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NZ wine exports continue growth trajectory - Rabobank report

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Fuseworks Media
Fuseworks Media

While Covid-19, geopolitical tensions and rising tariffs are weighing heavily on wine exports in most key exporting regions across the globe, New Zealand wine exports continue to perform strongly, according to a new report by agricultural banking specialist Rabobank.

In its Q4 Wine Quarterly report, Rabobank says global demand for New Zealand wine continues to rise.

"In the eight months to August 2020, we’ve seen really strong growth in New Zealand wine exports with the volume of exports increasing by 10.7 per cent and the value by 9.7 per cent in comparison to the same period last year," RaboResearch wine analyst Hayden Higgins said.

Mr Higgins said New Zealand producers have benefitted from increased home wine consumption, driving strong retail demand in key markets.

"The rise in home wine consumption as a result of Covid-19 is supporting an increase in bulk wine exports, particularly to the UK and Europe," he said.

"This trend towards bulk wine purchases has also benefitted New Zealand in the US - our largest market for wine exports - with sales of Kiwi wines to the US increasing by 20 per cent by value and eight per cent by volume during the first half of the year."

Mr Higgins said sauvignon blanc sales continue to make up the lion’s share of New Zealand’s wine exports.

"To August 2020, sauvignon blanc exports were 261 million litres - up 13 per cent year-on-

year and making up 88 per cent of total exports. Exports of the 2020 sauvignon blanc vintage are also running ahead of the same time in 2019, with shipments of this year’s vintage commencing in May 2020."

Global export trends

Mr Higgins said New Zealand’s wine export growth is particularly notable given the Covid-

19 environment has seen lower volume and value export sales among many of the world’s major wine-exporting countries.

"The pandemic has created massive challenges for the wine industry, mainly due to the difficulties facing the on-premise channel - with a significant reduction in consumption in restaurant and hospitality venues due to the coronavirus pandemic - and, for many wine exporters across the globe, sales momentum established in recent years in key markets such as the US and China has stalled or even reversed," he said.

"Other than New Zealand, Argentina is one of the few major wine-exporting nations that

has increased the volume of wine export sales in 2020. However, their sizeable increase in wine sales volumes - up 48 per cent for the period Jan to July 2020 - has been achieved at a drastically-lower average per litre price, and the value of their export sales over the same period has actually fallen by two per cent."

Building Resilience

In the report, Rabobank also says the global wine industry is now operating in a rapidly-

changing environment and identifies a successful strategy revamp by Chilean wine company Vina Concha y Toro - launched in 2018 - as a potential source of inspiration for other global wine companies looking to make adjustments and build resilience.

"Vina Concha y Toro (VCT) posted outsized growth in its most recent earnings call and, while some external factors have clearly moved in its favour - including the shift to off-

premise consumption and favourable exchange rates - we argue that the growth is mainly driven by its recent efforts to adjust its strategy and see numerous similarities with changes implemented by Constellation Brands 10 years ago that also drove improved results," Mr Higgins said.

The report highlights four key takeaways from VCP’s strategy change which Rabobank believes are worthy of consideration by others in the industry: organisational structures requiring updates, measuring what you want to manage, aligning incentives with goals and learning to let go of aspects of the business which aren’t working.

"The key lesson from VCT’s experience relating to operating structures is that they are built over time and often remain static, even as the market changes. And a fresh set of eyes can often identify changes to make structures more efficient and effective," Mr Higgins said.

"Measuring what you want to manage is a further change that has been crucial in VCT’s recent commercial success. VCT has prioritised the brands that offer the greatest potential to grow profits, and set institutional goals to drive growth for those brands."

In addition, Mr Higgins said VCT had benefitted from recent moves which have seen the business aligning incentives with goals and learning to let go of brands, personnel and customers that were not core to the business.

"Under VCP’s new strategy, compensation has been changed and is now skewed much more to driving sales of priority brands via simple, but specific KPIs," he said.

"An ability to let go has also been important for VCT and, following their initial review, they’ve made decisions which have seen them discontinue more than 25 per cent of the brands within their original portfolio as well as letting go of personnel and customers that do not align with their new strategic direction. This can be the most painful part of implementing change - particularly in relation to personnel - but is often necessary for survival."

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