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.

UNCOMMON

We went to The King's Speech last night. Man what a good film this is and it is good to see that the film industry can still make stuff like this as a counterpoint to all the Bruce Willis, Angeline Jolie and Tom Cruise trash that Hollywood churns out. Colin Firth's acting is so good you don't see him as Firth the actor. It is totally riveting. At one point in the film his character the Duke of York (later to be George VI) says, when Logue the speech therapist challenges him to a shilling bet "I don't carry money actually".
This reminded me of years ago when I went to a week-long conference (in Bali of all places) with Remy Cointreau Group the French drinks company. At one stage I was shopping with Dominique Heriard Dubreuil the daughter of the company's leader who was later to become CEO and is now Chairman of the group and rated apparently the 42nd most influential woman in the world. She is a nice and very smart woman but I was struck at the time at how unworldly she was. She was looking at some gold jewellery and asked me if the price they were asking for a necklace in a boutique was correct or not. Me! I said that I don't usually buy gold, what would she normally spend. She said that she never carries money, the bills for what she buys are always sent on! How the other half live eh?

CATCH A FALLING STAR....

A giant who was used to having his own way had, over most of his adult years, consumed as much as he could get his hands on to become big and strong. The bigger and stronger he became allowed him to walk over people who, out of either awe or fear would bow to him saying, “you are strong and masterful giant. We love you” The giant, feeling well pleased by his engorgement and inflated by the adulation set off further afield to plunder and consume. With more eating his appetite increased so that he wanted to consume bigger things. All the things he wanted to consume were not easily for the taking and the giant had to trade his possessions and valuables for them. He didn’t mind this as he believed that as he got bigger he would acquire more possessions and valuables from the little people who adored him. One day, far from home he bought one of the biggest and juiciest meals he had ever seen. It cost him most of his valuables but he was happy. When he sat down to eat it however he found that it was too large to ingest at one sitting . He chewed and swallowed, chewed and swallowed but,  after consuming large chunks he found that his body, either unused to such large amounts or tired of being stretched so much would rebel and purge out the extra and unwanted sustenance. The more he ate the more he purged. The more he purged the smaller and weaker he became. As he became smaller and weaker the little people learned not to fear him as much and, as he was becoming saggy, to not be in awe of him so much.

OK, this is a fairy story I created but there are companies today that could be the greedy giant. I'm sure that everyone who is interested in the phenomenal growth of wine companies (and their falls) over the last couple of decades will recognise something of the above. The woes of Fosters springs to mind with their overambitious purchase of Wolf Blass and Penfolds (Adelaide Steamship Company/ Rosemount etc. conglomeration of companies) and subsequent hundreds of millions of dollars write-downs, loss of brand equity, closure of wineries and subsequent job losses. Closer to home in New Zealand we witnessed the rush of blood to the heads of Lion Nathan leaders who purchased Wither Hills and other wine companies at outrageous prices before writing millions off the balance sheets (to balance their books they just might have scored the deal of the century in picking up Lindauer and other brands from Pernod Ricard at a bargain price). The most recent fiasco and the one most fitting the greedy giant is Constellation, the enormous American wine company, second only to Gallo in USA and, previously touting themselves as number one wine company around the world due to their acquisitions who have just this Christmas dumped most of their Australian acquisitions, all of their South African acquisitions and half of their UK acquisitions at a fraction of the price that they paid for them progressively over the last few years. We are talking of hundreds of millions of dollars here. More importantly we are talking about the loss of brand image and integrity of some brands that are many decades old and trusted by wine drinkers. Much more importantly is the loss of jobs. Greedy giants may well have been popular heroes in the 1920's, the 1980's and inexplicably the early 2000's but I think that with experience (bad) their time is up. Come in number one (or is that two?).