Is it really two months since my last post?!

New winery under construction

The new winery is now making great progress, the landscaping is almost all complete, and the grapes are ripening - slowly in response to our cold, rainy summer. While slow ripening is not always a good thing (as eventually winter arrives and the grapes close down), this year 'slow is good'. Mainly because the winery construction is behind schedule, again in response to poor weather impacting construction. If we had to harvest the 2012 vintage at the normal time we would be in trouble. The classic case of "all clouds have a silver lining"!

With the transformation of the business, subsequent to our growing sales in Asia, I have been thinking about the future of the New Zealand wine industry a lot. Not all wineries as as fortunate as we are with rapidly expanding distribution, but some of the crazy stuff people that do not have good sales channels are doing to sell wine does great harm to the industry. It sets new price expectations, undermines the viability of the industry, will hurt us all and take a long time to recover from.

New dwarfs old!

If you think I am exaggerating. next time you buy a bottle of wine for $10 or less in the supermarket, or on one of the multitude of  discount wine websites, have a think about how much money trickles down to the winery after 15% G.S.T., over $2 per bottle Excise Duty*, the retailers margin, the cost of the bottle and label and the cost of making the wine? I can tell you it is not a lot, or in many cases, nothing. The obvious question is why do wineries do this, if it is as stupid as I imply? This is a theme I am going to explore in future posts which will look at Excise Duty*, bank lending policies, over-supply (the consumers greatest friend), the impact of bulk wine exports and the consequences of the 'must sell' approach many wineries are taking. Often cash flow is the driver, but at the cost of future profitablity

Interior of new winery underway

* Excise Duty is one of those hidden taxes all governments love. Like Excise Duty on Petrol it just keeps money flowing into government coffers in a manner not visible to the general public. And it is indexed to the consumer price index, so it increases nicely each year too, another plus for the tax collector. The Excise on wine is over $2 per bottle and the winery must pay this each time they make a sale. Do the maths; if you buy a $10 bottle of wine, over 20% is Excise, add that to the 15% G.S.T. and government is doing very nicely thank you!