Christopher Adams

The Business Herald’s markets and banking reporter.

Spirits industry poised for major growth

The local spirits sector is a $58.9 million export industry, partly driven by the use of flavours unique to New Zealand, says a report. Photo / Thinkstock
The local spirits sector is a $58.9 million export industry, partly driven by the use of flavours unique to New Zealand, says a report. Photo / Thinkstock

New Zealand's alcoholic spirits industry is at a similar stage of its evolution to the wine sector in the 1970s and may be on the cusp of a major growth phase, a report says.

In the past few years - possibly spurred by the phenomenal success of 42 Below vodka, which was sold to liquor giant Bacardi for $138 million in 2006 - numerous small-scale firms have entered the market.

The report, conducted by research firm Coriolis as part of a wider project for the Ministry of Business, Innovation and Employment, says the local spirits sector is now a US$47 million ($58.9 million) export industry.

Exports had grown at a compound rate of 10 per cent a year over the past decade, the report said.

It said the international success of the industry was partly driven by the use of flavours unique to New Zealand, such as manuka honey and kiwifruit.

This country also has a ready supply of high-quality whey alcohol, a byproduct of the dairy industry used as a base alcohol to which flavour is added by local and overseas spirits manufacturers.

The report said that beyond the major multinational-owned firms such as Lion and Independent, there was a large and growing group of small-to-medium-sized spirits companies, many of which would welcome investment.

"The industry is currently akin to the New Zealand wine industry circa 1970, perhaps on the cusp of a huge explosion of new products, new flavours and new producers," the report said.

Coriolis analyst Tim Morris said the success of the local wine sector, which exported $1.2 billion of product in the year to June this year, had "shown the way" for spirits manufacturers.

"New Zealand used to make cheap and cheerful wine for domestic consumption - bad copies of other people's wine," Morris said.

"Once we developed our own unique style the industry took off."

Ulf Fuhrer, founder of Wellington-based German schnapps brand Zumwohl, agreed with the report's findings.

"There's a huge boom phase coming up."

Fuhrer said Zumwohl was being exported to Australia and the company had plans to begin sales in New York this year and China after that.

But there were many challenges, he said, including a reluctance by major liquor players to distribute local spirit brands.

To combat that problem, boutique spirit makers were banding together to create their own distribution portfolios in order to gain the critical mass required to take on the likes of Lion or Pernod Ricard, Fuhrer said.

Auckland-based VnC Cocktails, which in July announced it was in acquisition talks with a US liquor firm, is another business seeing solid growth.

Its founder, Shane McKillen, said last year that the company exported 120,000 cases of product in the 12 months to March 2011, valued at about $10 million.

- NZ Herald

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