Wine romance and greater quality are drawing us to vineyards, but as bulk exports soar and foreign firms move in, returns per litre are falling. And so is our consumption of New Zealand wine. Special Report by Michael Cooper.
Wine is a symbol of the good times, but we enjoy it in times of stress, too. The challenges of the past year have seen many Kiwis reaching for a glass or two of wine – and we are not the only ones.
Sales of New Zealand wine in its key export markets – the UK, US and Australia – are booming. "The planet decided Covid-19 wasn't supposed to be endured in a state of sobriety," declared winemaker Steve Bird late last year, "so people were locked down at home and they were drinking wine like there was no tomorrow."
On the surface, things are rosy in the wine industry. The value of our annual exports recently hit $2 billion. Every second, about 80 glasses of New Zealand wine are consumed around the world.
In 2020, a record number of wine producers (more than 700) handled the country's biggest-ever grape crop, harvested from nearly 40,000ha of vines. After a notably dry summer and autumn, the new season's wines are brimful of promise. And if you scan the opening pages of New Zealand Winegrowers Annual Report 2020, it's equally easy to form a positive view. New Zealand accounts for just 1.2 per cent of the world's production, but wine is now our fifth-largest export 'good'.
Some key advances in the industry are worth highlighting. The quality of New Zealand wine has never been better. Commitment to organic viticulture is expanding gradually and mature, 15- to 25-year-old vines are increasingly the norm.
Many grape growers and winemakers have now been working on the same site for decades. As one winegrower put it recently: "The whole industry is significantly more mature, even compared with five years ago. We're just getting started on wine style and quality."
But things are complicated. Villa Maria declared recently that its sales of sauvignon blanc in the US are "rocketing, and at far better prices than we get in the UK". At the same time, it is phasing out some of its most prestigious Hawke's Bay chardonnays and reds under the Vidal brand. And although the consumption of New Zealand wine here is falling, the number of wineries is climbing (a winery, strictly speaking, is a building used to make wine, but the term is commonly used for any wine-producing business).
According to one smallish, well-regarded producer, "there is very little positive news, unless you are one of the 20 largest producers (and therefore probably overseas-owned), rather than the 697 small or medium-sized players."
Five main markets
Take the latest export trends. In the year to November 2020, New Zealand exported 80.6 million litres of wine to the US (generating $622 million), 93.6 million litres to the UK ($517 million), and 68.6 million litres to Australia ($385 million).
Together with Germany and Canada, those five countries absorbed nearly 90 per cent of our wine shipments by volume. But the average price per litre of those exports fell by 6 per cent, compared to 2019.
Shipments of bulk (unbottled) wine surged by 17 per cent and are close to half of all exports. Large wine producers enjoyed an 8 per cent rise in their export volumes, but those of small wineries dropped slightly. Our exports of such prestigious varietal wines as chardonnay (down 9 per cent by volume), pinot noir (down 17 per cent) and merlot (down 47 per cent) tumbled.
Could this be attributed to the effects of Covid-19, given the reduced opening hours of countless restaurants and bars overseas? No. Since 2016, the volume of our sauvignon blanc exports has soared from 182 million litres to 249 million litres. Pinot gris and rosé exports are up, too, but the volumes of our chardonnay, merlot, syrah and pinot noir exports have all dropped significantly.
And as the total volume of our exports goes up, the price keeps dropping. New Zealand exported 19.2 million litres of wine in 2001 at an average of $10.31/l. By 2009, we were shipping 112.6 million litres at $8.85/l. In the year to June 2020, we exported 286.5 million litres of wine at just $6.71/l.
Chris Yorke, global marketing director at NZ Winegrowers from 2004-2019, rejects the argument that the slump in export prices means growth does not equal success. "Prices have come down because the volumes have exploded," he says. "If you compare us with the rest of the world, the two countries that achieve the highest average prices for their wines are France and New Zealand." However, France's production of wine is 14 times greater than New Zealand's.
New Zealand wine is sold in about 100 countries. Philip Gregan, chief executive of NZ Winegrowers since its formation in 2002, says that "at its core, the growth reflects the reputation New Zealand wine has in global markets. That reputation for quality was built in markets such as the UK and Australia. It's there now, in markets such as the US and Canada, and we're seeing it in markets such as China and the rest of Asia, so we have really strong demand around the world." But the spectacular export growth is causing widespread concern in the industry. In the year to September 2020, bottled wines commanded an average price of $8.75/l, but bulk shipments fetched less than half that – $4.03/l.
Blair Gibbs, of Nelson drinks business Winelord, says there's a distinction between "good" and "bad" bulk exports. "Good bulk belongs to a company with the capability to transfer the wine to one of its offshore partners, package it under one of its own brands and proceed to distribute it in their local market. Bad bulk is … sold at a commodity price to any national or international buyer, to be possibly blended, packaged in the destination market and sold at discounted prices."
