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Smallest & largest wineries showing most growth in NZ, says survey

A new survey shows it is the smallest and largest New Zealand wineries that have shown the most growth in 2011 - while the country's UK chief is calling on wineries to be 'more confident' on pricing.

While wineries across the spectrum have improved their profitability during the past financial year, those at the smaller and larger ends of the earning spectrum, earning below NZ$1m and above NZ$10m in revenue, have improved profitability by the greatest amount, the survey from Deloitte shows.

Vintage 2011, released this week by Deloitte and New Zealand Winegrowers, tracks the results of survey respondents accounting for nearly a third of the industry’s export sales revenue for the 2011 financial year.

Deloitte partner Paul Munro said, ‘These movements are positive, and certainly are cause for optimism that the industry is showing signs of a turnaround from the declining profitability exhibited over recent years. But there is some way to go before it could be considered a full recovery.’

The most profitable category in this year’s survey was the wineries earning less than NZ$1m in revenue, with an average profit of 17.4%. Part of this improvement was likely to be due to the reduction in costs from selling grapes rather than processing them for sale.

The next most profitable category was the largest wineries, earning more than NZ$20m in revenue. This group’s average profit was 15.3%, up from 7.8% last year, on the back of high gross margins and lower debt servicing costs.

For the smaller wineries in the $1m-5m revenue category, the 2011 financial year saw effectively a sixth consecutive year of negative returns largely due to lower gross margins and relatively high administration expenses.

The survey said ‘issues of high indebtedness combined with reduced land values continue to plague the industry, and despite efforts to reduce costs many wineries are still struggling to become profitable – particularly among smaller wineries.’

From the UK perspective, however, New Zealand wineries should be more than optimistic – they should be ‘bullish’, David Cox, european director for New Zealand Winegrowers said, adding that he was ‘asking producers to be more confident in terms of their pricing.’

‘I am quite bullish about the prospects of the New Zealand market,’ he told Decanter.com. ‘We continue to build value ahead of volume.’

Cox said he believes that the fact the average bottle price of a New Zealand is £6.21, compared with a national average for all wine of £4.80, is cause for optimism in the midst of a recession.

‘Above £8-10 the UK consumer is less price-sensitive. And in that bracket New Zealand has 22% of all wines sold.’

Philip Gregan, CEO of New Zealand Winegrowers, said despite progress, ‘the high New Zealand dollar has continued to make the export environment particularly challenging for many producers.’

Written by Adam Lechmere

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