Bottoms up! What’s going on with NZ’s wine industry?

Saturday, 25 January 2025

Like every industry that relies on the discretionary dollar right now, New Zealand’s wine industry is facing a tough time.

Declining wine consumption, a fall in exports, gluts, low yield harvests and cost increases are creating uncertainty across the sector.

Between July 2023 and January 2024, New Zealand wine exports dropped by 24% volume and 22% value; they arrested that drop in the overall year to June 2024, seeing a drop of just 13%, despite a less fruitful harvest in the middle of it.

All of it means less money sloshing around, with wine exports earning just $2.1 billion, compared with almost $2.4b the year prior.

And as MPI’s latest Situation and Outlook for Primary Industries report revealed, after June, the figures didn’t improve.

Exports were less than expected through the September quarter at 63.7 million litres; 4.2 million litres less than the same time last year, and 24.5 million litres less than two seasons ago.

“Wineries’ cash flow has been negatively impacted due to the reduced sales while growers’ incomes were reduced because of lower yields for the 2024 vintage combined with falling grape prices.”

MPI’s report came hot on the heels of industry body NZ Winegrowers’ annual report for the year to June 2024. It also painted a gloomy picture for industry, with the same falling annual export figures and a decline in domestic wine sales to boot.

Domestically, total sales were down an estimated 8% to 78.9 million litres, the lowest level in the past two decades, and “on a per capita basis, the decline is even steeper with wine consumption down over 20% in less than a decade”.

Both reports cite flat or declining sales, high inventory levels, tough economic conditions, cost increases, falling global demand for wine, and supply chain de-stocking as issues growers and wineries are worried about.

But both also forecast demand for New Zealand wine will trend back up, with export revenue increasing 3% to $2.2b in the year to June 30, 2025, and $2.3b the following year - acts of God permitting.

So what is really going on?

New Zealand Winegrowers chief executive Philip Gregan says it’s been a rollercoaster ride for wine exports over the last 18 months, largely because global wine retailers were undergoing an inventory destocking process.

“During the Covid period, uncertainty caused by supply chain disruptions led retailers to hold higher levels of inventory. Some product was not sold, and it has gone back in market, causing a short-term reduction in demand for New Zealand wine.”

But difficult economic conditions had slowed destocking down.

“Wine is a discretionary product, so when the times get tough, people tend to keep their wallets closed more, and buy it less.

“We are also waiting to see what happens in the United States going forward in terms of tariffs potentially being introduced, which would have an impact because the US is our biggest export market.”

Gregan points out there was a pick-up in export figures at the end of last year, with an increase of 10% in November and December.

And, hearteningly, the latest Nielsen IQ figures from the UK showed New Zealand was the top country of origin for white wine sales in December, with value growth up 7.3% and volume growth up 9.7% compared to the same period last year, he says.

“Sauvignon blanc, our biggest export, remains the driver for this growth, accounting for £1 out of every £2 spent on sauvignon blanc in the UK.

“But we are also seeing increased listings and performance with other white varieties, such as pinot gris, which offers an opportunity for retailers to further premiumise the category.”

This is good news for veteran winemaker Tony Bish who is the man behind Tony Bish Wines, a specialist chardonnay producer in Hawke’s Bay.

“Things are always evolving. People know New Zealand for its sauvignon blancs, and that’s our biggest export overseas, and people love them … but now it’s time to grow the breadth of the industry’s offerings and styles.”

He confirms the industry is facing challenges, but he can not comment on how the broader industry is faring as he only works in the chardonnay market.

“Success often comes down to the extent of your distribution partners and trade networks. Our exports did well in 2024, especially in the UK and Australia, and there has been good growth for us.

“Having said that, it is more challenging than usual for the higher priced wines. That’s because there’s a recession, a cost of living crisis, higher interest rates - and the same is true around the world.

“Everyone you talk to, whether they come from Germany or Denmark or Australia, it’s the same mantra from everyone - that it’s tough out there.”

While people are trying to stay positive, and are hoping for change this year, he suspects it will be another tough year.

It is a “wait and see” situation, and it is hard to pick an outlook for the coming year, especially with rumours of surplus stock, he says.

Indevin Group is one of New Zealand’s largest wine producers, and owns the well-known Villa Maria and Esk Valley brands. Company chief executive Simon Limmer says there are two lenses to look at exports through.

One is the impact of supply chain disruptions and elevated stock levels in the market which have slowed export rates, but it is a moment in time, he says.

“Stock needs to work its way through the chain, and that is happening. Still, it does take awhile to restock, regather share of space, and reposition products in consumer minds.

“You can’t take anything for granted, but the other lens to look through is connection at consumer level, and New Zealand is in a strong position there.”

That is due to the value achieved and the premium position the industry has established for its wines over many years, he says.

“High-quality New Zealand wines perform well compared to other wines, and I’m optimistic they will continue to. But consumer habits are changing, so the industry will need to listen to what they want and adapt to that demand.”

Changing consumer preferences mean demand for wine is decreasing globally, and domestically, according to the MPI and NZ Winegrowers’ reports. And Limmer says sustainability has become a big issue for many consumers.

On the sustainability front, New Zealand is well placed due to its natural environment, cool climate, and production system, he says.

“There are costs with being in New Zealand but it allows you to have a natural advantage, and it drives us to create good, unique wines.

“But we will also need to innovate and finesse new grape varieties, and different products, such as low or no alcohol wines.The key is to find a point of difference, and New Zealand is good at that.”

Currently, the biggest challenge is elevated operating costs across the sector, but inflation has dropped back and, with interest rates moving in the right direction, there should be some respite, he says.

“Long-term, there is still more strengthening in the business environment to come, but there’s an industry responsibility to look for other markets to improve outcomes.

“The government has done a good job in establishing new pathways for trade through FTAs and the like. We need to take advantage of those opportunities, explore new markets, and look at how we invest to build the business.”

Limmer says that will be important for the industry’s future, as is New Zealand wines’ premium market position, strong brands, and unique relationship with consumers.

Over at WineWorks, which bottles and stores wine for all sorts of producers across the country, chief executive Peter Crowe says it’s been a tough 18 months.

The rising cost of doing business in New Zealand is probably the biggest challenge for manufacturers, but changing consumer drinking habits are also impacting alcohol sales globally, he says.

He points out that while wine exports have declined, they are also being compared to the Covid years that saw exports increase.

“Sales during those years increased, but additional stock was also exported to combat the broken supply chains, and this resulted in an oversupply which is slowly being worked through.”

The conditions required WineWorks to scale back its operations to suit the current demand. In July, it was reported that 12 roles in its Hawke’s Bay operation and seven in its Auckland operation had been cut.

Crowe says it appears the bottled wine oversupply has largely been depleted and export volumes are increasing.

“New Zealand wine appears to be doing better in the global markets than many other countries, trading on our great reputation. We are confident we will bounce back to pre-Covid export levels with incremental growth thereafter.”

But conditions and demand are still evolving. In the US, the possibility of trade tariffs could also result in declining volume if those costs are passed through to the consumer, he says.

“We are seeing increased demand for wine presented in different formats, particularly putting premium wine into Bag-in-Box packaging. So we’ve installed a Bag-in-box filler to help meet demand for alternative packaging.”

Philip Gregan says that overall, the fundamentals around New Zealand wine remain positive.

“New Zealand wine has a reputation, built up over a 30 to 40-year period, as a very high quality, sustainable product, and it resonates with consumers.

“It’s a good platform to build on for the future. Things are not perfect and there are short-term challenges, but the outlook is set to improve, and we see significant growth opportunities because consumers love our wine.”