Opportunities are opening up for New Zealand to grow wine exports to the USA – particularly Sauvignon Blanc and to a lesser extent Pinot Noir, says American industry consultant Jon Fredrikson.
A keynote speaker at EIT Hawkes Bay’s New Zealand Wine Business Symposium, Mr Fredrikson told a capacity audience of industry leaders, marketers and researchers that this country’s producers are in an enviable position compared to many of the world’s wine regions.
New Zealand wines had performed remarkably well in the USA over the past two years – a time of dramatically changed business conditions and reduced consumer spending on premium Californian and imported wines.
Despite that, our Sauvignon Blanc and Pinot Noir were sought after by the trade and consumers and primed for long-term growth. Markets for New Zealand wines would improve even more when the US economy returned to normal.
A former Fulbright scholar who has an MBA from Columbia University, Mr Fredrikson is president of Gomberg, Fredrikson & Associates, the oldest professional consulting firm dealing exclusively in wine industry matters. In 2007, he advised Stag’s Leap Wine Cellars on its sale to Michelle-Antinori, LLC and, over the years, he has been one of the most quoted sources in stories about the US wine business.
Addressing some 130 delegates at the EIT-organised symposium, Mr Fredrikson explained that the price positioning of New Zealand wine benefitted the entire supply chain.
It would be more advantageous to the New Zealand industry in the long term to maintain its image and price positioning even in the face of growing production rather than expanding sales more rapidly but at lower prices.
New Zealand wines were gaining market traction in the US, with expanding distribution and growing sales. Brands were being marketed with growing intensity by some of the largest wine companies in the USA.
“As these companies have observed the remarkable success of Kiwi wines, especially in relation to their other portfolio categories, they have encouraged the trade to build sales.”
With more American consumers exposed to our wines as they continued to gain distribution in US food stores and other mass-market outlets, there would be opportunities for smaller artisan brands to attract trade and consumer attention.
Sauvignon Blanc made up only four percent of the total US market, and that offered plenty of scope for sales growth. Competition from Chile and South Africa was growing, but generally at lower price points.
New Zealand Sauvignon Blanc’s distinctive character set it apart from others. It was perceived to be more interesting and appealing than many Chardonnays and other white wines.
Bottled Imports Up
While the economic downturn had hit the American market hard, bottled imports increased by 10 percent in the first quarter of this year compared to the same period in 2009.
In contrast, bulk imports had fallen 30 percent, and net total imports declined by two percent through March.
Bottled table wines from New Zealand and Argentina posted the largest volume gains among all exporting nations.
“New Zealand bottled wines surged by 236,000 cases, up 57 percent, to 650,000 cases through March. This was remarkable because the average value of New Zealand table wines imported was over $66 per case, second only to France ($77 per case) among all major exporters to the US.
“Kiwi table wine sales volume soared 35 percent in food stores through March even with an average unit price of a relatively high $12.17 per bottle. In food stores, Oyster Bay New Zealand wines jumped 66 percent, while Constellation’s Kim Crawford brand climbed 39 percent and Gallo’s Starborough wines expanded 63 percent.”
Bulk wine imports dropped by 2.1 million equivalent cases, or 30 percent, to just over five million cases.
“The decline in (imported) bulk wines probably came about because of the sizable 2009 California harvest, which substantially boosted California bulk wine availability. Exchange rates also were a factor, as the Aussie dollar was much cheaper in the first quarter of last year than it was in the first quarter of 2010.”
New Zealand wines had made tremendous inroads into the US market over the last decade, growing 12-fold from 213,000 cases in 1999 to over 2.5 million cases (including bulk wines) in 2009.
“Remarkably, much of the volume growth was achieved at relatively high prices compared with many other countries’ wine offerings.
“Beginning in the late spring of 2009, Kiwi wine growth began to accelerate, especially in US food stores. There is evidence that New Zealand wines are becoming increasingly popular with consumers and the wine trade.
“Over the last six AC Nielsen Group reporting periods (since December 2009), New Zealand wine volume growth rates had averaged over 30 percent and in fact were up a remarkable 28 percent in the 52 weeks ending May 1, 2010.”
New Zealand Wine Sales Gaining Pace
New Zealand wine sales in food stores were far outpacing the growth for most other imported wines, which increased by just 1.8 percent over the past year.
