According to an interview with Philip Gregan (CEO of New Zealand Winegrowers) the US will become the number one market for New Zealand wine within two years. Is this prediction likely to come about, and what of their traditional markets of Australia and the UK?
Looked at in terms of export volumes, in 2012-13 Australia, the UK and the US were the three largest makets and were each importing 40 – 50 million litres of wine (the vast majority of it Sauvignon Blanc). The UK had been the largest market by volume for New Zealand wine since 1990, a position it has just given up to Australia. The recent sharp drop in exports of New Zealand wine to the UK is entirely due to a reduction of bulk wine exports from 27 million litres to the UK in 2011-12, down to 17 million litres in 2012-13. Over the corresponding period, bulk wine exports from New Zealand to Australia dropped by 4 million litres while bulk wine exports to the US increased by 1 million litres. The overall decline in bulk wine exports was a consequence of the smaller 2012 vintage (194 million litres produced, compared with 235 million litres the previous year). With 2013 providing the largest harvest ever, and a production of 248 million litres, some producers are likely to again turn to bulk exports rather than increase inventories. UK supermarkets’ own brand Kiwi Sauvignon may well still have life left in it and the UK could return to being the largest importer country by volume in 2013-14.
When looked at from the viewpoint of revenues, the export story is a little different. The UK and US each accounted for ca. NZ$280 million of revenue in 2012-13, while Australia’s market was worth NZ$373 million. The Australian market is showing clear signs of saturation (if not backlash) for Kiwi Sauvignon and looks set to plateau around the NZ$400 million mark. The UK market also looks to be reaching saturation and may well plateau around NZ$300-350 million. By contrast, exports of high-value packaged wine to the US have doubled by volume in only seven years and show no signs of slowing. The total revenue from the US looks set to easily break through the NZ$400 million mark, taking the no. 1 spot in the process, but without an increased promotional programme it might require three to four years rather than two.
Yet for all the upbeat talk of volumes and revenues, it shouldn’t be forgotten that New Zealand wine producers have had their fair share of backruptcies and liquidations in recent years. Export values (expressed as NZ$/litre) to the three largest markets have declined significantly, even ignoring the effects of inflation, over the past five years. While this is only one factor affecting winery profitability, it remains an important one. Until this downward trend can be reversed, further consolidation within the New Zealand wine industry seems highly likely.