New Zealand wine: Red, White and Rosy

New Zealand looks incapable of putting a foot wrong when it comes to its wines. And, with 2015 being hailed a near-perfect vintage, it is in a solid position to raise its already high prices globally as well as sell all its stocks. Jamie Goode reports

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THE NEW ZEALAND WINE INDUSTRY IS SMALL BUT ALMOST PERFECTLY FORMED. With 35,000ha of vines, it is just over one-third the size of that of South Africa, and around a quarter the size of that of Australia. But New Zealand has built a reputation for consistency and it doesn’t really do cheap wines. Its average price per litre for bottled wine of NZ$8.32 and for bulk white of NZ$4 are the envy of many wine-producing countries (all statistics New Zealand Winegrowers).

This is a young industry, though. Its largest region, Marlborough, was first planted in the 1970s, and its most famous red wine region, Central Otago, only began making wine in the 1980s. The statistics over the past decade show a story of steady growth in plantings, production and export sales.

But now that Marlborough is almost full up with vines, this sort of growth is unlikely to continue. As production plateaus (moving only with the vagaries of vintage conditions), there will be a period of fine-tuning of varietal mix, and the focus will have to be on adding value by shifting production more into a super-premium segment, making more wines that command higher prices. As for export markets, these will jiggle around as New Zealand courts those willing to pay more for their limited production of wine.

Just as Marlborough is the dominant wine region in New Zealand by far, with 23,000ha out of the overall total of 35,000, it’s hard to look past Sauvignon Blanc for commercial significance. This is not a one-variety producing country, but it is close to it, and this has helped create a powerful marketing message.

Although Sauvignon occupies just over half the planted vineyard area (with 20,000ha), it makes up 70% of the harvest in tonnage and accounts for 85% of exports. It is vitally important to New Zealand and has in large part been the driving force behind the success of New Zealand wine.

So it is Marlborough, and its Sauvignon Blanc, that is driving sales. “Marlborough wines are continuing to grow in popularity across the world,” says Patrick Materman, chief wine- maker at Brancott Estate. “We are see- ing strong performances in developed markets such as the UK and Australia, as well as in markets such as the US and Canada, in which we expect to deliver much of our future growth – not to mention at home in New Zealand.”

Materman is upbeat about the way Marlborough is diversifying as a region. “Even more exciting is the growing awareness of the diversity of Marlborough wines and the increasing desire among wine drinkers to try new styles from the region,” he says. “This includes new expressions of Marlborough Sauvignon Blanc – sub- regional and single vineyard, oak- aged, wild-fermented and age-worthy wines – as well as new varieties such as our favourite, Sauvignon Gris.”

After Sauvignon Blanc, the next most important variety is Pinot Noir, representing 8.5% of the country’s production in volume. Pinot Noir is interesting because the wines sell for good prices and a strong regional story is emerging. The different characteristics of Pinot Noirs from Central Otago, North Canterbury/Waipara, Martinborough/ Wairarapa and Marlborough are helping to achieve higher prestige for the wines, and thus higher prices.

Here, the move to regionality, and then to sub-regionality, seems to be working. As the vineyards have gained in age, an extra dimension has been added to New Zealand Pinot. The potential clouds in the sky, however, are the fact that Pinot is expensive to produce (because of low yields and the need for oak cooperage), thus impacting profitability, and leaf roll virus and phylloxera are threats to some of the older plantings.

EXPORT MARKETS

A look at the latest export figures is interesting. For the first time the US has overtaken Australia as the largest market for New Zealand Wine. There are three large export markets of roughly equal size: the US, Australia and the UK. The US and UK are showing dou- ble-digit growth, while Australia is con- tracting slightly. Then, some distance behind, is Canada, which is roughly double the size of the next market, The Netherlands, but both are growing strongly. China is in sixth place and growing. Overall exports are worth NZ$1.42bn, up 7% on last year.

“NZ wines continue to experience strong sales growth in key export markets,” says Philip Gregan, CEO of New Zealand Winegrowers.

“Particularly pleasing is the performance in North America and the strong result from the UK. Growth into the US now means that market has become our largest export market by value, edging past Australia for the first time.”

