Monday, March 12, 2018

The rise and rise of New Zealand wine

Wine from New Zealand has very much become flavor of the month in many parts of the world. According to the recent book by Warren Moran (New Zealand Wine: The Land, The Vines, The People. 2017), the New Zealand wine industry only really got going 50 years ago, and as recently as 1990 Müller-Thurgau was it’s principal grape variety. However, the NZ vineyard area has been growing rapidly for the past 20 years (see the first graph), since it started to focus on Sauvignon blanc, instead. And yet, even the Wine Advocate did not have its first comprehensive report on New Zealand until 2008.

Wine exports have continued to increase along with production, particularly at the premium end of the market. I thought that a good way to explore this might be by comparing recent exports trends with those of their nearest geographical and socio-political rivals, Australia.

The wine export data come from Wine by Numbers (Il Corriere Vinicolo n. 23, July 2017), which covers the years from 2005 to 2016, inclusive, plus the recent Wine Export Report for 2017. This next graph illustrates the annual trends for both countries, using Australian dollars for the wine export value.

Annual wine exports from Australia and New Zealand

As I noted in a previous post (Getting the question right), Australia has had its ups and downs in the export world this century. Australian wine was itself the flavor of the month back in the 1990s, when good wine was available from Australia more cheaply than from many other countries. Times have changed since then; but a comeback of sorts appears to be in progress, starting from 2014.

By comparison, the rise and rise of New Zealand wine exports has been inexorable. They haven't caught Australia's value yet, nor do they look like they will do so any time soon; but this may depend on exactly what the exports markets consist of. Apparently, the New Zealand wine industry has a target of NZ$2 billion of exports by 2020 (New Zealand Winegrowers Annual Report 2017).

Annual wine exports from Australia

So, let's take a look at Australia, first, for comparison, before we turn to New Zealand in more detail. The third graph shows Australian wine exports (to 2016) by general world region.

As you can see, the North America (mainly the USA) and Europe (mainly the UK) patterns run in parallel. The peak export period coincides with the initial rise of the Yellow Tail brand. The decline, on the other hand, at least partly reflects the decline of what was then Australia's largest wine company, Southcorp. This decline occurred because they were involved mainly in the budget end of the wine spectrum, where volume sales are essential, margins are tight, and sustainable returns are not likely. This conglomerate was bought (in 2005) by a different conglomerate, the Fosters Group (Australia's biggest beer company), which later (2011) split it's wine-making arm off as what is now Treasury Wine Estates (currently Australia's largest wine producer by total revenue).

The sharp rise in the pattern for exports to Asia after 2014 reflects the fact that the Australian wine industry is now specifically targeting the premium wine market in China (the world’s fastest-growing major wine market). Notably, in 2012 China became the biggest destination for Australian bottled exports sold at AU$7.50 per liter and above; and currently China accounts for more than half of Australia’s exports of wine at AU$10 or more per liter. China has become a premium market.

Annual wine exports from New Zealand

Turning now to New Zealand, the same three geographical regions all show a different pattern from that of the Australian exports. Exports to the Asia/Oceania region principally reflect sales to Australia (not China, yet). These exports have been dominated by Sauvignon blanc, of course, which apparently now accounts for 75% of all NZ wine exports; and since 2008 this has actually been the biggest selling white wine in Australia. This market seems to have been saturated since 2012, with no further increase in sales.

Exports to the European region are principally to the UK, as they are for Australia. The graph shows that this market may also be becoming saturated for NZ wine, with a recent plateau in sales. This means that the North America market is now the biggest one for New Zealand exports, mainly to the USA; and it is this market that has shown an inexorable rise since 2011.

This suggests that we should look at the data in a bit more detail, by country rather than region. The data below also come from Wine by Numbers, this time the annual edition for 2016, which covers the year 2015 only.

By volume, almost exactly two-thirds of New Zealand's 210 million liters of wine exports for 2015 were bottled wine, as opposed to the remaining exported in bulk. The three biggest destinations for bottled wine were the USA (28%), the UK (24%) and Australia (24%), while those for bulk wine were the UK (36%), the USA (30%) and Australia (24%). So, most of the NZ wine (81%) went to just three countries (from where it may have been re-exported, of course), with the USA now their global biggest market.

However, more revealing is the premiumization of new Zealand wine. We can see this by looking at the dollar value per liter of the bottled wines being exported to various of the top countries, as shown in the table.

Hong Kong
United Arab Emirates
NZ$ / liter

This indicates that the Asian market takes principally premium bottled wines, whereas the North American and European markets also take some of the cheaper stuff. Indeed, none of the bulk wine actually goes directly to Asia, while France takes slightly more expensive bulk wine than does anywhere else. Premiumization is an important topic in the world of wine marketing, and the New Zealanders seem to have learned the lesson — sometimes, less is more, financially.

Unfortunately, the combined bulk and bottled export figures do seem to show that the New Zealanders are dumping their cheap wine principally in Australia, a country that already has enough cheap wine of its own. The only export countries where the price per liter of NZ bottled wines was cheaper than Australia were: the Netherlands, Ireland and Germany; and combined these countries imported only 28% of the volume sent to Australia. Similarly, the only bulk-export country where the price per liter was cheaper than Australia was Canada; and it imported only 3% of the volume sent to Australia.

The Australia — New Zealand rivalry clearly continues!

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