Winepress - September 2024

United front

Beth Forrest, Chair of Marlborough Winegrowers, addresses concerns about supply and sales and offers some guidance

THERE ARE many concerns circulating in the industry both locally and globally around supply chains and volumes in market. Marlborough has been facing some significant challenges and now, more than ever, we need our collegial and communicative approach to ensure Marlborough is the world’s greatest wine region. It is imperative that you communicate regularly and clearly with your growers, wineries and managers to ensure you understand each other’s current position and the business outlook for the coming years.

We hold an enviable position where our wines are still in demand globally and our value growth rates remain well ahead of the global still-wine category amid the following challenges:

1. Warehouse Supply Chain

The global COVID-19 pandemic saw huge disruptions to shipping lines and passages throughout the world. Most winery supply chains had moved to the just-in-time model where there was 4-6 weeks of stock in a warehouse on the other side of the world, wine on the water enroute to the warehouse, and orders being prepared in NZ to be next on the boat. Shipping delays, disruptions and port scheduling meant that many sellers faced out-of-stock issues with our wines. These clients then increased orders, extended their warehousing stock to 4+ months and filled the supply chain pipeline to ensure they had wine to put on the shelf.

Post COVID, we see the return to more regular and sustained performance in shipping routes and port scheduling and there is no longer a need to hold such significant stock levels. The past 6+ months have seen most sellers destocking their warehouses and selling down stock holdings to return to the just-in-time model. This will in time return more regulated cashflows to wine companies but in the 6–12 month period it has meant hugely reduced orders and cashflow restraints here in NZ.

The fallout of a slowing sales pattern also means an accumulation of product in tanks at Marlborough wineries and warehouses around New Zealand. In effect, the supply chain is full and while things are not going out the ability to keep holding wine and continuing to take in grapes is under pressure.

2. Consumption Patterns

Across the globe we are seeing a change in consumer behaviour towards alcohol. Overarching is confirmation that consumption of alcohol (any and all beverages) has dropped about 4% around the world. In NZ we have seen a decline in consumption by 4.3% in the past year, with wine 2.4% of that decline. In the UK there is an even greater 7% reduction in volume consumed across all categories compared to the previous year.

This trend over the past 12 months is a continuation of a decline that we have been tracking for the past few years. While we know that our younger drinkers are consuming less but spending more on a quality product, and there are some positive results in greater value growth, we are experiencing significant decline in volume across all global markets as well as on our home turf.

3. Global Financial Pressure

We are all aware of feeling the pinch in NZ as the cost of living for the average household increased 6.2 percent in the 12 months to the March 2024 quarter. Which followed a 7 percent increase in the 12 months to the December 2023 quarter. This is echoed in the UK in the three-year period between May 2021 and May 2024, where UK consumer prices increased by 20.8%. And even the buoyant USA, recovering slowly in 2024, had seen an 8.7% cost of living adjustment in 2023. All these restrictions on discretionary spending have affected wine sales and highlighted that New Zealand Sauvignon Blanc is doing well to show volume and value growth in most markets. Continuing to deliver a highquality product must be front of mind for every producer and grower to maintain this coveted spot as a reliable, consistent, premium consumer choice.

4. Capacity Issues in Marlborough

According to New Zealand Winegrowers domestic and international sales data, there is at least 50 million litres of stock from Vintage 2023 that remains unsold being held in tanks and warehouses throughout the country. We also know that Vintage 2024 has not yet made it to the mainstream market and this is still largely in tank for most producers in Marlborough. With only six months until we begin the intake of Vintage 2025, there may be some capacity issues in Marlborough wineries.

NZW forecast sales of 320 million litres of New Zealand wine per annum through to June 2025. This should see the 2023 stocks move out to market along with approximately half of the 2024 volumes currently in winery. However, this could leave some wineries with limited capacity leading into our next harvest (February 2025) as wineries need to be relatively empty before each vintage to hold an average harvest size. While there remain some options to bring in temporary storage to hold some of this volume, or bottle extra volume, temporary storage is already in use at wineries and further investment may not be feasible.

We have seen highly variable crop levels in the past five years, with two bumper harvests sandwiched between the very small 2021 and reduced 2024 vintages. However, we have an abundance of planting still happening throughout the region and with large rejuvenation programmes under way at many older sites there is further volume growth on the way, particularly for Sauvignon Blanc. Several smaller harvests globally will help to rebalance the stocks throughout the world, and it is important that both wineries and growers remain aware of the available space at wineries, market capacity and attention to quality in the vineyards.

Our small, agile, Number-8-wire attitude allows us to make decisions that will build a long-term future for this industry if we all work together. It cannot be a separate grower and winery world but rather a united front of winegrowers, working together, who present the very best of NZ. Here are some take-home messages:

Know your industry – Communication

• Talk with your contractors, your growers, your grower liaison or your winery directly about concerns, uncertainties or ideas that might drive a better outcome for all parties. Know your contracts and how you can work together to make sure they are fit for purpose for a long-term beneficial relationship for all parties. If there is anything you don’t understand, ask.

• Talk to your winery or your grape growers and understand each other’s intentions for the upcoming 12+ months. Know you’re working together on a long-term goal to protect your

own future and that of brand Marlborough and take some of the emotion out of the uncertainty.

• Look further ahead at a four-year cost and income analysis – this includes two large vintages, two small ones and different operational costs (ie. Increases in labour, chemical and fertiliser costs, redevelopment costs, wet conditions etc) to help work out your true break-even position.

• Get involved in how it all works once again. Take the time to understand your system, the inputs/outputs and the costs with your viticultural, financial and business advisers. You can’t go past the old adage – “know your numbers”.

Know your end game – Quality vs Quantity

• Volume capability at wineries: as a grower, what is the capacity of your winery partner and how can you work with them to deliver the right volume at a superior quality that keeps the long-term quality banner of Marlborough wine beyond the reach of other global producers to match.

• Quality products delivered to market only: growers, wine companies, exporters and distributors maintaining premium quality Marlborough wine as top of mind. Delivering always the very best of Marlborough to our loyal consumer.