So what am I then? I am a plantsman who has devoted the lion’s share of my horticultural career to developing the craft and the science required to supplying the New Zealand wine industry with world class quality grafted grapevines. Along that journey, we at Riversun have imported over 120 new clones and varieties and in the process have gained some insights into the role those might play in the continued evolution of our remarkable industry.
However, before we can talk about where our Sauvignon Blanc industry might be going and what role any new varieties might play in the future, it is important to attempt to review where we are at and how we got there.
The first vines of Sauvignon Blanc were planted into Marlborough by Montana Wines in 1975. Today, there are over 20,000 hectares planted there, this variety now makes up over 65% of our national vineyard plantings and has rocketed to over 86% of our export volume. From those very humble beginnings just over 40 years ago, New Zealand Sauvignon Blanc plantings now make up 20% of global plantings and, based on latest industry planting statistics, we are poised to overtake France in terms of total planted area of this variety.
This remarkable, and possibly unique, wine-world success story has been made possible by the fact that we have, through a combination of good fortune and incredibly hard work, discovered the holy grail of wine: how to consistently deliver an affordable, high quality wine in a style the world has never seen before, that few seem able to replicate and which consumers around the world have fallen in love with.
But surely the most important metric is - what share of the “global export trade” of this variety do we command? In other words, if we ignore domestic consumption of Sauvignon Blanc in other major producing countries like France, California, Chile and South Africa, what is our market share of internationally traded Sauvignon Blanc?
Based on the business rule of “no measurement, no management”, surely this KPI should be top of our minds, given our huge industry reliance on just one variety? Surprisingly, despite my best efforts (I have interviewed over 30 industry leaders as part of my preparation for this opinion piece) this metric has been nigh on impossible for me to uncover and, while commercial sensitivity could explain some of that, I would have thought that we, as an industry should be investing significant resources into capturing this data on a very regular basis. After all, if we don’t know where we as an industry are at, how can we chart our course into the years ahead with any real confidence?
Let’s now talk about where we are going, based on what we DO know?
Over the last three years (planting years 2013-14-15), we have planted an extra 2,500 hectares in Marlborough and, based on continued very strong consumer demand and indicative nursery industry orders, this pace of growth looks set to continue for several years to come.
And who is planting all of these new vineyards? Predominantly, those wine companies who survived the GFC and the “Savalanche” (2008-11), who have strong balance sheets and economies of scale, strong brands and (or) very robust distribution channels.
Why are they planting more Sauvignon Blanc? It is because of surging consumer demand, particularly out of North America. Between 2010 and 2015, our export volumes to the UK and Australia have increased by 25%, to the US they have increased by 100%, and to all other markets combined they have grown by 50%. Clearly the love affair shows no signs of waning.
However, for those of us lucky enough to be in an enduring, loving relationship, there comes a time when the initial romance “highs” morph into a more stable and sustainable emotional state. So, where are each of these major markets at in this respect, or more clinically, what is our market share with consumers in each of them?
While I have been unable to tap into published data, the best estimates I have come up with are as follows (and I am happy to be corrected if wildly wrong!).
In Australia and the UK, four out of every five bottles of Sauvignon Blanc consumed has been filled with wine that was made in New Zealand- that’s 80% market share- while in the US it appears to sit at 25%.
At 80% in the UK and Australia, any further volume increase will probably have to come from growth in Sauvignon Blanc as a category - that is, rather than knocking other countries out of the way, we will probably have to rely on more consumers switching over to Sauvignon Blanc as a preferred variety. Twenty years ago, Sauvignon Blanc was number 20 on the consumer varietal pop charts in terms of volumes consumed globally- today it is number eight and still climbing, so category growth is likely to still be a driver of demand for us.
If we were to increase our market share in the US from 25% to 50%, that would require us to plant another 5,500 Ha. And if the UK and Australia were to sustain volume growth of 4% per annum, along with 15% per annum growth in remaining markets, before long that would require an additional 3,000 Ha.
Combine these numbers and we would require another 8,000 Ha to be planted to meet this growth in demand. But, remember we have already planted out 2,500 Ha between 2013-15 and the first of these are only now coming on stream.
