KEY POINTS:
The 2008 wine harvest is under way around New Zealand's winegrowing regions, with an anticipated yield of about 18 million cases of wine. But as the pickers moved into the vineyards in Gisborne, a deal was being signed in Auckland that will make that wine harder to sell, at least in New Zealand.
The takeover of Auckland-based wine distributor Burleigh Trading by Vintage Wines & Spirits is the latest development in the consolidation of the domestic wine market and, by reducing further the representation of small wine producers in metropolitan markets, one that could have significant long-term effects on the health of the wine business.
Without small producers New Zealand loses its innovative edge, the advantage that delivered such international successes as Sauvignon Blanc and Pinot Noir, as well as exciting winegrowing regions like Waipara, Central Otago, Nelson, Waiheke Island and Wairarapa.
The fundamental truth is that the geography here insists winegrowing is a marginal activity and costs of production are high and volatile. This demands two things of a wine producer - maximised control of raw materials (owning their own vineyards) and access to high-value markets for their premium products.
These details are born out by the comparison of Australian and New Zealand wineries in the Deloitte/Winegrowers New Zealand benchmarking survey published last year.
It shows fixed asset turnover in New Zealand wineries is lower than in Australia, revealing the higher investment in vineyard estates in New Zealand. The survey also shows small wineries depend on distributors for around 40 per cent of their sales.
While the survey is based on "typical" wineries rather than the total pool, this is a sign of the need for small wineries to be operating at the highest possible price end of the market, which demands the services of distributors who deal with restaurants and high-end retailers.
This is not the reality for many small producers, however, as there are fewer than 20 distributors nationwide for 553 small and medium-sized wineries, and an estimated 373 do not have access to high-end distribution in the New Zealand market.
With the merger of Burleigh and Vintage, following last year's merger of two other distributors, Red and White and Cellar, the number of potential distributors for almost 400 wineries has dropped by 10 per cent, making it even less likely that the majority of New Zealand wine producers will gain access to the domestic wine market any time soon.
And even if they are lucky enough to score a place with a distributor, the dynamics of running a city warehouse puts the small producer at a disadvantage to the bigger brands they share portfolio space with. Distribution is about moving boxes, and by definition, small winemakers do not move a lot of boxes.
Global strategists will dismiss the domestic problem as a matter of little concern. New Zealand makes good wine and the world is short of good wine, while New Zealand's domestic market will never absorb the amount of wine the country can potentially grow. The answer is therefore straightforward - export.
But export is not a realistic option for most small producers because the cost of entry into that market is so high, and the risk of being a small brand in a big portfolio in London or Shanghai is fraught with all sorts of risks, not least the determination of New Zealand Winegrowers to pitch New Zealand wine at supermarket customers.
Currently, a case of wine from a small producer carries a stiff $5.50 contribution to marketing, while a case from one of the large producers bears a meagre 4c, yet the comparative advertising budgets of each are worlds apart, putting the small producer at a huge disadvantage in building any sort of image in a large, sophisticated, international market. Export is not really an option for too many small producers under present conditions. The dilemma is of concern to wine producers and wine drinkers alike. The fact is that New Zealand's international successes are built strongly on a domestic market that was prepared to learn more about wine and wholeheartedly backed the experimental approach of winemakers in the 1970s and 80s. With most of New Zealand's potential remaining untapped in land yet to be tested for winegrowing, a healthy, critical domestic market remains essential for the long-term vigour of New Zealand winemaking.
There is also a pressing problem facing drinkers: where to get hold of the good stuff?
Every couple of months urban dwellers read in their newspapers of the latest success of some New Zealand Pinot Noir in a foreign competition. But where do you get some? At least that winery will sell all its production, attracting interest from distributors around the globe.
But what of the winery next door, whose Pinots are every bit as good but which has not won the lotto of a wine competition? Do fewer wine distributors in New Zealand cities mean fewer small wineries dedicated to quality?
*Keith Stewart is a freelance writer with 38 years' experience of the local wine industry
