In 2023, the New Zealand wine industry celebrated a historic milestone with its largest year-on-year increase in wine exports.
A surge in demand, particularly for sauvignon blanc, propelled exports to an unprecedented $2.4 billion, a 26 per cent rise.
However, one year later, the mood has shifted as export values and volumes have dropped by 14 per cent.
To understand this reversal, it's essential to delve into the underlying causes.
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Mike Laven, Rural & Agribusiness Special Projects Director at Colliers, says the wine and viticulture market is experiencing a period of change.
“The previous year's record-breaking export figures were largely inflated by uncertainties stemming from Covid-19's impact on global shipping,” Laven says.
“With unreliable and expensive shipping options, importers in key markets like the US and UK placed unusually large orders to ensure a steady supply for consumers. Consequently, shipments soared.
“By mid-2023, it became evident that new orders were slowing. Offshore supply chains had transitioned to a 'just-in-time' model, de-stocking their inventories, which resulted in a significant drop in export sales.”
This slowdown has triggered concern within the New Zealand wine sector. Amid a global decline in wine consumption, many industry insiders feared a potential collapse in key markets, leading to inevitable oversupply issues.
Yet, the situation might not be as dire as it appears. Despite the decline in export volumes, the demand for New Zealand wine in key markets remains robust, suggesting continued growth potential.
Over the past two decades, Marlborough sauvignon blanc has proven to be more than just a passing trend, with no indications of slowing growth.
Recent consumer research from the New Zealand Winegrowers organisation highlights that New Zealand wine is outperforming the overall wine market in its top two export destinations, the US and the UK.
In the US, New Zealand wine sales increased in value by 7.1 per cent year-on-year, versus a 0.5 per cent decline in the total wine market.
Volume growth was also positive, up 3.5 per cent, while the overall category fell by 4.3 per cent.
In the UK, New Zealand wine showed an impressive value growth of 8.8 per cent year-on-year, outpacing the market's 2.7 per cent increase.
Volume growth was strong at 6.5 per cent, in stark contrast to the UK's overall market decline of 2.7 per cent.
Laven says the large 2023 vintage arrived just as market dynamics shifted, with export orders slowing and supply chains de-stocking.
“Cool spring weather has led to significantly lower yields in 2024, dropping between 20 per cent and 40 per cent depending on the vineyard and sub-region.
"Although the small harvest will place pressure on cashflow and profitability, it may help resolve the current oversupply.
“The once bullish market conditions from 2020 to late 2022 have transitioned towards consolidation and re-evaluation.
"Wine companies, previously focused on securing future grape supplies, are now looking to manage inventory, particularly if they still have bulk 2023 sauvignon blanc in storage.”
This cautious approach mirrors the sentiment in the investor market, where higher interest rates and inflation have slowed investments in the vineyard and horticulture sectors.
Despite these challenges, the outlook for New Zealand wine remains optimistic. Companies with a long-term vision are still planning for growth and seeking strategic acquisitions to support their goals.
At this challenging time, some players are choosing to exit the sector and sell premium-quality assets, providing opportunities for savvy purchasers to acquire assets at prices significantly below the peaks of 2021-2022.
In the past month, Colliers has worked with two Martinborough-based wine companies who have made strategic acquisitions.
An overseas owner has recently expanded his vineyard portfolio by acquiring a high yielding sauvignon blanc vineyard of less than 5ha (thereby avoiding the need to apply for OIO approval) and another local wine company has purchased a 19ha vineyard with a fully equipped winery, which will provide capacity for their planned growth strategy.
- Supplied by Colliers