Gaining distribution would continue to drive the trend towards trialling New Zealand wines, increasing sales and even greater consumer and trade interest.
Our wines commanded some of the highest average prices among all imported wines in US food stores.
“Kiwi Sauvignon Blancs, with an average consumer price nationally of $11.90, are substantially higher in price than Sauvignon Blancs from all other countries. Similarly, New Zealand Pinot Noir ($15.54) and Chardonnay ($12.12) are also the highest average consumer prices among all countries in food stores.”
High prices did limit sales to a certain segment of the market, but they were still in an approachable range and in growing price categories.
“Many chain store buyers like to have wines positioned at higher price points because this increases their margins and consumers who purchase higher priced wines often ring up higher food sales at the register.”
The total value of sales of New Zealand wines in food stores in the year to March was $53 million.
Much of the recent growth in New Zealand wines in US food stores was driven by seven wine marketers. In the year to March, the share of the NZ market was:Constellation – 48 percentE & J Gallo and Oyster Bay – 12 percent eachPernod Ricard and The Wine Group – six percent eachFosters Wine Estates and Sainte Michelle – three percent eachAll others – 10 percent
Three of Constellation’s brands – Nobilo, Kim Crawford and Monkey Bay – were among the largest New Zealand brands sold in the USA.
Given a greater priority focus by large powerful marketers, New Zealand wines were gaining distribution and attention in many major markets.
According to the global marketing research firm AC Nielsen, market growth rates were relatively strong in ten leading markets.
“On the East Coast, New Zealand wine sales in Boston liquor stores grew 31 percent to nearly 66,000 cases over the 52 weeks ending May 1. On the West Coast, food store markets in Los Angeles (+35 percent) and Seattle (+32 percent) posted strong gains.
Mr Fredrikson said New Zealand Sauvignon Blanc had enormous potential for expansion in the US market over the next five years.
The US wine market was likely to grow between 2-4 percent annually over the next five years as consumption rates gradually increased – especially for occasional wine consumers.
“The healthful benefits and pleasure of moderate wine consumption are now well-known in the US.”
Fewer than a third of American adults consumed wine, and consumption was still low at about 9.5 litres per capita. The number of adult consumers would increase as the children of Baby Boomers, the “Echo Boomers”, reached adulthood. As this generation came of age, they were adopting wine at an earlier stage and would propel the market just as their parents did.
“We believe the wine market will continue to expand, following the trend of nearly the past two decades.”
Opportunities for Sauvignon Blanc
Sauvignon Blanc consumption remained relatively small in the US, with consumption estimated at about 11 million cases in 2009 – just four percent of total table wine consumption of 282 million cases.
“California is by far the largest marketer of Sauvignon Blanc, with a share of probably two-thirds of the total market. However, much of California’s Sauvignon is relatively inexpensive and approximately two-thirds of the total sells for less than $US9 per bottle.
“We estimate that the market for premium Sauvignon Blanc, priced at $9 and up per bottle at retail, totalled about 4.9 million cases in 2009.”
Kiwi wines made up about 35 percent of the premium Sauvignon Blanc market in the United States. Californian Sauvignon Blanc comprised more than half this market and these wines were mostly produced in California’s coastal regions.
“We believe that this premium market segment has strong growth potential over the next five years and that much of the future expansion will be fuelled by New Zealand Sauvignon Blanc brands.
“This is because there has been relatively little Sauvignon Blanc acreage planted in California in recent years, and that situation is not likely to change in the immediate future due to the economic downturn.
“Thus, New Zealand Sauvignon Blancs appear likely to supply a major portion of this market segment’s future volume expansion. Moreover, the unique Kiwi Sauvignon Blanc style is gaining popularity among the trade and consumers, and this in itself will likely fuel future gains.”
New Zealand Sauvignon Blancs had a sizable share of wines priced from $US9-13, according to the Nielsen Company.
New Zealand Sauvignon Blancs are priced at premium levels, generating premium margins through the entire supply chain.Based on the leading Sauvignon Blanc brands sold in America, about 85 percent of New Zealand wines have front-line retail prices above $12 per bottle at retail ($72 per nine litre case). In contrast, only 33 percent of Chilean wine front-line prices are above $12, while 64 percent of American wine prices are above $12.Openings for Other Wines
Other opportunities for New Zealand wine growth in the US included Pinot Noir. Sales of the varietal had grown rapidly over the past decade, but really took off after the movie Sideways sparked consumer interest.
