Heavy wine discounting set to fall.

Jul 10, 2012

Drinkers partial to a cut-price bottle of wine might be advised to stock up, as industry players say rampant discounting is set to subside as supply becomes more balanced with demand.

The sector had a tough few years after a wine glut in 2008 that resulted in a 27-million litre oversupply, eroding wine, land and grape prices as the global financial crisis deepened.

But at 269,000 tonnes, this year's national grape harvest was 18 per cent smaller than the record 2011 vintage of 328,000 tonnes.

NZ Winegrowers chief executive Philip Gregan said that after a cool spring and summer the expectation among growers and wineries was that the 2012 grape harvest would be smaller than last year.

The 2012 vintage was a similar size to that of 2010, Gregan said.

But the sales growth of the past two years, combined with this year's smaller crop, would "introduce a new tension to the sector's supply demand balance", he said.

Stuart Smith, NZ Winegrowers chairman, said that after the glut Marlborough growers had been forced to advertise in local newspapers to try to sell their stocks of grapes.

"That's completely flipped around now - the ads we're seeing are wineries looking for growers and they're advertising now for the next [2013] vintage," Smith said. "It's not scientific, but I think that's a very good indication of what's going on out there."

He said one winery had already indicated the price it was willing to pay for grapes from the 2013 vintage, which was 30 per cent up on this year.

"It's a very positive thing for the industry."

Smith said increased grape prices would translate into higher retail pricing for wine.

"I would expect we'll start to see less wines available at the bargain basement prices," he said.

Rob Cameron, winemaker at Auckland-based Invivo Wines, said wineries would have to put their wholesale prices up as a result of more expensive grapes.

There would be less discounting over the next 12 months and retail prices would gradually increase over the next two to three years, he said.

"The $12.99 bracket might move to $13.99 or $14.99, that sort of thing, and $18.99 might move up to $20.

"That is all very much dependent on the size of the harvest in 2013, 2014 and so on."

Jak Jakicevich, managing director of specialty wine retailer Glengarry, said stagnant economic conditions had left consumers less keen to spend big bucks on wine, meaning retailers would be limited in their ability to raise wine prices.

But he agreed that the heavy discounting of the past few years should ease.

"We won't see the deep-cut discounting and the bargain basement prices ... we'll see a bit more normalisation," Jakicevich said.

Antoinette Shallue, communications director for Foodstuffs NZ, which has operations including New World and Pak'n Save, said the company was aware of this year's smaller grape harvest.

"However, the record vintage produced nationally in 2011, and the continued oversupply of wine globally, means that this has not had an impact on retail wine prices in our stores to date," Shallue said.

"We cannot speculate on future supplier or retail pricing trends for this product category."

Gisborne Winegrowers president John Clarke said that with a healthy vintage reported this year - and a steadying of the wine market in general - it was "payback time" for the growers from his region who had taken a hit over the past three to four seasons.

"Growers will certainly be looking for a much better return in the coming season," Clarke said.