How much land is still available in Marlborough? Well, it depends on who you talk to and what they consider to be the boundaries of “economically viable” land, taking into account frost risk and lower yields in some of the more fringe areas, but the area is probably not far away from the net 5,500 Ha you get when subtracting 2,500 Ha from 8,000 Ha.
So, all things being equal (quite a big assumption in this day and age), there is a very high probability there is indeed life BEYOND Marlborough Sauvignon Blanc and this leads us to the next question we must try and answer- is there likely to be strong demand for a “New Zealand Sauvignon Blanc”, as opposed to a Marlborough Sauvignon Blanc?
Already, somewhere between 5-10% of current export volumes are being sold in this category and, as long as we can match style, quality and price to consumer demands, there is likely to be good demand going forward, particularly from those newer markets like North America which have yet to be enamoured by the Marlborough brand.
The next question we have to ask ourselves then is; “is there enough suitable land in other regions to supply this potentially significant market?” The consensus view I came up with, based on current plantings in these regions and the resulting economics and wine styles, was that the most suitable regions for producing a New Zealand Sauvignon Blanc are Hawke’s Bay, Nelson and Gisborne and that collectively there was probably enough suitable land for another 10-20,000 hectares.
The big question in all of this must be; “at what stage do we run the risk of over-shooting the demand/supply sweet spot?” We all know what happens to fruit and wine prices, to land and brand values when that happens- may we as a collective industry never forget the impact of the 2008-11 “Savalanche”.
As I have pointed out, Sauvignon Blanc currently accounts for over 86% of our export volumes- hand’s up who is worried about that number?
And fair enough too, given the myriad risks all agri-business industries face on an ongoing basis, be they bio-security incursions, product contamination, climate change, off-shore competition, local over-production, unfavourable currency swings, unexpected trade barriers or simply the ever changing tastes of global consumers.
We do not have to look far to find very real examples of these - think PSA in kiwifruit (2010), the botulism scare in the dairy industry, struggling Pinot Noir production in a rapidly warming Burgundy, our own 60% surge in Sauvignon Blanc production in 2008, the recent milk powder price collapse or something as fickle as one line in the movie Sideways which destroyed the Merlot market in the US for almost a decade!
Given the risks and legitimate concerns about our huge reliance on one “super-star” variety, what are our options?
Firstly, let’s make sure we stay very close to consumer trends and pick up early-on any stylistic shifts. The investment currently going into “lifestyle” low alcohol wine is a good initiative, as are barrel fermented and wild yeast ferments of Sauvignon Blanc. New clones may well help to reduce our exposure to biological risk and climate change.
What growth opportunities are there for other well-known varieties ? A quick review of NZW data shows the other 14% of our exports are mostly made up (in descending order) of Pinot Noir ( 6% of exports, 5,500 planted Ha and growing), Pinot Gris ( 3% , 2,300 Ha and growing), Chardonnay (2% 3,300 ha and static), followed by much smaller volumes of Syrah, Riesling and Gewurztraminer.
We have worked hard over many years to develop an enviable reputation for our Pinot Noir and this is showing in steady growth in export volumes. Pinot Gris looks to have some real growth opportunities and we are also crafting some seriously good Chardonnay’s. But let’s keep these opportunities in perspective- our Pinot Noir plantings are already similar in area to those of Burgundy’s Cote-de’Or!
Furthermore, given the renewed surge in Sauvignon Blanc plantings, even if we managed to double our exports of all other varieties in the next decade, Sauvignon Blanc would still make up over 80% of our export volumes, so our reliance on one variety would not shift significantly.
What then of new to New Zealand varieties? The list of our new varietal imports is long (25+) and, after almost a decade of trial and error by many enthusiastic growers and wine companies, it is fair to say the road is a very challenging and expensive one - for many of them it has proven too much so. There are some real prospects on that list - Albarino is one that is enjoying a second wave of plantings and is meeting strong demand from consumers here and abroad, but at just over 30 hectares planted, it is still very early days!
I hear some of you thinking “why even bother with new varieties?- look at French wine regions like Burgundy or Champagne. You don’t see them fretting about the need to diversify their varietal portfolio - they proudly “own” these categories and are the highest paid farmers in the world because of that”.
