NZ’s next steps

New Zealand has entered many global markets with great success, particularly with Sauvignon Blanc.  How does it now build and strengthen its reputation as a producer of fine wine?

New Zealand’s rise to prominence in the world of wine has been nothing short of phenomenal. With the first vines being planted in the modern era in Marlborough only in 1973, it has created a new wine style with its vibrant, gooseberry-to-passion-fruit flavoured Sauvignon Blanc, produced high quality Pinot Noir and turned itself into a major exporter of quality wine. But having grown so fast its next challenge is to build and strengthen its reputation as a producer of fine wine, i.e., high quality wine with a sense of place. The challenge will be considered under the headings of new varietal champions, creating world class wine, increasing profitability, developing markets abroad and new wine styles.

Before looking forward it is vital to understand the nature of New Zealand’s success on which it should build. As a small nation of just 4.5m people it produced a record harvest of 445,000 tonnes in 2014, three times the figure for 2005. While this is not large in world terms, its export record in the last decade has been outstanding. Exports rose from NZ$435m to NZ$1,330m in the same decade, making wine number 6 export commodity for the country. It is ranked 16th in the world in terms of overall wine production, but 8th in terms of the value of wine exports. This has been achieved not through volume but high price achieved and growth in yields. The average in-market price for the last available year in Australia is AUD 13.28 and UK £7.27 (cf average price in UK of close to £5.50). The yield story is equally strong: blessed with Sauvignon Blanc which can produce high quality at relatively high yields, the bumper year 2014 saw yields rise by 20% to 14.6 tonnes/ha (approximately 90hl/ha), close to the quality ceiling. Or to give the decade perspective: yields doubled between 2005 and 2014. That success has come through increasing yield, not just investment in new vineyards, is vital for the economic sustainability of this growth as will be commented on further below. Further, the current view is that there is only limited land available in the country which is suitable for high quality viticulture, certainly in well-known regions such as Marlborough. A further part of New Zealand’s success has been a industry-wide commitment to sustainability in the wider sense: 94% of vineyard area is signed up to the national benchmarked and audited scheme. In turn this contributes to a clear, attractive marketing message from the industry body, New Zealand Winegrowers: ‘Our special combination of soil, climate and water, our innovative pioneering spirit and our commitment to quality all come together to deliver pure, intense and diverse experiences’. Or to put it more simply: ‘the riches of a clean, green island’. There is, therefore, a great deal to build on here but further development of the country’s reputation as a producer of fine wines will need to acknowledge the constraints of a relatively small-scale quality-focused industry.

New Zealand’s success was initially built on developing its own style of Sauvignon Blanc and selling it at the top end of the price range for everyday wines. Marlborough as a region dominates NZ wine production producing 90% of all its Sauvignon Blanc. Its success is due to the fundamental viticultural factors of a cool climate with high sunshine levels, strong day-night temperature variation and free-draining soils. The ‘Savalanch’ (20,000ha planted) has been complemented by high quality, mostly mid-market Pinot Noir (5,500ha). But to develop its profile as a fine wine producer New Zealand needs a second, complementary, white wine. Recent years have seen Pinot Gris come to the fore in the home market so that the variety is now the fourth most planted with a tenfold rise to 2400ha over ten years. The wine is mainly in an intermediate style between rich, spicy Alsace and crisp low-flavour Italian Pinot Grigio. If Sauvignon Blanc will remain the country’s calling card, the milder, textured, Asian food-friendly Pinot Gris can become a complementary offer to Sauvignon but of equally high quality. Looking further into the future, Syrah could be the second champion red focusing on purity of fruit, a characteristic already associated with New Zealand. This will depend on finding more relatively warm, free-draining sites on the model of Hawkes Bay.

In terms of quality New Zealand has thus far succeeded by introducing a new wine style and producing wines of high quality at higher ‘everyday’ prices. An area to develop is the aim of producing world-class collectable and tradable wines. A quick survey of fine wine merchants in London shows that they do stock the country’s wines but they are among the cheapest in their offers. This is an important issue not in terms of the value of wine sold but the overall reputation of New Zealand wine. Wine lovers look to this country for great value medium-priced wines, not for the most outstanding wines available. From a wine production point of view, this relates to producer preference for wines that are ready to drink on release whereas most of the world’s greatest wines need to time to develop in bottle. If New Zealand is going to compete with Didier Dageneau’s Sancerres or DRC’s grand crus some outliers in the industry need to focus on this challenge. There are positive signs of some movement towards higher quality in Brancott’s exploration of terroir specific Sauvignon Blanc and the debate about Pinot Noir reserve wines versus single vineyard wines. Further, from a marketing point of view, while reserve wines and single vineyard wines are being made in small quantities they are mainly consumed at home rather than being used by New Zealand wine to improve its overall standing in the world of wine. If New Zealand is to build and strengthen its reputation as a producer of fine wine it should aim for the very top of the market.

