New Zealand Wine Industry Beset by Surging Demand, Production Shortages and Supply Chain Woes

An image of a vineyard worker at Loveblock Farm, Awatere Valley, Marlborough, New Zealand
Vineyard worker at Loveblock Farm Winery in Awatere Valley, Marlborough, New Zealand / Photo by: Lisa Duncan

Exacerbated by a grape shortage, the New Zealand wine industry, already reeling with effects of the pandemic, faces yet another looming challenge. A supply shortage is on the horizon as vineyards struggle to keep pace with steadily rising demand.

According to 2021 vintage reports from New Zealand Winegrowers, the national organization for New Zealand’s grape and wine industry, the country produced 7–8 million fewer cases of Marlborough Sauvignon Blanc than in the year prior. Philip Gregan, CEO of New Zealand Winegrowers, says there were 370,000 tonnes (approximately 407,855 U.S. tons) of grapes harvested during the 2021 vintage, down 19% from last year’s crop.

“Although the harvest was smaller than hoped for, the quality of the 2021 vintage is being described as exceptional, and the wines will be something special for consumers,” says Gregan.

Managing the ways that supply constraints impact the market will be a key focus for many in the New Zealand wine industry as the pandemic evolves. Gregan believes that the smaller harvest means many New Zealand wineries will face tough distribution decisions.

New Zealand wine supply chain
Protesters near cargo ships anchored in the Hauraki Gulf in December 2020 / Photo courtesy Invivio Wines

“The impact of the smaller vintage is already being felt, with export value down for the first time in 26 years,” he says. “For many wineries, with stocks already low from strong demand, this means a challenging year ahead to meet the demands of trade customers, retailers and consumers.”

The shortage can be partially attributed to challenging vintage weather conditions.

“We had two successive cool and wet spring periods, which meant that the plants produced less flowers and therefore less potential fruit,” says Tim Lightbourne, cofounder of Auckland-based wine company Invivo. “A further poor flowering period in November and December 2020 helped create the perfect storm of poor weather at exactly the right time. Subsequently, the region was 25–30% down on average.”

Furthermore, in 2020, there was unprecedented international demand for Marlborough Sauvignon Blanc. The trend has continued into 2021.

“Our existing export customers are requesting significantly higher volumes of our wine than we’ve ever experienced before.” — Tim Lightbourne, Invivo

Additionally, the pandemic has greatly impacted the supply chain.

“Wineries now report that orders are being lost because of supply chain issues, and unfortunately this is an unprecedented situation, with no near-term solution,” says Gregan.

Transport costs have more than doubled from pre-pandemic figures, he says, while shipping reliability has plummeted.

Global Supply Chain Issues Plague the Wine Industry

Erica Crawford, founder of New Zealand-based Loveblock Wines, says that the supply chain is a massive problem for New Zealand exporters of everything at the moment. Shipping vessels frequently bypass New Zealand due to its smaller overall scale and remoteness from other transit hubs.

Container space is at a premium, she says, and costs have escalated.

“This situation is compounded by the big players, with big shipping clout, uploading stock to increase or maintain in-market stock,” says Crawford. “It has messed with my theory of the longer 2020 tail and smoother continuation of on-trade, indie brands. OOSs [out of stocks] are rife, and we are no different but for the supply chain issues.”

An image of owners Erica and Kim Crawford in the Loveblock winery
An image of owners Erica and Kim Crawford sampling wine in the Loveblock winery. / Photo by: Lisa Duncan

With the current growth rate of New Zealand wine in the U.S., while available supply may be down, it may not necessarily be in line with the crop shortage (-21% in Marlborough), as Crawford contends some companies will prioritize the more lucrative U.S. market over others or local availability. She estimates that U.S. supply will be down around 15–18% and that the 2022 vintage will be released very early.  

Could all this translate to higher retail costs?

Lightbourne says that Invivo has no intention to raise prices. “We are currently securing further vineyard supply and leases in Marlborough and around New Zealand to ensure that we can keep growing and meeting our customers’ demands at a consistent pricing,” he says.

Crawford believes that pricing will be yet another storm for the industry to tackle. Most companies have not increased their prices for years to remain competitive in overseas markets.

“In short, producers cannot keep absorbing the increasing costs, compounded by the short vintage. Most producers I have spoken to have done or plan on imposing a price increase. How much the market will tolerate is yet to be seen.”— Erica Crawford, Loveblock Wines

Loveblock is reevaluating its distribution, clearing out of lower-priced markets and outlets while targeting higher-end, smaller channels.

According to Statistics New Zealand, New Zealand wine exports to the U.S. reached an all-time high in the 12-month period that ended June 2020. Shipments increased 8.3% to 9.2 million nine-liter cases. The U.S. had remained the second-largest market for New Zealand wines behind the United Kingdom until Australia marched ahead of the U.S. in volume this year.

“Whether you are spending $7.99 or $24.99, New Zealand delivers a great product with near pitch-perfect Sauvignon Blanc aromatics,” says Ian Cauble, MS, president of San Francisco-based online retailer SommSelect. “New Zealand Sauvignon Blanc always has a high-toned and very pleasing profile that leans more in the tropical fruit direction but still has those citrusy and grassy accents with tons of freshness consumers have come to trust and lean on in the Sauvignon Blanc market.”

An image of te Pa Winery Sauvignon Blanc grapes
An image of Sauvignon Blanc grapes at te Pa Winery. / Photo courtesy of New Zealand Winegrowers Inc.

Miguel Marquez of Vino Veritas in Portland, Oregon, says that, due to supply and demand, it’s quite reasonable to expect anywhere between a 10% to 25% increase on price tags of New Zealand wine in the U.S. x

This presents an opportunity for wine buyers, sommeliers and retail shops to look at other regions, he says.

“Personally, I found this quite exciting since this is a perfect situation to finally look into places like our neighbor Mexico, which is highly dismissed in our market,” says Marquez. “With places with Michelin stars bringing Mexican wines to their lists to big names like Gerard Zanzónico and Gustavo Gonzales amongst others creating projects in places like Baja California, it is just a matter of time since we finally accept Mexico in our market.”

Your Quick Guide to New Zealand Sauvignon Blanc

Marquez feels that wine from Mexico, Slovenia, Croatia, Georgia, China and even saké are in a perfect position and have the capacity to help keep wine prices down while creating a more inclusive and diverse market.

“It sounds like New Zealand has a problem, but it sounds like the U.S. market has the tools and allies to help their consumers alleviate the inflation of prices expected due to a shortage of crops in just one country,” he says. “We are a global market; let’s not forget that.”

Cauble also believes that the shortage could lead U.S. consumers to explore alternate grape varieties or Sauvignon Blanc from other areas that offer comparable quality.

“Both Chile and South Africa can make very good Sauvignon Blanc under $15, which can emulate many of the qualities consumers love about New Zealand SB,” says Cauble. “I anticipate these countries will fill the gap in supply.” 

Published on November 2, 2021
Topics: Latest News