Drinkers raise glasses to glut

November 20, 2010
It's a great time to be a wine drinker, as prices tumble to unparalleled lows. Geoff Collett looks behind the bargains.
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In the newly released edition of his annual Buyer's Guide to New Zealand Wines Michael Cooper opens his commentary on the country's wine glut thus: "Good New Zealand wine has never been cheaper."
But if you're a wine shopper, serious or casual, you already knew that.
As the country has heard ad nauseam over the past couple of years, the wine industry these are dark days for the wine industry, as chronic over-supply fed by bumper harvests has crashed head-on into collapsing demand in the aftermath of the 2008 economic crisis.
But at the consumer end of things, it could be seen as a golden age - certainly if cheap deals are your thing.
Rampant discounting and the dumping of "distressed" stock from wineries in trouble has fuelled a sustained run of outrageously good prices on decent labels - not to mention absurdly cheap offers of lesser- known names and, especially, phantom labels created by winemakers trying to clear out otherwise unsellable stock without tarnishing their wider brand.
From the industry perspective, "nobody likes it", Philip Gregan, the chief executive of Winegrowers New Zealand, says of the downward price spiral; from the wine consumer's angle, "the punters are absolutely delighted".
The current wave of cheap New Zealand wine is unparalleled. The last time there was anything like it was in the mid-1980s, but that was relatively short-lived and, as Mr Cooper points out, ended in part by government intervention.
This time is different: the price- slashing is widespread and enduring. It has been the dominant feature of the wine retailscape for two years now, and while there are early signs that some key players are crying enough, most estimates are that there are a couple more years of it to go before surplus stocks can be cleared and - the industry is praying - the supply-demand equilibrium restored.
As with any sore point concerning retail prices, some blame the supermarket chains for screwing prices down and insisting all-comers go along with the discounting.
But as Mr Gregan puts it, it wasn't Foodstuffs and Progressive Enterprises who planted the vineyards and produced an enormous vintage in 2008, flooding the market at the worst possible time. This is a whirlwind the industry has both sown and reaped.
And as Mr Cooper points out, New Zealand winemaking had an unprecedented run of prosperity - almost 25 years - up until 2008, "which I suppose has encouraged some people to somewhat nonchalantly enter the industry having no knowledge of the risk . . . an assumption that the world would beat a path to their door the moment they plonked their average-quality wine on the market".
Consumers became accustomed to paying $19.95 for a common-or- garden variety Marlborough sauvignon blanc. But not any more; 2007's $20 wine is today's $14.95-or-less offering. And the sub-$10 world - long a domain of disdain for any discerning wine drinker - has started to throw up unlikely nuggets.
The second sentence in Mr Cooper's wine-glut essay in his annual Buyer's Guide to New Zealand Wines recounts how "a 2009 sauvignon blanc from Nelson was stacked in one of my local supermarkets [on Auckland's North Shore] this year at $6.99, after an export order went off the rails".
His recommended best buys from 2010 include the Villa Maria Private Bin range which was being specialled as low as $8.99 - "an absolute steal" (although Villa Maria is one winery, he adds, which has started easing its prices back up as it backs away from the death spiral).
In Nelson this week to promote his new book, Mr Cooper suggests the biggest wineries are the ones to look to for the best deals. With their scale, skills and expertise, they know all there is to about making well-priced good wine.
"When you get an environment like this which is fiercely competitive, then the value that they offer is simply wonderful."
The chairman of the Nelson winegrowers' group, Mike Brown, suggests a rule of thumb that "any time you see a wine under $10, the winery itself isn't making any money".
Much of what has been seen under $10 "is distressed stock in some way", and he thinks it will be less common as wineries rid themselves of that stock and quietly drop the labels it was sold under, or else go out of business altogether.
He says Nelson wine has not been discounted to the extent seen in Marlborough - widely considered the Ground Zero of the current crisis, because of the size of the industry there and the great glut of Marlborough sauvignon blanc.