Asia is seen as a key target for future (more profitable) growth. “New Zealand wine sales to China increased in both volume and value in the 12 months to December 2014,” says Natalie Potts, New Zealand Winegrowers’ market- ing manager for Asia. “Exports grew by 11% in volume and 34% in value to NZ$27m. This makes China the largest market in the Asia region, where total sales increased to NZ$93m.”

Potts adds: “China’s imports of New Zealand wine focus on reds, which make up approximately 60% of the total volume. Pinot Noir leads, closely followed by Cabernet blends and Merlot. Despite the dominance of red wines, the largest single grape variety by volume exported to China is Sauvignon Blanc, alone making up more than a quarter of exports.”

In contrast, Hong Kong seems to be a more mature and typical market for New Zealand wine, with whites making up 80% of exports. “Of these, Sauvignon Blanc is the clear leader, while Pinot Gris and Chardonnay are increasing their share,” says Potts. “Red wines are also growing their share, with increased imports of Syrah and Merlot.”

2015: A PROMISING VINTAGE

The weather gods have been relatively kind to New Zealand in recent years. 2012 was a short vintage, 2013 a good quality one with reasonable volumes, and 2014 the big vintage needed to keep the growing markets supplied, although the grapes picked last in Marlborough were rain affected. The big news is that everyone is very excited about 2015, which had healthy yields and excellent quality.

“We are looking forward to the release of the 2015 vintage Sauvignon Blancs later this year,” says Brancott’s Materman. “2014 was notable for its high yields and a significant weather event at the end of vintage, which compromised what was otherwise very good quality fruit. 2015, on the other hand, was exceptional. A perfect growing season from start to finish has given us, in my opinion, some of the best wines ever delivered by Marlborough.”

Nick Picone, group chief winemaker at Villa Maria, agrees: “Vintage 2015 will be remembered as exceptional, in no small part due to a great summer and modest crop levels.

“Wine quality has proven to be very good across all varieties and our winemakers are very pleased with the wines they have in tank for blending. Sauvignon Blanc blending is now complete and the line-up of wines is one of the strongest ever for varietal characteristics and intensity.”

FUTURE CHALLENGES

Now that New Zealand’s wine regions are finishing their expansion phase, the big challenge for the major companies is going to be staying profitable. Increased demand is going to have the knock-on effect of raising grape prices and, although key export markets are in a healthy shape, the UK in particular is price sensitive and sales will take a hit if prices suddenly rise. “The key variable going forward is rising grape prices,” says Richard Thomas, CEO of Villa Maria Group.

“These are driven by continued demand for high-quality New Zealand wine and overall land shortages. Villa Maria’s quality positioning enables us to command an overall premium price in the wine market, which enables us to manage grape price increases in line with our premium positioning.

“But the ongoing upward pressure of grape prices is likely to drive overall industry price appreciation in the near and long term.”

He adds: “That said, there is a side benefit of this price appreciation in the pressure it creates on lower-cost/low- quality production, which otherwise risks devaluing the New Zealand wine positioning globally.”

So, in a perfect world New Zealand will be able to raise prices and still sell all the wine it has, if it is able to innovate successfully and give consumers a compelling reason to trade up from inexpensive private-label Sauvignon.

As Materman has already said, one of the forms of innovation that can lead to higher prices is the development of new styles of Sauvignon, vinified in oak with a view to developing over time in bottle, rather than relying on the short-lived aromatic hit that has made Marlborough Sauvignon so popular.

Leading examples of this type include Cloudy Bay’s Te Koku, Dog Point’s Section 94 and Brancott’s

Chosen Rows. For the industry as a whole, a shift away from private-label wines towards a higher proportion of branded product can help.

And there’s also the ongoing research project funded by the industry to look at naturally lighter, lower-alcohol wines. This is something Villa Maria has had success with.

“At Villa Maria we continue to lead the way in exploring new styles for consumers,” says Thomas, “with good growth in our lower-alcohol (9.5%) range, Villa Maria Lighter, providing consumers who are looking for something a little lighter with a great tasting wine.”

In February 2016, New Zealand Winegrowers will be hosting the first Sauvignon Blanc celebration, a conference that will attract key media and trade from around the globe to focus on this variety.

New Zealand has already hosted Pinot Noir conferences (the last two in 2010 and 2013, the next in 2017), but this is the first time it is showcasing its most important variety. It’s a wise move, because future growth for New Zealand is likely to revolve around raising the image and profile of Sauvignon Blanc.