Economies of scale

by Michael Cooper / 31 December, 2015
Increasing their focus on high-quality, high-margin wines will help small producers survive.
Photo/Thinkstock
Photo/Thinkstock


Has the stampede to establish new wineries ended? The ranks of industry body NZ Winegrowers have recently shrunk from 700 to under 675, which may reflect the difficulty in earning a decent living from small-scale production.

“There has definitely been a shift in the market, with the big getting bigger and some of the small fading away,” says William Hoare, general manager of Fromm Winery. “If you look at Marlborough, 2500ha of new vines have gone in during the past two years, all to supply larger wineries. In this same period, two or three smaller winery labels have been pushed out of existence.”

The bigger you are, the better, in terms of making a profit, according to the Deloitte Vintage 2014 New Zealand Wine Industry Benchmarking Survey. Small-scale wineries, with sales below $5 million, earned an average profit of just 3.3% (as a percentage of revenue), whereas those with an annual turnover­ exceeding $20 million enjoyed a profit of 17.6%.

More than 75% of New Zealand wine is sold overseas, but export isn’t easy. Stuart Smith, who chaired the NZ Winegrowers board from 2006 to 2012 and is now MP for Kaikoura, which includes Marlborough, says “travel costs for small exporters are often similar to those of much larger exporters”.

For those who don’t have scale, “you must be able to command a significantly higher price than your competitors,” says Smith, “and that is hard to achieve”. After he entered Parliament, he and his family sold their 25ha Fairhall Downs vineyard.

Large, overseas-owned New Zealand wineries have the advantage of established distribution channels in international markets. And by selling their wine in bulk to overseas supermarkets – for marketing under the retailers’ own brands – the big companies can also leverage room on the shelves for their premium, proprietary labels.

A key problem for small producers is that many overseas wine drinkers do not differentiate between cheap “commodity” Marlborough sauvignon blancs and finer quality bottlings. Far more effort must go into reducing oversupply and increasing the focus on high-quality, high-margin wines.

Wine of the week


reserve-marlborough-pinot-noirGunn Estate Reserve Marlborough Pinot Noir 2015 •••½

Hard to beat as a sub-$20 pinot noir, this mouthfilling red is full-flavoured, ripe and plummy, with savoury, spicy notes adding complexity and a seductively smooth finish. $18

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