Nelson winemakers enjoy a close- knit, collegial approach to their industry, Mr Brown says, and "everyone realises the longer-term sustainability depends on keeping quality and prices up".
Some have studiously avoided going anywhere near the discounting track. At the top end of the Nelson market, for instance, Neudorf Vineyards co-owner Judy Finn says the winery has been able to call on its hard-won brand integrity (plus its marketing lines and its conviction that its pricing reflects the genuine cost of producing wine to the standards it aims for) to assure its customers that its prices don't need to follow the race down. Minimal exposure to the supermarket trade helps, she adds.
But you need go no further than the wine section at the FreshChoice Nelson supermarket on Collingwood St - one of the biggest retailers of Nelson wine - to realise that many of the region's wine brands have felt no choice but to join the fray.
They haven't exactly embraced it, says the store's owner, Mark A'Court. But they have accepted his reality, that the store - a smaller, independently owned player - has to be able to offer wine at the sort of prices seen in the big Countdowns and New Worlds across town.
The quid pro quo he has offered, he says, has been "transparency" in his negotiations with the wineries, so everybody knows they are getting a fair slice of the margin; and prime position in the store's wine sales area (which fits in with its philosophy of promoting local produce). It works, he adds. Nelson wines account for 12 of the supermarket's top-20 sellers.
He knows the winery suppliers are wearing the pain and says he doesn't want to see prices remain in their current trough - not, he argues, because higher prices mean higher profits, but because "if they [prices] are unsustainable, then they [the wineries] are gone".
If he has to look further afield to meet the thirst for heavily discounted bargains, he has no problem. He is routinely being approached by wineries from Hawke's Bay, Marlborough, Canterbury and Central Otago, offering him wine at prices he says must be below cost. Much comes clad in those phantom labels, which offer consumers no hint as to who has made it or how - a phenomenon which bothers Michael Cooper for one, who argues it deprives shoppers of basic consumer information and any meaningful way of judging what they might be in for.
This week, for sake of example, FreshChoice has something called Shag Rock Chardonnay selling for $8.99, apparently sourced from the previously unrecognised wine producing region of Tahunanui, at least according to the back label; and a Waipara (North Canterbury) pinot noir called the Miner's Daughter for $12.99, which offers no more clues to its origin than a holding company name. It's a decent enough wine, Mr A'Court argues. He is careful not to accept anything just because it can sell cheaply.
But Mr Cooper remains sceptical about these sorts of labels. How do you know you're getting a good buy if you can't be sure what you're buying?
He is wary, too, that some of the discounting is similarly will o'the wisp. Wine marketers have long indulged shoppers' enthusiasm for a discount by introducing new labels at artificially high prices, then quickly offering hefty discounts down to what was always the true price, Mr Cooper says.
"I see this all the time - new wines coming on the market and they [the winery] will say it's $23 and . . . within a month it's in the supermarkets at $14.95, and they're claiming it's $23 reduced to $14.95, save eight bucks. That's pure fiction. It was always made to be sold at $14.95 and it probably tastes like a $14.95 wine.
"But they know that the wine marketing academics have discovered that the No 1 influence on our wine buying behaviour is discount."
The worry currently exercising many in the industry, though, is how to ease themselves - and more importantly, consumers - out of that thirst for a bargain.
Mike Brown says that while wineries might be able to retreat from the below-cost pricing which has been seen in the sub-$10 market, the battle he sees will be convincing shoppers that wines now selling for $12 or $13 should move back up to the $17 or $18 they used to attract.
Mr Cooper suggests the days of "$19.95 being the standard price for a bottle of smaller company sauvignon blanc . . . are probably over".
"There's a growing feeling that the price is heading to $14.95 for day- to-day drinking sauvignon blanc."
Perhaps the immediate hope for the industry's future is that shoppers realise that some things are too good to last; that they know that today's dream deals really are too good to be true (or at least sustainable) for the industry as a whole. But for now, as Winegrowers Nelson's Mr Brown admits: "It's a great time to be a consumer. It's never been better to be a consumer than right now."