Vinters come of age

By Dita De Boni

Wine: Elixir of life, liquid gold for the tastebuds and source of the most piquant hangovers.

New Zealand wine: Storming up the international charts, catching the eye of both foreign investors and tipplers and making more people more money than ever before.

With a record 79,700 tones of grapes harvested by a record 334 winemakers in the year to June, the wine industry has come of age.

Millions of dollars are pouring into high-volume operations in a bid to cash in on the success of our fruit-driven Sauvignon Blanc, buttery Chardonnay, and an ever increasing quotient of Bordeaux-blend reds.

Exports, netting the industry $125 million last year (while only 30 per cent of total sales) and expected to rise to $275 million by 2003, are driving huge cash injections into vineyards and the resultant scramble for good grape-growing land.

Last year supply could not compete with demand despite growing 26 per cent on 1997.

But there is concern among some in the wine-growing community that such a rapid rate of expansion threatens to undermine Brand New Zealand - a carefully crafted marketing tool which has seen Kiwi wine on foreign shelves capture the middle-to-high end of discerning drinkers in such prized markets as Britain, US and Australia.

The concern that "cowboys" will damage New Zealand's premium positioning have found a voice in the Wine Institute of New Zealand's frequent and forceful lobbying to the export-minded in Government.

A similar situation unfolding in the domestic market where New Zealand brands are being undercut by cheap "coif" wine from countries such as Australia and Chile provide a telling lesson.

Supply is short in the domestic market and to fill the void huge amounts of private money are being pledged to large and small vineyards in a bid to get a piece of the action.

More salient to those in the trade are unsubstantiated rumours about Australian public firms trying to get a toehold in the New Zealand scene - speculation on the plans of wine giant Southcorp being the most persistent of these - and even possible wide-scale investment from Japan.

Apart from large transactions such as the purchase of a 23.6 per cent holding in Nobilo Wines by Australia's BRL Hardy, most of the money flowing into the medium-sized sites comes from high net wealth individuals.

Examples include $12 million spent on viticultural land in Hawkes Bay by three foreign-owned firms last year, - a figure dwarfed by Brisbane-based businessman Terry Peabody's $20 million investment in the Craggy Range Winery, and at the smaller end of the foreign investment spectrum, $200,000 pledged by the Montagnat Family of New Caledonia to help build boutique winery Gibbston Valley Wines.

But will large-scale investment help build capacity for producing more top quality for premium export markets, or simply create a lot of wine which can be sold cheaply overseas and consign Kiwi wine to the bargain bin indefinitely?

The four biggest players by volume in New Zealand wine - Montana, Corbans, Villa Maria and Nobilo - are leading the charge in developing export markets that they believe are both sustainable and highly reputable.

They also believe their own product ratios - currently averaging 35 per cent in exports to 65 per cent domestic - will be inverted within the next five years.

To further build the New Zealand wine category as a preferred choice overseas with consistent supplies of high-quality, fairly priced wine is the consistently stated aim of large winemakers with potentially more to loose from large-scale investments in quality.

They believe New Zealand should subsidise the industry as per South Africa and Australia.

Noel Scanlan, head of Corbans Wine based in West Auckland, says that the company has spent $32 million in the last three months expanding both wineries and vineyard holdings compared with up to $3 million in a regular year and says the rapid expansion will continue for a few years yet.

Mr Scanlan says our relatively minuscule part on the world wine stage - 0.2 per cent is the most recent figure - could be boosted to 3 per cent eventually if the market is expanded and institutional investors make good on the amount of interest they have shown.

"Certainly there's been a huge increase in value. What is happening is the industry is growing up from an export point of view whereas in the past there may have been opportunity sales made to some markets in bulk, people are now concentrating on selling wine to the premium end of the market."

The company, owned by DB, is a valuable asset for a parent firm dealing with a 30 per cent decline in per capita consumption of beer in the last 10 years while wine consumption has jumped from seven litres to 15 litres a head at latest count.

With a brand realignment and experiencing a 10 per cent annual growth in the US market, Mr Scanlan is sure returns on investment will flow.

"At the moment our wine is really quite hot overseas, and we have to make sure that the industry does not spawn producers who can tarnish that reputation from a world perspective."

Another market causing a stir is Japan, where large and small players alike are seeing a potentially huge revenue source from red-wine consumption.

But again, while the Japanese are showing an interest in wine, they are currently being sold commodity market wine imported cheaply from Italy and Chile and it is "not for [New Zealand] to educate the Japanese about wine," says Montana's managing director Peter Hubscher.

He says the Japanese market cannot be built quickly and entrance to all foreign markets requires an excellence of product to avoid "sowing the seeds of destruction."

"The danger is that people who have a bad planning or financial base are entering it in a speculative sense and could do damage to the long-term viability of the industry, like what happened with kiwifruit."

Montana is New Zealand's largest winemaker, exporting 600,000 cases of wine a year and staging its own investment growth with the building of a multi-million dollar wine tourism facility at its Brancott Winery in Marlborough.

Owned by publicly-listed Corporate Investments (recently renamed Montana Group (NZ) after its most fruitful asset), Montana is the largest exporter of wine at around 40 per cent and has the best selling export brand, - Lindauer methode champenoise.

Mr Hubscher says that although the prospects for growth and returns for shareholders are positive, he believes much of the talk of exciting new markets is "journalistic hype" and simply producing good quality wine at good prices will allow market shares to flourish.

Villa Maria Wineries, privately owned by the Fistonich family, has staved off public ownership of the main business but has launched two publicly-owned vineyards in its quest for expansion which are now returning to shareholders a 10.5 per cent yield on investment.

Managing director George Fistonich says the wine industry is not "hugely profitable in the long term, but a solid industry that attracts people who have an affinity with the land and the product."

Mr Fistonich says the Government should contribute more to growing wine production as it contributes to the marketing of New Zealand as a tourist destination.

Major wineries can afford to be benevolent at present because any premium contribution to the New Zealand shelf in a foreign wineshop helps raise the profile so eagerly sought by winemakers, whether in established markets like Britain or in fairly new markets like the US which Mr Hubscher expects will take 10 years to establish.

But with the entrance of one or several shareholders on the scene, the possibility of foreign bulk-market seduction may prove just too intoxicating for some operators to turn down.