Two-thirds of our white-wine exports to the UK are shipped in bulk to supermarkets and liquor store chains, then marketed under brands most New Zealanders have never heard of, such as Mahia Point, Okahu Bay or Tiki Ridge.
Hence the launch in 2018 of Appellation Marlborough Wine. John Forrest, the group's vice-chairman, emphasised he was "not saying that reputable companies can't send bulk wine to other places … for bottling successfully, but I am saying that if we have no rules or checking around how that's happening – 100 per cent of the time with 100 per cent integrity – we have to draw the line about being bottled at source." The organisation's members use 100 per cent Marlborough grapes in their sauvignon blancs (the Australia and New Zealand regulations covering wine labelling by region require only 85 per cent), and bottle their wines in New Zealand.
We're drinking less
At the core of the industry's problems is a brutal reality it has been slow to wake up to – Kiwis are drinking a lot less wine than they used to, especially their own wine. Our consumption of wine, both local and imported, has declined by about 14 per cent, from 21.3 litres per person in 2011 to 18.3l/pp in 2020. And over that time, our consumption of New Zealand wine has plummeted by a third, from 15.2l/pp to 10l/pp.
Why are we drinking less wine? It's not rising prices. A couple of years ago, I compared the prices of mid-priced wines from long-established wineries such as Babich, Hunter's, Mission Estate and Seifried. Over the previous decade, their prices were essentially unchanged.
In the UK, nearly 30 per cent of people aged 16 to 25 now avoid all alcoholic beverages, including wine. The only age group that is drinking more wine is the oldest – those in the 65-plus category. There are clear signs of a similar pattern in New Zealand.
"Health and well-being is a global consumer-behaviour driver, with lighter alcohol choices driving changes in drinking habits," says Angela Flynn, marketing manager of Giesen Group. The tighter enforcement of drink-driving laws has also triggered a more moderate approach to wine drinking in New Zealand.
Given the popularity of local wines, it's easy to overlook the fact that imported brands command 45 per cent of the New Zealand market, with special strength in the sub-$10 category. Even Montana Sauvignon Blanc is now an Australian wine. Why? Because it sells largely on its low price and the Aussies can grow the grapes more cheaply.
Daniel Kemp, an Auckland-based wine distributor and retailer, believes "New Zealanders are getting bored with the same old, same old … A lot of people who drink Marlborough sauvignon blanc or Central Otago pinot noir are now trying imported wines and finding them competitively priced."
A prominent Marlborough producer is more cynical. "By confusing the public as to the identity, integrity and quality of these wines, they [bars, shops and restaurants] can charge much larger markups than on the wines of authentic Kiwi producers, whose product and pricing are generally known."
New Zealand wine is also competing with other beverages – non-alcoholic drinks, gin, cocktails, seltzers and craft beers. "Wine is basically just old grape juice anyway," according to Matt Eats, beer curator at Beer Jerk, an online craft-beer retailer. "Where's the fun in that?" If you work in a bar, you learn how to stir.
The Guardian noted recently that the drinks industry in the UK is racing to bring out "nolo" (no- or low-alcohol beers, spirits and cocktails). Here, winemakers are offering a growing selection of "light" wines. The best by far are made from riesling. Winemakers are also trying their best to coax attractive wines from sauvignon blanc grapes picked early with less-ripe flavours, higher natural acidity and a lower natural sugar content (and so reduced potential alcohol levels).
However, sauvignon blanc is a challenge when it comes to making a light (below 10% alcohol by volume) wine that tastes good, because the acidity level in its juice doesn't drop markedly until its natural grape-sugar level is too high for lighter wine production. Most of our "lighter" sauvignon blancs are very crisp, with a gentle splash of sweetness and boring, green-apple flavours.
Most of the 2020 harvest was still on the vines when the Government announced New Zealand would go into lockdown in late March because of Covid-19. The vintage was allowed to go ahead, with everyone told to keep two metres apart. With temporary workers from overseas sharing crowded accommodation, concerns mounted about the health risk, but no cases were reported of virus transmission in the vineyards or wineries.
But the lockdowns of 2020 changed the way we eat and drink. More people around the world are eating at home, which benefits big wine producers with extensive distribution through supermarkets. Small wine producers are more likely to rely on restaurants, whose sales have fallen significantly – although one small producer reported that the lockdown closure of their cellar door was more than compensated for by a surge in online orders.
