Exacerbated by a grape shortage, the New Zealand wine industry is facing another challenge on the horizon in addition to the effects of the pandemic. A supply shortage is within sight as vineyards struggle to keep up with rising demand.
According to 2021 vintage reports from New Zealand Winegrowers, the nation produced seven to eight million fewer cases of Marlborough Sauvignon Blanc than in 2020. Philip Gregan, CEO of New Zealand Winegrowers, said there were 370,000 tonnes of grapes harvested during the 2021 vintage, which is 19 percent less than last year's harvest.
However, despite the quantity being smaller, the quality of the 2021 vintage is being heralded as exceptional, said Gregan.
Managing the ways supply constraints impact the market will be a key focus for the wine industry as the pandemic continues. Gregan believed that the smaller harvest meant many wineries would face tight distribution decisions.
The impact is already felt by smaller vintages, with export value down for the first time in nearly 30 years, he said. With many wineries suffering low stock, it will be difficult to meet the demands of trade customers, retailers and consumers, said Gregan.
The shortage can also be partially attributed to the sub-optimal weather conditions.
Tim Lightbourne, the co-founder of Invivo, said the vineyards had produced less flowers and therefore less fruit due to two successive cool and wet spring periods. Another poor flowering season in November and December 2020 created the perfect poor weather conditions. Consequently, the region was 25 to 30 percent down on average, he said.
There was also an unexpected international demand for Marlborough Sauvignon Blanc in 2020, which continued into 2021.
Additionally, the pandemic has significantly impacted the supply chain.
Gregan said wineries had reported orders going missing due to supply chain issues, which is a problem with no quick solution.
Freight costs have more than doubled, he said, while shipping reliability has nosedived.
Erica Crawford, the founder of Loveblock Wines, said that the supply chain is a problem for every New Zealand exporter due to ships bypassing New Zealand because of its smaller scale and remoteness.
Container space is at a premium, she added, and costs have escalated.
The situation is aggravated by large companies with big shipping clout who are taking up space to maintain or increase their market stock.
With the current growth of New Zealand wine in the US, while available supply may be down, it may not be congruent with the crop shortage, as Crawford argues that some companies will prioritise the more lucrative US market over others, including domestic. She estimated that US supply will be down 15 to 18 percent and that the 2022 vintage will be released early.
Could all this cause higher retail costs?
Lightbourne said Invivo has no intentions to raise prices. It is securing more vineyards around New Zealand to ensure it can keep meeting demand at consistent prices.
However, Crawford believed prices would be another obstacle for the industry to tackle, given most companies have not increased their prices for years to remain competitive in international markets.
Regardless, producers cannot keep absorbing these growing costs. The producers Crawford has spoken to have already or are planning to increase their prices. Time will tell how it will be received by the market.
Loveblock is re-evaluating its distribution, shifting out of lower-priced markets to small, high-end channels.
According to Statistics New Zealand, New Zealand wine exports to the US reach a new high in the period ending June 2020. Shipments increased by more than eight percent. The US remained the second-largest market for New Zealand wines until Australia charged in front of the US in volume this year.
According to Ian Cauble, MS, president of San Francisco-based online retailer SommSelect, whether you spend $7.99 or $24.99, New Zealand delivers a great product with perfect aromas and pleasing profiles.
Miguel Marquez of Vino Veritas in Oregon said that due to supply and demand, it's not unreasonable to expect a price increase anywhere between 10 to 25 percent of New Zealand wine in the US.
On the bright side, this is an exciting opportunity for wine buyers, sommeliers and retailers to consider other regions, he said.
While New Zealand has a problem, the US market has the tools to help consumers alleviate price inflation expected due to crop shortages of just one country, said Marquez. It is important to not forget we are a global market.
Cauble also believed that the shortage could lead US consumers to explore other grape varieties, or Sauvignon Blanc from other areas that offer similar quality.