Pinot Noir sales growth slowed last year, presumably because frugal American consumers purchased other lower-priced red varietals such as Cabernet Sauvignon. Many Californian and imported Pinot Noirs were relatively high priced compared with other red wines.
“We estimate that Pinot Noir shipments to the US market (excluding French Burgundies) totalled approximately 10 million cases in 2009. California Pinot Noirs represented about 70 percent of that amount.”
Strong consumer demand had prompted growers and wineries to plan significant new acreage of Pinot Noir. Over the past five years, the area of Pinot Noir vineyard jumped 46 percent to nearly 40,000 acres.
“About 15 percent of this acreage was non-bearing in 2009, and thus will produce significant additional Pinot Noir wines in future years. In addition, there has been significant Pinot Noir acreage planted in other New World areas such as Chile and Australia, as well as in the state of Oregon.”
With additional production coming into the market, it appeared that the Pinot Noir market would remain competitive.
“There will be opportunities to expand Kiwi Pinot Noir sales in the US, but they will likely be on a much smaller scale than the potential market for premium Sauvignon Blanc.
“World-class Pinot Noirs from Central Otago and other regions can compete with the great Pinot Noirs of the world but this is a limited luxury market. Relatively high quality, uniquely styles New Zealand Pinot Noirs priced at $20 and below at retail will definitely have future growth in the US.
“Today, a higher proportion of New Zealand Pinot Noir FOBs (40 percent) are priced below $20 than American Pinot Noirs (30 percent).”
Other varietals with good market growth prospects, albeit on a smaller scale included unoaked Chardonnay, Pinot Gris and possibly Riesling.
Unoaked Chardonnay had been gaining popularity over the past five years and many producers from California and other world regions had introduce line extensions of these wines. These had been well-received, and it appeared that there was good growth potential for this segment.
“Chardonnay shipments from California wineries alone totalled over 51 million cases in 2009. If unoaked Chardonnays were to expand to five to 10 percent of this total, it would represent a very large market.”
Mr Fredrikson said he agreed with Stuart Smith of New Zealand Winegrowers’ statement in his 2009 chairman’s report that “a single-minded focus on maintaining the premium positioning of the New Zealand wine brand must drive every decision taken by our growers and wineries” and that “consumers must be offered an outstanding wine experience and the supply-demand equation must be managed effectively”.
These were the keys to continued and profitable growth for New Zealand winegrowers in the US market, he concluded.
Year-to-May figures reported by New Zealand Winegrowers show sales indicating 90 percent of the 2009 Sauvignon Blanc volume has been sold.
Commenting on that result, former New Zealand Grape Growers president Kevyn Moore – who managed the New Zealand Wine Business Symposium for EIT Hawke’s Bay – says that if this country’s exports to the USA continue to grow, New Zealand’s wine lake will reduce to a puddle.
WINE BUSINESS SYMPOSIUM A FIXTURE ON INDUSTRY CALENDAR
American marketing consultant Jon Fredrikson’s latest research findings were well-received by wine industry delegates attending the New Zealand Wine Symposium held at EIT Hawke’s Bay.
Head of School for Viticulture & Wine, Diane Marshall says the inaugural symposium held two years ago set a high bar for the two-day event. Organiser Kevyn Moore had risen to that challenge by organising an outstanding team of industry presenters, many of them from overseas.
In partnering up with Hawke’s Bay Winegrowers for the first symposium, EIT had identified a need for more information specifically focused on wine business.
The fledgling event was such a success that New Zealand Winegrowers had decided to hold its own New Zealand Wine Exporters’ Forum every second year, alternating that with the New Zealand Wine Business Symposium at EIT.
The symposium was a good fit for the Eastern Institute of Technology, Mrs Marshall said.
EIT had provided a range of winemaking, wine marketing and viticulture programmes, from certificate through to degrees and graduate diploma level, since 1988.
There was also a natural synergy in working with EIT’s School of Business to establish the institute as New Zealand’s centre of wine business education by promoting and transferring research findings and successful industry practice through the symposium.
Held on campus on 29-30 June, the event attracted 130 delegates – a capacity turn-out. Those attending represented all New Zealand’s wine regions, from Central Otago to Northland, and also travelled from as far away as Australia to take part.