With rapid supply growth there is a high risk much of the additional wine could be sold in bulk, threatening the country’s image as a super-premium supplier.
The New Zealand wine industry is well placed to meet the new challenges it faces in managing the potential for a major supply increase, according to a new report.
However, it must take ‘decisive action to manage yields and expand market channels’ amid weak export conditions.
Rabobank’s Global Focus New Zealand Wine report says the sector has enjoyed a period of stellar growth, including significant investment in planting and processing and consistently high price points.
The challenge now is to mitigate emerging pressure on the sector over the next few years.
‘Although the worst of the current financial crisis is now over, the slowdown has had a marked effect on consumer spending, including in wine markets into which New Zealand sells, such as the UK, Australia and the USA,’ says Rabobank.
Combined, these markets make up 85% of New Zealand wine exports. The total volume of wine sold has not been heavily affected, the report states, with consumers in most key markets continuing to drink similar quantities of wine.
However, the recession has brought a distinct reversal of the trend to trade up to higher priced wines, with the industry impacted by a clear and widespread trend to trading down and reduced spending on eating (and drinking) out.
‘The concern for coming years is the prospect that recent shifts in wine consumption patterns will prove enduring, given the likely slow rate of recovery in market conditions.
‘And some are predicting that the crisis will result in a permanent shift in mainstream wine consumers’ spending towards inexpensive brands.’
Alongside these offshore trends – largely replicated in the New Zealand market – there is also ample scope for the industry to expand with new vines ready to come on line in the next few years. But the report suggests that if potential supply growth is left unchecked, exports will need to potentially increase by around 80 million litres to ‘avoid further inventory accumulation’.
‘There’s little question that New Zealand could sell another 80 million litres, but there is a high risk that much of the additional wine would be sold in bulk, putting downward pressure on grape prices and the margins of existing bottle sales, and endangering the country’s image as a super-premium supplier.’
The report says the industry should remain in the ‘super-premium’ segment.
