A tricky time for NZ wines

Grapes of wrath

By ALEX VAN WEL - The Press

You know it’s been a bad year when invites for festive season bashes fail to turn up. Journalists are expendable of course, and often don’t make it on to the final guest list, especially in lean times.

But December this year certainly had an unusually sober character, especially for Marlborough.

“Oh, it’s been an industry annus horribilis,” declared veteran winemaker John Forrest. “Excess, poor-quality 08 sauvignon blanc still being dumped on the market and dragging the price of 09 down, and major clients overseas now directly importing their own product and becoming competition and dragging the price backwards. It’s been a dreadful year.”

Forrest candidly admits he spent 2009 watching more money go out the door than cash coming in – an experience he believes has been felt across the industry.

“I know I’m in the top 10 per cent in terms of equity and cashflow, so I can’t help but think, what has happened to the 90 per cent who are below me,” he lamented.

“We’ve still got our record 09 vintage to sell and now the prices are already being discounted, so there is no profit in the 09 before we even begin selling it.”

It’s a grim picture indeed. The trouble began with a massive 2008 vintage – a devastating spike Marlborough is still struggling to rectify.

“2010 is at least going to be small on a per-hectare basis, but we’ve got a record number of hectares in production, so it’s not going to be a small vintage,” he said.

“We still will have excess production over demand running through 2010 and 2011.”

The New Zealand Wine Institute says there was much to celebrate in 2009 with increased export sales to key overseas market but “some unmistakable warning signs also emerged”.

Despite greater exports and domestic sales, the increased supplies intensified competition and pressure on prices, exacerbated by the global recession.

The other big trend was the surge in bulk wine exports from New Zealand. Historically, bulk wine has accounted for less than 5 per cent of exports but in 2009 that had quadrupled to 20 per cent.

“While bulk exports may relieve pressure on wineries in the short term, in the longer term they may significantly impact on our market positioning and the reputation of New Zealand wine and our brands. As such they need to be managed very carefully,” the institute warned in its 2009 annual report.

That meant more than ever the wine industry is focused on profitability in grape growing and winemaking, the institute said.

For some, early 2010 will be heavy with melancholy, a moment to ponder the end of an era.

2009 was the year respected Waipara winemaker Daniel Schuster suddenly found himself minus a vineyard and winery after more than two decades developing his brand.

His demise shocked an industry already shaken by spiralling prices.

Danny has twinkled his last in Waipara…

“It took me about 25 years to build it and it only took 18 months to take apart,” Schuster said stoically.

“There is more money sometimes in doing that than actually building the business.”

A combination of high debt levels, internal disagreements and dire economic conditions hastened the end of his dream.

“The industry as a whole in New Zealand has had to re-appraise itself and its goals in the way they had to in the 1980s,” Schuster said. “It is a crossroads kind of thing for the industry as a whole and obviously Waipara is no exception to that.”

Schuster blamed his downfall on what he called the short-term thinking of his business partners, and fired a warning shot at Marlborough sauvignon blanc producers.

You should not put all your eggs in one basket, he said, especially into a category of wine which will change, every generation.

“The young people in England, the last thing they want to drink is a wine that their father is drinking ... It is that simple.”

The immediate question is how to survive the current downturn and make it through to the end of 2010 intact.

Schuster predicts only two kinds of producers will last the full distance.

One is the likes of Pernod Ricard which has long-term strategies in place and has the volumes to compete internationally, and has the marketing muscle to do it well and in a wide range of countries, Schuster said.

And then smaller companies, specifically in Marlborough.

“I’m talking about places like Clos Henri, places like Cloudy Bay. There are about a dozen outstanding producers that not only have the quality but they have developed very strong markets, and they put a lot of effort into not only making as good a wine as possible but also the whole presentation is there, marketing-wise.”

Nobody expects Cloudy Bay to tumble, especially with the deep pockets of its owners Moet Hennessy Louis Vuitton. It doesn’t mean it can afford to be sloppy, though, and the last year saw a quiet rationalisation of its staff structure and some of its practices.

Clos Henri employees are under a duty to constantly account to their owners, the Henri Bourgeois family in Sancerre, France.

“Everything we spend here, we know,” sales and marketing manager Nelly France said.

“We manage Clos Henri as a business, but not blind. Budgets, we are really strict on that. So, the reason is, the family has to manage the company, but they live in France, so they have to have a clear view on what’s happening. It means that budgets are followed,"France said.