Wine glut good news for drinkers

Rampant price discounting in the wine industry means 2009 will be party time for wine drinkers while winemakers will be left with the hangover.

Massive grape harvests on both sides of the Tasman last year, the prospect of equally big harvests this year, and a softening of international demand due to the weakening world economy mean winemakers are having to slash prices to clear stock.

Simon Templeton, the wine buyer for liquor chain The Mill Liquorsave, said the deals the company was being offered were "the sharpest in history".

He estimated the average price the chain was paying for wine was down by about a third on a year ago.

A typical Marlborough sauvignon blanc which would have been a good special last year at $9.99 was selling for $6.99 this year through the company's internet wine store vineonline.

"Those prices would have been unbelievable this time last year," he said.

Competition between suppliers also meant retailers were not having to buy huge quantities to get sharp prices, which was helping them keep inventory levels low, he said.

And it's not just the value end of the market where prices are keen. The bargains can be just as good for top-quality wine.

Fine Wine Delivery Co. managing director Jeff Poole said champagne prices leading up to Christmas were the lowest he had ever seen, as both importers and retailers slashed margins to make sure they weren't left with surplus stock after the holidays.

"It's a consumer's world at the moment, they are getting a lot more bang for their buck," he said.

Consumers were "trading down" and looking to pay less, so the winemakers dropping prices were getting the sales. And because there were so many "specials" around, drinkers were generally able to maintain the quality of wine they bought even though they were paying less.

Poole said that before Christmas he bought 1000 cases of a top end Wolf Blass wine which had been made to retail at $50 a bottle. When the wine's Asian distributor went broke, Poole was able to buy the entire stock, 1000 cases, at such a low price he could sell it for $19.95 and still make a good margin. He had already sold out.

Poole said the wine glut was also improving the quality of house brands and cleanskin wines, as suppliers looked for ways to reduce stock that didn't affect the value of their own brands.

He believed prices could only face further downward pressure this year because the 2009 vintage was shaping up to be as big as last year's, thanks to plenty of rain in both Australia and New Zealand.

In Australia the oversupply of wine is so large that many grapes were left to rot on the vines last year and growers are continuing to rip out vines in some regions.

However it's a trend that is giving winemakers a few headaches.

This country's wine industry has been one of the most enthusiastic business sectors, buoyed by rising demand and ever increasing export sales.

"Booming is the only word you can apply to it," NZ Winegrowers chief executive Philip Gregan confidently told a gathering of wine industry analysts last October.

The industry had just reported record exports for the month of September of $101.7m and was on track for its target of $1 billion in annual exports by 2010.

But last week he was being much more cautious in his outlook.

"There is a huge amount of uncertainty as to what's going to happen over the next few months," Gregan said.

"Our sales have held up well to date, the orders are coming through, but I've been talking to a lot of wineries in the last few days and nobody knows what the next three, six or 12 months is going to bring. There's certainly a lot of downward pressure on prices internationally."

In the year to June 2008, sales of New Zealand wine reached $1.25b, with $800m of that from exports.

Villa Maria chief executive George Fistonich said the prospects for exports this year varied by country.

Demand had slumped most dramatically in the US, where consumers tended to react more swiftly to changes in their economy and also tended to support locally made products during difficult times.

"The US is definitely slowing down pretty dramatically," he said.

Although Australia had what Fistonich called "a massive surplus," exports to that country were continuing to grow as Australians got a taste for NZ varieties such as sauvignon blanc and pinot noir which were not made in large quantities there.

"But I think long term we'd have to be wary that they are having some pretty major problems themselves and things could slow down there," he said.

Sales to the UK were also still in growth mode but margins there had always been tight, Fistonich said.

"There is a lot of price pressure, both internationally and locally.

"We had a large harvest last year and combined with the recession, there's going to be a lot of pressure on margins."

Sunday Star Times