Before I try to answer the “why bother” question, let’s review a bit of business theory:
All great and enduring companies (or teams, industries or countries) follow the “Innovation Pyramid” model. If you visualize your innovation budget as being allocated to three horizontal segments in a pyramid, the bottom segment should be spent on protecting your core business, the middle segment should be invested in moving up the value tree with niche products or services which still support your core business, while the top segment of the pyramid is invested in “the crazy stuff”- where there is a clearly defined and carefully managed spend, but absolutely no guarantee of a return.
Another very relevant theory relates to “the Hype Curve”- where a new product or service starts very slowly, then experiences a sustained exponential increase in demand before eventually succumbing to the forces of business gravity and starts to fall back to earth. Surviving the hype curve is the biggest challenge for start-up companies - by way of example, the floor of the digital technology world is knee deep with the remnants of companies which have fallen victim to the hype curve, think Nokia, BlackBerry, Yahoo.
In a global wine world, where the gestation period for many is measured in centuries, our 40-year-old Sauvignon Blanc industry could reasonably be considered a start-up.
So, how do we measure up as an industry against these business theories?
If we consider our Sauvignon Blanc industry as sitting in the bottom segment of the innovation pyramid (but representing the lions share of the innovation budget) we are doing a very good job indeed. Sauvignon Blanc as a variety has benefited enormously from many years of focused viticultural and wine making R&D and market development.
In the middle segment of the pyramid we would have Pinot Noir, Pinot Gris and Chardonnay and it would be fair to say that, while we have invested reasonably well in market development of these varieties (particularly Pinot Noir), I would suggest that there has been relatively little industry based investment into viticultural and winemaking research for these varieties.
As for the top part of the pyramid - the “crazy stuff” department - all the fifty other varieties currently available in New Zealand- we spend virtually nothing!
How then do we compare with other industries?
Let’s take a quick look at the New Zealand Kiwifruit industry. In export dollar terms it is very similar in size to our wine industry, yet it invests twice as much per annum into R&D ($20m vs our $10m), and of that $20m, half goes into new cultivar development!
Why? By the time the New Zealand kiwifruit industry had fallen completely off the back of the Hype Curve in the early 1990’s, fruit prices had fallen by over 70%, orchard land values were below those of bare land and over 35% of the national kiwifruit orchard area had been removed.
In the wine industry we think the GFC and the “savalanche” was tough, but our planted area was virtually unchanged by the time supply and demand came back into balance in 2012. If we had gone through the same sort of catharsis as our kiwifruit cousins, we would have seen over 10,000 hectares removed- that is an area bigger than Gisborne, Hawke’s Bay, Wairarapa and Nelson combined!
How did they eventually recover? They adopted the Innovation Pyramid innovation model. They focused on becoming the most efficient producers in the world of their standard green kiwifruit variety (Hayward), they focused on building a second to none global reputation for quality and consistency of supply AND they developed a whole new range of PVR protected new cultivars.
Today, growers of Gold kiwifruit are the highest paid “farmers” in the world, having knocked the Champagne growers off that long occupied perch several years ago - think net profits of over $100,000/ Ha!
When PSA arrived in 2010, by happy chance they had a relatively tolerant new gold variety in the wings- and it was also twice as productive (and profitable) on a per hectare basis. Go figure!!
Zespri has not sat on its laurels either- it has several new green and gold cultivars under commercial evaluation, a red cultivar is not far behind those and each year it selects over 20,000 new strains to enter the first stage of their cultivar development programme. They have certainly not forgotten the experiences of their past.
So, is there life beyond Marlborough Sauvignon Blanc?
Conclusions:
There is most likely plenty of life in Marlborough Sauvignon Blanc and currently demand is such that land and water are the biggest constraints on production from that region.
All things being equal, there is likely to be good demand for a New Zealand Sauvignon Blanc category based on fruit grown outside the Marlborough region.
With Sauvignon Blanc at 86% of exports and growing, we currently have an awful lot of eggs in one basket and it is absolutely essential that we all “watch that basket!”
BUT: we must also work to ensure that New Zealand Wine Growers and the industry at large invests in all three segments of the Innovation Pyramid - the core, the niche and the crazy!
