Sunday, January 23, 2011

WINETERRA


Hands up who's heard of problems in the New Zealand wine industry?
After a sensational entrance on to the world market 30 years ago we are now seeing some cracks. Most of these are due to poor planning and a 'rush of blood to the head' of new entrants. New Zealand still, even with phenomenal growth, only represents less than 1% of the world wine market. This in the main is represented by one varietal, Sauvignon Blanc, and from one area - Marlborough. I know, I know that we also produce some good Chardonnay, Riesling, Pinot Noir, Bordeaux blends, Syrah and others but in terms of viable export markets Sauvignon Blanc is the king. New Zealand Sauvignon Blanc has attained the reputation as the best country of origin to consistently produce the best example of the varietal. So. What's the problem? The problem is that there are nearly 700 wine companies in New Zealand a good proportion of them wanting a share of the  export market growth. Across the hundreds chasing the same markets and channels there is a great range of quality, consistency and value. Most of the new entrants will not make it having already over-stretched themselves financially to buy land, plant grapes, build buildings and then invest in bottling the final product - they have nothing left to market that product. Marketing the product in the long run is the highest cost. A lot of the 'rush of blood to the head' producers have been hell bent on manufacturing a cute product without properly planning the outcome. Put simply they make and bottle the wine and then look around for a market, an importer, a distributor, a wholesaler and customers. They are out in their planning by at least 2 years and at most 4 years. It takes that long to set up relationships, talk up demand of a brand, set in place support programmes etc. and all this has to be done way in advance of the  product being ready to ship.

There is a surplus of wine, particularly Sauvignon Blanc in the sense of there being a lot of unsold wine in wine companies warehouses and in tanks. There is in reality though a shortage of sauvignon Blanc for the world market for the right brands, the right channels and at the right price points. Why is this? Basically too many producers have tried to cash in on the opportunity and most are too small to have efficiencies of scale, continuity of supply, proper quality controls and consistency of product, access to markets and distributors and the breadth and scale to properly market a brand in distant markets. It is not sufficient to make a single trip to set up distribution nor is one trip a year enough. To properly work a market, any market, requires either someone representing the company and brand to be in market or visit several times a year. Small companies cannot afford to do this. What is the answer? Perhaps looking at New Zealand's biggest export earner might give an insight. Fonterra is a massive coop company formed by a merger of two of the largest dairy co-operatives and the NZ Dairy Board. Since the late 1800's the New Zealand dairy industry was made up of co-operatives. 
Small farmers could produce milk but could not afford the machinery and the marketing costs to take it much beyond the farm gate. Co-operatives allowed then to grow at minimal risk and at lower costs due to amortisation of processing and marketing and distribution costs. Over time the many co-operatives were swallowed up by bigger ones to the ultimate result of there being mainly one large (and successful) one. The wine industry needs to do something similar. A few strong brands, created and controlled by a Wine Industry marketing board with ownership into it by all wine producers is a common sense solution. It doesn't mean that the individual wine producers cannot still run their own brands and boutique offerings in addition at higher price points but the co-operative should be the one to drive the New Zealand proposition in all markets at the commercial price points necessary to gain volume ($9.99 US, 5 pounds UK, $12 NZ and $12 Australian. 
I predict that this model will develop in say 10 to 20 years time but there will still be a lot of pain to go through before then.




3 comments:

Richard (of RBB) said...

A very intelligent post.

TwistedScottishBastard said...

Good logical idea, well presented, but I cn't see it happening, the reason being bands and taste. Milk for Taranaki really tastes the same as that from the Wairarapa, so it can all be bulked and/or marketed together.
As you point out, A good Sauvingon Blanc for a particular vinyard in Marlborough could taste very different from a Savvy form Martinborough, so they can't really be bulked or even marketed together. Yes they could share some of the production costs, but not I think the marketing. Too much competition.

THE WINE GUY said...

This marketing model is to be for Marlborough Sauvignon Blanc only with perhaps some Marlborough Pinot Noir as running partners. All other wine companies wines from Marlborough and other regions can still be marketed by themselves wherever they like but if they want they can contribute to the Coop and share in the profits from the limited number of massive brands.