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Crunch time for NZ wineries

6 September 2011

Crunch time for NZ wineries

“Do what you need to do to survive but be market savvy” is the key message to come out of the latest Markhams wine industry business confidence survey.

Although 90 percent of survey participants from wine producing regions across the country expressed confidence in trading conditions improving over the next 12 months, it will only be the market-smart businesses that are likely to see growth in margins as well as sales.

“It is critical for grape growers and wineries to focus on cost efficiencies but to also be mindful that selling on price, without building a brand or market is not sustainable in the long-term; trading with slim or even negative margins can only be employed for so long,” says Hamish Pringle, Markhams national wine spokesperson.

Nationally more than half of survey participants reported declining domestic sales margins, changes attributed mostly to excise and GST tax rises. Export margins were also well down with the global recession and exchange rates named as the primary contributors.

Whilst most respondents remain confident of moving the national 328,000 tonne vintage, it is likely that bulk wine sales will be a prominent, if not problematic, strategy to achieve this.
Although a necessity for some, the decision to sell wine in bulk is one that others see as increasingly dangerous to the price of premium grade New Zealand wine.

Many wineries were taking advantage of the Australian WET rebate to augment income, but it would appear that this has driven down the amount being paid for bulk wine by Australian supermarkets, raising the question whether costs were in fact being covered, says Mr Pringle.

However bulk wine sales have contributed positively to the reduction of excess stocks being carried, particularly in Marlborough Sauvignon Blanc.

Despite wine businesses facing tough times and nervousness about the global recession still hanging over the industry, there is a general feeling of optimism about the future. Exporting is identified as the strongest opportunity for growth for wine and grape businesses.

Many are looking for growth into Asian markets, particularly China and although there appears to be demand for premium red wines in Asia, the volumes are not significant at this stage and wineries are also looking for export market growth in the UK, USA and India.

The biggest threat to the industry identified in the survey in all wine producing regions is the exchange rate, with the high NZ dollar making it hard to sell profitably into the United Kingdom, Europe and USA. Other threats to profitability include increased price competition and margin pressure.

But a bright hope for all comes in the form of the Rugby World Cup 2011 with participants expressing confidence in the international event’s ‘party atmosphere’ being conducive to positive on-premise sales, increased cellar door traffic, and an increased awareness of brand and New Zealand wine.

The Markhams wine business confidence survey is conducted twice yearly by the national wine industry business development unit of the Markhams chartered accountancy and business advisory group.

It is conducted in Hawke’s Bay, Wairarapa, Marlborough, Nelson, Canterbury, Central Otago and Auckland and covers topics such as sales and distribution, capital investment, branding and profitability.

The survey report is made available free to industry participants and is published on the Markhams website


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