The occasions when we reach for a glass of wine have changed, too. When people are at home all day during lockdown, the traditional routine of a glass of wine with dinner is disrupted. At-home drinking of wine without food has increased in frequency.Gregan says domestic sales experienced a turbulent reallocation during the lockdowns while export volumes were unaffected. Although consumption remained stable – within a long-term trend of decline – it was reallocated heavily from the devastated hospitality sector to retailers. Supermarkets took a bigger sales share just from being open during lockdowns.
Other retailers' sales volumes appear to have grown post-lockdown, as did wineries', even though cellar-door sales were hit by the absence of overseas visitors. Local winery tourism increased, with New Zealanders possibly more able to take away boxes of wine in their cars than luggage-toting foreign tourists. Another offsetting factor was a rise in email-order sales, with more locals acquiring the habit of ordering straight from the winery or wholesaler.
The industry faces new domestic sales volume uncertainty, however, with the Government confirming this month it will not continue to prop up businesses that are heavily dependent on foreign tourists. A further challenge is that the summer domestic tourism peak, and the partying season, are beginning to tail off. As consumption declines, the industry may get a clearer indication of bedrock turnover without the benefit of foreign tourists or automatic state support.
And don't bank on China's tariff sanction against Australian wines providing a silver lining for New Zealand producers, Gregan says. China had already landed a considerable inventory of Australian wine before it tightened the screws, so importers may not be in a hurry to find alternative suppliers. In any case, New Zealand produces little of the sort of red speciality wines that China likes to import from Australia. Overall, the Asian continent is a relatively small market for Zealand wine, and expected to remain so.
Are wineries struggling to survive? Vinoptima, in Gisborne, and Mahana, in Nelson, both went into receivership in 2018. Carrick, in Central Otago, was placed in receivership last November, shortly before the murder of its owner, Elizabeth Zhong. Many other producers that have depended on tourists, mostly from overseas, to keep their winery restaurants and cellar doors bustling must be fighting for survival.
Pre-Covid, New Zealand attracted more than 750,000 overseas "wine tourists" per year (each visited at least one winery during their stay). Tourists from the UK and the US were more likely to visit a winery cellar door than those from Australia or China. Now, the borders are closed and the wine tourists have gone.
Looking back, the 1990s was a golden age of New Zealand wine. Quality wine was still new and exciting, given that "stretching" wines by adding copious amounts of water to unfermented grape juice – although illegal – had been routine practice until the early 1980s. Affluent baby boomers in their forties rushed to plant vineyards. Wine columns proliferated in newspapers and magazines; wine books soared high on the bestseller lists.
Today, much of the industry can be summed up in five words: sauvignon blanc, pinot noir, Marlborough. So dominant is Marlborough that in 2020, it was the biggest regional source of varieties it is not even immediately associated with, including pinot noir, with triple Central Otago's harvest. And its signature variety, sauvignon blanc, is so dominant nationally that in 2020, it was the most commonly harvested grape not only in Marlborough, but also in Hawke's Bay, Nelson and Canterbury.
The overseas response to the first vintages of Marlborough sauvignon blanc, from the likes of Montana (1979) and Cloudy Bay (1985), has been memorably described by British wine writer Oz Clarke: "No previous wine had shocked, thrilled, entranced the world before with such brash, unexpected flavours of gooseberries, passionfruit and lime, or crunchy green asparagus spears."
Those early vintages, Marlborough winemakers recall, were best "picked, pressed and pissed by Christmas". Sauvignon blanc from New Zealand is still viewed as a wine to drink young while its instantly recognisable, herbaceous aromas and flavours are leaping out of the glass. In fact, today's sauvignon blancs usually age soundly for at least two years.
But the popularity of our pinot noir has done far more to persuade overseas consumers that New Zealand wine can mature gracefully – as it must, if the country is to be accepted as a serious wine producer. "To gain true international recognition, an industry has to be capable of making wines that improve with age – that's the ultimate quality factor,"
stresses John Buck, co-founder of Te Mata Estate, acclaimed for its long-lived Hawke's Bay cabernet/merlots. "People need to be able to put wine into their cellars with confidence and know that when they pull them out they will be a damn sight better than when they put them in."
Pinot noir, the famous red-wine grape of Burgundy, has transplanted happily to New Zealand's 'cool-climate' viticultural regions, from the Wairarapa to Central Otago, with classy wines emerging since the mid-1980s. At least 700 pinot noir labels are now crowding the shelves. But our pinot noir exports are shrinking – from 13.2 million litres in 2018 to 12.3 million litres in 2019 and just 10.3 million litres in 2020.
What's going on? "The more sauvignon blanc we produce and sell, the harder it is to sell pinot noir or other premium red varieties," argues one Central Otago producer. "There was a belief held by the volume producers that they open markets and make it easier for small producers to come into that market, but that is not the case. Sure, they built us a reputation for sauvignon blanc, but as a white-wine-producing country only, and at a "value" price point that only works for the largest producers."
