28 February 2005 Wine Technology – Opinion editorial by Charley Lamb

Sales of New Zealand wine in New Zealand have declined significantly. The industry needs to remember it has local consumers too, writes Charley Lamb.

New Zealand’s wine industry has carved out a big reputation in recent years, winning international recognition for quality and attracting many new producers into the business.

In little more than a decade the number of New Zealand wineries has increased from 175 to 463. Production has increased steady at first, with a dramatic rise in production in 2004. Demand for proven grape producing land is strong and the total area under planting continues to increase.

International marketing efforts have become sophisticated, with local co-operatives formed to make their own mark in markets that appreciate a consistently high quality at a price which is good value for money for European and North American consumers.

The industry’s future certainly looks bright at least when we consider the data on production and export sales. But the figures on hectares under planting and the value of international sales is only showing half the picture. If we look at the latest data for consumption and wine imports, we see an industry facing some huge issues and some observers believe there may be a rude awakening ahead.

Our latest research on wine and beer consumption is a case of there’s good news and bad news. The good news is a sustained decline in New Zealand's per capita beer consumption down by 25 percent over the past decade. Sales of spirits and ready-to-drink spirit mixes have increased, significantly in the case of the RTDs, but wine has been the major winner overall. Per capita consumption has increased from 16 litres to 20 litres per year. Kiwis are drinking wine more frequently and in greater volume at each wine-drinking occasion.

We are leaving behind our reputation as a nation of beer drinkers. More than 70 per cent of the adult population consider themselves wine drinkers, and the good news for the wine makers is that women are making most of the purchasing decisions. The research shows that women are more brand-loyal, and men tend to drink the wines that their partner prefers.

New Zealand wine consumers have also become more educated about the characteristics of each varietal, partly through the efforts of the local industry but also through the influence of the imported products and wine sales in supermarkets.

But then comes the not-so-good news. Sales of New Zealand wine in New Zealand have declined significantly in five years. The main purchasers of wine are also increasingly price conscious and value conscious, and while they are known to be brand-loyal, that doesn’t necessarily mean they will stick to New Zealand labels. The New Zealand industry has lost a significant slice of market share to wines imported from Chile, South Africa, Spain and Australia in particular.

It would seem the industry is highly confident, and perhaps over-confident, about the strategic value of its regional strengths. We’ve been effectively educated to appreciate the merits of a chardonnay from Gisborne, sauvignon blanc from Marlborough and pinot noir from Central Otago. But the research is showing that it makes no real impact on purchasing decisions within the New Zealand market. Nor are consumers particularly interested in the vineyard of origin – the carefully cultivated brand which each label tries to represent. Consumers are far more interested in consistency and value for money, and the Australian industry is happy to oblige. We are becoming a nation that prefers an Aussie Red and will buy the big-name Australian whites often because they’re good value.

The research makes sobering reading for the New Zealand industry, and raises major questions about marketing strategy. In particular, an industry focused on international success needs to ask how much of the domestic market it is prepared to give away. The New Zealand wine makers are loathe to discount their product, fearing it will erode their positioning at the premium end of the market, but how long can this continue when it costs so much in domestic market share?

One wonders whether the industry has fallen victim to its own publicity machine. The focus on quality is without doubt the key to our wine-making reputation, but its value as a long term strategy is questionable. If the industry neglects the needs of the New Zealand consumer it may become overly dependent on the export market. If the trend to imported wine continues, smaller producers might be forced to aggregate to achieve economies of scale. In an international marketplace that is already oversupplied, it would be folly to suggest that nearly 500 New Zealand producers will all make a name for themselves.

New Zealand consumers are clearly demanding a middle-range product for their everyday consumption. This does not mean a return to the bad-old-days of muller-thurgau in a cardboard box but a consistent example of the familiar varietals at a competitive price.

We also need to remember that New Zealand’s wine industry is but a small fraction of the world market. The 120 million litres produced in New Zealand in 2004 is less than one-fifth of the wine produced by a single company in California. Large producers like E and J Gallo are now diversifying into the premium end of the market, under new labels. These premium products will go head-to-head with our best wines in the international market, and the scale of US production will undoubtedly have an impact on our export success.

The big-volume manufacturers in other countries have understood well the different price points within the industry, and have differentiated effectively. The New Zealand industry would do well to consider this wisdom.

Charley Lamb, Senior Lecturer in Marketing, Lincoln University, Canterbury, New Zealand