Bank support more to wineries’ taste

Bank support more to wineries’ taste

Wineries nationwide report that bank attitudes towards winery business clients are stabilising. Following 2009’s toughening attitude and resulting clamp down in lending, banks are now taking a ‘wait and see stance’ allowing wine industry clients to trade their way onto stronger financial footing.

A majority of wineries studied in a recent Markhams wine business conditions survey report that they expect trading conditions to remain the same over the next twelve months.

Throughout the country, respondents report the high New Zealand Dollar continues to reduce export returns with one quarter of respondents citing this to be the biggest financial influence on their business.

Oversupply of Marlborough Sauvignon Blanc remains an issue. Slow paying customers, the global recession, reduced consumer retail spending, coupled with intense supermarket and hospitality business discounting continue to dampen confidence levels. Sixty percent of respondents predict that sales margins will decrease in the next year.

Markhams national spokesperson Hamish Pringle comments, “The industry is reeling from a number of threatening factors which have forced participants into survival mode. The current stablising in bank attitude creates less pressure but long-term new lending covenants may cause problems for wineries. Banks are likely to eventually force some amalgamations in the sector.

“The continuing oversupply of Sauvignon Blanc is having an effect on the market for Chardonnay grapes. A significant volume of Sauvignon Blanc has been used for local sparkling wine, which has accelerated the demise of Chardonnay.

“On the positive side, the market share of New Zealand white wine in Australia continues to rapidly grow, and the Wine Equalisation Tax rebates to New Zealand wineries have been welcomed. The 2010 vintage quality appears to be strong which will support the reputation of our wine overseas.”

Nationally 73% of respondents report that developing new markets, particularly overseas is the strongest opportunity. Nationally, respondents predict Syrah and Pinot Noir to become the next big New Zealand wine story, and 14 percent of respondents (from Hawke’s Bay and Marlborough only) indicate they intend to plant new vines of Syrah and Pinot Noir.

Nationally 37 percent of respondents believe conditions have remained the same, with equal numbers stating that conditions have improved or worsened. In a turnaround from the June 2009 survey, where 70 percent of Marlborough respondents said trading conditions had worsened over June 2008, the majority, 44 percent now say conditions have improved. Improvements in confidence are also reported for Wairarapa respondents over the past six months.

The impact of the recession continues to soften demand for wine internationally and domestically and 65 percent of respondents report reduced demand, particularly in the Wairarapa.

Compared with the previous survey, fewer respondents nationally report a negative change in bank behaviour, with 54 percent indicating no change. Over half of respondents indicate that they are not concerned about the availability of bank funding for their business.

Nationally 64 percent of respondents indicate that they sell more wine under a different brand to their normal one, with the exception of Wairarapa whose respondents sell the same volume throughout brands. Nationwide, respondents report the most effective distribution channel is specialist retailers, then cellar doors followed by supermarkets and direct marketing / internet. Hawke’s Bay respondents cite the cellar door as their most effective method.

An initiative of a national wine industry business development unit of the chartered accountancy group, the regular Markhams survey, conducted in Hawke’s Bay, Wairarapa, Marlborough and Auckland, covers topics such as sales and distribution, capital investment, branding and profitability.

The survey report is made available free to industry participants and support service providers such as bankers, lawyers and other professional advisers plus wine media organisations. It is also published on the Markhams website www.markhams.co.nz

ENDS

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