Many of these issues cannot be separated from the need to continue to improve the financial sustainability of the New Zealand wine sector which is a prerequisite for developing the country’s profile. As a new industry it has been led by mainly small producers and growers but in order to succeed in the future it must continue on its path to consolidation. The background here is the world economic crisis of 2008 allied in the same year with over production. PWC shows, first, that smaller producers are struggling to deal with the burden of debt created by buying land at high prices. Second, profitability and ability to recover from the post-2008 crises rises markedly with size. A continuing and immediate issue is high exchange rates. As this is due to quantitative easing in major export markets, the only strategy available is trying to persuade banks to take a long term view. Again, large companies are more likely to be able to persuade lenders to support them in this way. The alternative strategy tried by wineries in the face of greater austerity was introducing cheaper second label wines. But this was not very successful as companies struggled to make these labels profitable and risked damaging their brand equity. The longer term future is for the most successful small companies to continue small if they wish to but for others either to join a cooperative or merge into a larger company. It is likely only to be these three categories of companies which can exploit the opportunities of the export market and build New Zealand’s reputation.

New Zealand’s key current export markets are Australia (NZ$380m), USA (NZ$328m), UK (NZ$319m and Canada (NZ$79m) with potential growth markets in China, Germany, the Netherlands and Sweden. Of the established markets, the USA offers the greatest potential due to its size, current growth and underdeveloped nature; it also poses significant challenge because of the three-tier system and state-by-state legislation. Australia has been a major success (40% of all white wine in retail is from New Zealand) and therefore there is a platform. The UK was the first success for Kiwi wines but there is probably little room for large-scale expansion here due to the volume of NZ wine already being sold and the intensity of competition. With regard to the new markets, the aim must be to replicate the success of New Zealand Sauvignon Blanc in the UK: high quality wine with a very distinctive style which is easy to appreciate. NZ Winegrowers strategy of ‘educating the influencers’ is spot-on here as many UK educators including Oz Clarke relate. With the distinctive style of Kiwi Sauvignon Blanc the consumer suddenly ‘gets’ what wine is about … and so it introduced not only to this style but to wine as a category – and that consumer no doubt will want to drink Kiwi. The promotion of the 2-day Advanced Certificate in NZ wine in Beijing, Shanghai, Guangzhou and Hong Kong is particularly far-sighted for the medium and longterm given the size of the potential market in the longterm in China.

New Zealand can also build its reputation through further strategic alliances and through research in vineyard and cellar. The prime example of strategic alliances is the link-up with Air Zealand which promotes the airline, the country and the opportunities for a range of leisure activities with a major focus on wine tourism. The airline also sponsors the annual NZ wine awards, building profile at home and abroad. Similar links could be made with other key NZ agricultural exports: lamb and Pinot Noir are after all a marriage made in heaven! More generally, the success of the marketing and export drive of the last two decades indicates that what is really required is more of the same – while making use of the new digital means of communication as has been successfully done with #SauvBlanc day in May 2014 and the genuinely outstanding website, nzwine.com. The sponsorship of The Americas Cup is a bold attempt to raise the profile of New Zealand wine by association with a very high prestige event. Others developments for the future could be more related to research into wine style. For example, the work done on thiol development has demonstrated that full flavoured Sauvignon Blanc can be produced at lower ripeness levels. Thus, Brancott Estate’s Flight is harvested at 18º rather than 22-23º Brix, producing a fully flavoured wine but with only 9% alcohol. This could become an important offering as consumers looks for lower alcohol products.

As has been seen, New Zealand quickly built a significant wine sector due to its climate and soils, its innovation in wine styles and its production of wines of convincing quality at affordable prices. It can best build and develop its reputation as a producer of fine wine by now: developing varietal wines which complement its current champions; aiming to make world class wines which will raise its reputation from very good to genuinely outstanding; continuing towards greater consolidation of the financial basis of its wine industry in order to have the scale to compete in difficult times and competitive markets; continuing to build its export markets in established and new countries through excellent marketing and forging strategic alliances; and, finally, innovating to produce new style wines which will anticipate and capitalise on new trends.

1921 words – sorry the footnotes did not copy across in this version

Main sources
Tong 19, New Zealand
PWC NZ Wine Insights, November 2012 and 2013
Marlborough Recovers, Bob Campbell MW, Meiningers, December 2014, p. 42.
OIV Statistical report on world vitiviniculture 2013
http://www.nzwine.com/info-centre/statistics/
Export figures for 2014: http://www.nzwine.com/assets/sm/upload/or/18/7w/a5/NZW%20AR%202014_web%20R.pdf

David Way
www.winefriend.org – wine writer, educator, wine tourism

Andover, Hampshire, UK

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