Issues facing the NZ wine industry: a wine industry insight

New Zealand Winegrowers and Deloitte surveyed NZ wineries as to what their biggest issues and challenges are, and published the results in December 2014.

Here’s what they found:

Issue #1: Exchange rates

The New Zealand dollar has been persistently high for a number of years, making trading conditions very unfavourable for exporters.

The high exchange rates are a sever impediment to profitability – not just in the wine industry but all NZ exporters.

Issue #2: Marketing product overseas

The challenge of marketing product overseas provides an interesting wine industry insight, as it is mostly the smaller wineries that are facing this problem. This is because the larger wineries (with an annual turnover in excess of $20m+) already have established distribution channels.

Additionally, the large wineries have higher gross margins and higher profit levels (see the article on the numbers involved in commercial wine making), so they have more budget available for overseas marketing and advertising.

Issue #3: Excise and other levies

This problem has been in the Top Three list in this survey since 2011. This is in line with the increases in excise tax over past years.

The authors of the survey report that they “would expect this issue to remain near the top of the list until greater profitability returns to the industry”.

Other challenges faced by the NZ wine industry

Further wine industry insights can be gained from looking at the problems that hover near the top of the problem list, but didn’t make it into the top 3.

These factors are:

• Grape supply (too little): this is more of problem for large wineries than small wineries.
• Grape supply (too much): conversely, this is more of problem for small wineries than large wineries.
• Interest rates: this was more of an issue for smaller wineries, who struggle to stay profitable.
• Labour supply/cost: this appeared mid-list for wineries of all sizes.
• Government/compliance costs: this also appeared mid-list for all wineries, indicating that legal requirements in the NZ wine industry are manageable.

Non-issues: yes, there are positives!

More wine industry insights can be gained from looking at the low-ranking issues that respondents were asked about. These are:

• Access to capital: indicating that financing options are suitable for the industry.
• Affordability of land: this was at the bottom of the list for most wineries, apart from the large ($20m+) companies, who ranked this as their Number 4 problem. This is most likely due to the sheer amount of land they’d need to purchase in order to expand their operations.
• Company tax rates: what’s really interesting about this is that the small and medium-sized wineries (many of which struggle with profitability) don’t see this as an issue. Yet the large ($20m+) wineries that are very profitable rank this as their Number 5 problem.

A full copy of the survey and report is available in PDF format at http://www2.deloitte.com/content/dam/Deloitte/nz/Documents/wine/vintage2014-wine-survey.pdf

 

^{Source: ‘Vintage 2014: New Zealand wine industry benchmarking survey’ – a joint publication from Deloitte and New Zealand Winegrowers, December 2014.}