Sauvignon blanc has been a huge money-spinner for wineries, based on the variety's rare ability, when cultivated in Marlborough, to produce distinctive, aromatic, flavour-packed wines, even at very high cropping levels. Between 2016 and 2018, Marlborough vineyards had an average yield of 12.8 tonnes a hectare – far ahead of Gisborne (10.5t/ha), Hawke's Bay (8.1t/ha) and Otago (4.9t/ha).
Expat Kiwi Ken Mudford is director of inventory at Sherry-Lehmann, one of New York's top wine stores. "Most importers here are reluctant to bring in anything except sauvignon blanc," says Mudford. "It's a shame, but the US is a huge country and apart from on the two coasts, there is little knowledge of New Zealand or our wine." A producer of New Zealand pinot noir lucky enough to get their wine listed by Sherry-Lehmann will sell, on average, about six cases a year.
Phil Handford, managing director of Grasshopper Rock, an acclaimed producer of pinot noir in Alexandra, Central Otago, is candid about its recent challenges. "In the year  of our smallest harvest since 2007, we were also dealing with a substantial drop in sales through restaurant and retail channels. With Covid-19, borders closed and restaurants struggling globally, we made the decision to sell much of our fruit."
Other pinot noir producers worry about the possibility of "a glut of wine dumped on the industry, which would trash the Central Otago brand more broadly." Two years ago, Glacier Bay Central Otago Pinot Noir was advertised in Auckland by Liquor Centre at $11.99. "I don't know how anyone can sell pinot noir at that price," a top winegrower told me. "Someone is losing money, as it's just not possible."
The few and the many
Is the wine industry splitting into two camps with irreconcilable interests? Ninety-three per cent of New Zealand wine is made by 7 per cent of the producers. Are the objectives of these huge, export-focused, often overseas-owned companies compatible with those of the majority of producers – small, family-owned and heavily reliant on the domestic market?
Between the large and tiny producers are 75 wineries, each producing between 100,000 and one million litres of wine annually, selling two-thirds of their output overseas. A further 100-plus wineries have an annual output of 20,000 to 100,000 litres, selling half of it on the domestic market.
But more than half of this country's wineries (380) are tiny, selling an average of just over 4000 litres, or fewer than 500 cases, a year. More than 75 per cent of this wine is sold within New Zealand, showing how crucial the local market is to most producers. To make a profit in this category, you need minimal staff and direct marketing to consumers at high margins via online sales, at the cellar door or in a vineyard restaurant. While the big producers' exports of sauvignon blanc are soaring, the core market is shrinking for these small wineries.
New Zealand Winegrowers does its best to represent these tiny – often disparaged as "weekend" – producers, as well as the local operations of the global giants. Representing wine producers and more than 600 specialist grape growers, it is funded principally by levies on the sale of grapes and wine. The present chair of its board is Clive Jones of Marlborough's Nautilus Estate, which is controlled by Australia's oldest family-owned winery, Yalumba.
Consolidation moves are under way. Booster Wine Group, part of a larger investment group within the Tahi portfolio, was established in 2019 by merging "family-owned and run wineries", while keeping them in New Zealand ownership. Today, the group includes Sileni, Awatere River, Waimea, Mahana (renamed Gravity) and Bannock Brae.
Major changes are also under way at Villa Maria, the country's largest fully family-owned wine company, where, last year, some senior production and marketing staff were made redundant. Last November, the company announced it was selling 31ha of vineyards and bare land adjacent to its headquarters near Auckland Airport (the winery, head office and hospitality function areas will stay), and planned to raise additional capital "to accelerate its global growth strategy and ambitions".
Most recently, the Australian Financial Review reported that Villa Maria has hired UBS, a global investment bank, to approach investment funds and other large wine producers about buying a strategic stake in the company or even taking full control. A Villa Maria spokesperson described the report as "purely speculation".
Some argue that New Zealand is already making too much wine. As Matt Rutherford, managing director of Spencer Hill winery in Nelson, said in 2018: "The sheer volume of wine available … has driven many producers to constantly lower their prices. We see casualties, both locally and nationally, and my bet is that we will see many more." Daniel Schwarzenbach, of Nelson's Blackenbrook Vineyard, commented after the 2020 harvest: "The biggest challenge for the whole industry is going to be selling the beautiful wines we are making this year."
"Beer is made by man, wine by God," believed Martin Luther. Looking at the challenges facing today's wine producers, some must be praying for divine intervention.
Multiple award-winning wine writer Michael Cooper is the author of 45 books, and his annual wine-buyer's guide is now in its 29th edition. He has been a weekly columnist for the Listener since 2007.