelands and rolling plains of North Canterbury are earmarked for grape-growing and wine production on an unprecedented scale.

But this business is not contingent on a huge liquor conglomerate such as Diageo, Southcorp or even Montana laying down roots in the fertile soil. The farmers - some of whom have already planted their dairy and beef farms in fledgling vines - will own, harvest and manage the vineyards themselves, and locals can buy a piece of the action.

The "suits," having established a company around brands, will buy the grapes, make wine, market it here and overseas, and forge distribution channels.

The Waipara Hills Wine Estate, promising to be a "new wine star in the making," is born.

Waipara, launched in a $3 million public offering this week, will obtain grapes from Waipara (North Canterbury), Marlborough and the Canterbury Plains and use investors' funds to build the fortunes of two existing wine labels: Langdale of Canterbury, sold domestically, and Waipara Hills, for export.

The company - which has bought a large amount of grape juice that is sitting in barrels awaiting a successful share float - is predicting big harvests from 2003, with revenue tipped at $2.3 million in 2004 and $4 million-plus in 2006.

Waipara will trade on the secondary board if fully subscribed in mid-August.

The company is pinning the bulk of its export dreams on pinot noir, a grape suited to New Zealand climes and one promising to put this country's red varietals on the map.

In keeping with its high-end marketing thrust, growers for Waipara have started introducing French pinot noir clones into their crops to appeal to the more "sophisticated" overseas palate.

No dividend will be paid to investors until 2006 "at the earliest," although the company projects a dividend return of up to 18 per cent by 2010.

To counteract impatience with the length of time a typical wine company takes to make a profit - even without the possibility of agricultural disasters such as disease and bad weather destroying crops - Waipara is marketing itself with a distinctly parochial flavour using brands already cherished in the region.

So much so that large investors and overseas interests - as well as one party who reportedly wanted to buy the entire company - have been rebuffed. Waipara aims to attract from 400 to 800 smaller retail investors, with a minimum buy-in of $2500.

The company has recruited some high-profile figures to front the cause. Local "old-boys" New Zealand Post deputy chairman Syd Bradley and Aoraki Corporation founder Sir Gil Simpson are on the board and happily espouse the nascent company's marketing focus.

And marketing will be the point of difference for Waipara. As the directors pointed out at their meeting, the huge unmet demand for "Brand New Zealand" overseas will be pivotal to the success of the company.

Sir Gil, who is touted as Waipara's main marketing nous, has a particular vision of companies such as Waipara being part of the creative industry that thrives on ideas - similar to the computer industry - with marketing the main differentiator.

"Computer programming and wine have a lot in common," says Sir Gil.

"They are both creative industries which can succeed from New Zealand because we are good ideas people.

"The fundamental philosophy is that the money in this industry is made in the selling, not necessarily in the investment in land and all the risks that go along with that."

Mr Bradley, who has been in the spotlight recently over NZ Post chairman Ross Armstrong's rancorous relationship with some members of his board, agrees, adding that Waipara is doings things in a different order for the normal wine operation.

"We have the expertise on this board to take this company to many places. But also, the way we've set up represents a relatively scarce opportunity for the public to participate, which is consistent with the original idea.

"Anyone can grow quality grapes and with New Zealand wine at the moment we are sure the wine will be eagerly accepted, especially as it maintains the standard of what has gone before."

But should the brouhaha about New Zealand wine abate, will the business still be able to thrive?

The company has not firmed up markets and contracts yet, but says interest from overseas has been strong. As long as quality stays high, overseas markets - which will take about 50 per cent of Waipara's wine - should not falter, it says.

There are precedents for small, secondary-board wine companies in New Zealand, three of the most notable being Lintz Estate, Oyster Bay and Terra Vitae.

In general, shares in these companies are trading at a discount to their original price. Oyster Bay, for example, floated at $2 in two instalments and is now hovering at $1.45, while Lintz, which has undergone high-level ructions, is trading at 85-90c after listing at $1.

Brokers spoken to by the Business Herald say they are cautious about being involved in these share issues because investments should be about returns and wine companies are traditionally slow in that regard, despite bid interest in export markets.

Generally, they say, growth for a wine company simply means a bigger drain on capital, which means dividends can be delayed several years in a row.

Marketing, while important, also causes some scepticism.

"Of course our wines are popular overseas, but how much can a small label hope to differentiate itself?" asks one broker.

"And how much can marketing as a discipline transfer across businesses? It's fine to hinge New Zealand's innovations on clever marketing, but surely there has to be more behind it."

Richard Boulton, an investment analyst and partner with Christchurch broking firm Hamilton Hindin Greene, says his main reservation with this kind of small wine float is that there is no income for perhaps five years.

"Someone going into this should clearly be looking at a 10-year involvement. There can often be no return for quite some time and the venture will probably carry a book loss for the first four years."

But Mr Boulton says there has been interest in the float, with many people drawn to the romantic, down-to-earth nature of the business and other perks the company is offering locals, such as discount product, wine clubs and other activities.

"This model does seem to be a departure from the established norm in the New Zealand wine sector, where companies have actively sought land to develop ...

"In this model, the company won't be able to hinge capital growth on land as it doesn't own [much] so it will come from growth in export markets, which will grow with clever marketing."

Mr Boulton says Waipara must ensure that once export markets are cultivated, it can fill orders - a problem many small winemakers face.

"I do, however, think it is commendable of the people here who have put a great deal of effort into pulling it all together.

"Ultimately, their success will come down to their ability to craft excellent wines."