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Can wineries keep up the super premium image?
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(First appeared in La Journee Vinicole, edition 205, December 16, 2009)
Since the advent of its current, modern winemaking industry, New Zealand has positioned its wines firmly in the super premium category.
Constant economic growth, willing consumers and, of course, the quality of its wines, have allowed it to do so.
But will the recession and supply pressure force New Zealand wineries to review their strategies?
According to a new report by Rabobank, whilst the New Zealand wine industry is well placed to meet challenges of a potential major supply increase amid current weak export conditions, it must take decisive action to manage yields and expand market channels.
It warns that failing to do this could endanger the country’s image as a super premium supplier and jeopardise the future of younger, emerging companies.
Although Rabobank believes the worst of the current financial crisis is over, it is concerned the effect on consumer spending may last well beyond the recession, impacting sales of wines in higher price brackets.
“The total volume of wine sold has not been heavily affected with consumers in most key markets continuing to drink similar quantities of wine," it reports.
"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.”
Some analysts predict that mainstream wine consumers’ spending may well shift permanently towards inexpensive brands.
Rabobank believes there is plenty of scope for the New Zealand wine industry to expand, “with a full pipeline of new vines ready to come on line in the next few years”.
However, it suggests “if potential supply growth is left unchecked, exports will need to potentially increase by around 80 million litres to avoid further inventory accumulation”.
Were sales to increase by this much, there is a strong chance many of the consignments would be in bulk, ultimately undermining New Zealand’s image as a quality supplier and pushing price points down.
The report states the New Zealand wine industry should attempt to remain in the super-premium segment “by maintaining cooperation and discipline in managing yields in coming years to reduce supply pressure and receive long-term dividends”.
New Zealand has already proven able in managing supply.
It adopted a yield management program with thinning this year and, to a lesser extent, leaving grapes unharvested, to reduce the vintage.
But how long can it sustain this kind of program and how successful would it be if the volumes involved increased dramatically ?