Times still hard for mid-sized wineries

A winemaker is backing an annual state-of-the industry report which says medium-sized wineries are increasingly struggling to survive, with six years of losses on average.

Deloitte's sixth annual benchmarking survey says the industry is showing early signs of a largely export-led recovery, despite the high exchange rate in key markets.

Big and small wineries showed healthy improvements in profitability as the industry swings back from oversupply. But medium-sized players – those earning $1 million-$5m a year – posted negative returns for the sixth year in a row.

Shawn Brown, who owns Martinborough's Muirlea Rise, said he had been able to continue with his boutique winery largely because of his low debt ratio, but he knew "a chunk of people in pretty dire straits".

Like others, Brown said he had absorbed the last three increases in government wine excise, the increase in GST, and the knock-on effects of the recession on the restaurant trade.

Martinborough growers had the added challenge of being a premium wine region, which made it one of the first to hurt when people cut back on luxury goods.

"Oddly enough, people actually drink more in a recession, but are just a bit more judicious about their spend."

Deloitte partner Paul Munro said the trouble with medium-sized wineries was that they were in "no man's land".

"They're not big enough to achieve economies of scale, they're not big enough to achieve traction in export markets because they can't produce enough volume, but they're also too big to be niche or boutique."

The fall in land values was another reason why there might be more winery consolidations in the coming year, but Munro said banks were still reluctant to put wineries into receivership. "This year is the one year in the last four or five where we are now genuinely seeing signs the industry has turned the corner."

The report said that wineries earning between $1m and $5m a year had posted a 5.6 per cent loss on average in 2011.

Those earning between $1m and $10m made marginal increases, and very big wineries – those with annual revenue of $20m-plus – averaged a profit increase of 15.3 per cent.

But the best performers were boutique wineries like Muirlea Rise. They earned less than $1m but profits were up 17.4 per cent. Fairfax NZ

The Marlborough Express