How a 'massive disruption' to the US wine market could affect Kiwi exporters

Kiwi wine producers say the coming months are a "big unknown" as the country's biggest export market continues to feel the effects of COVID-19.

According to a new report by Rabobank, United States, which comprises 32 percent of New Zealand's wine exports, faces a "massive disruption" to its wine industry as a result of the pandemic.

As the country continues to struggle to get the virus under control, ongoing shelter-in-place and lockdown orders in many parts of the country have pummelled on-premise sales.

"Total sales for US food service and drinking establishments for the first four months of 2020 were down an estimated US$68 billion or 22 percent," RaboResearch senior wine analyst Hayden Higgens said on Thursday.

"For wine sales, the percentage drop in the on-premise channel will be even higher, given these are more heavily reliant on full-service bars and restaurants, which performed even more poorly than limited-service restaurants."

Although Kiwi wine sales to the US remain strong there is concern that may change over the coming months.

"The USA continues to be New Zealand wine's largest export market, with over $620 million in exports," Philip Gregan, chief executive of NZ Winegrowers, told Newshub.

"But how the next few months is going to play out in exports is the big unknown."

He said it was "encouraging" that the reputation of New Zealand wine remained strong globally.

"In terms of impact on sales in the USA, currently we are seeing two situations happening in the market: while there has been a strong demand for New Zealand wine - particularly Sauvignon Blanc in supermarkets and online retail - on the other hand, many wineries who are focused on hospitality have been negatively impacted."

Higgens said the drop in on-premise sales indicates New Zealand wine producers may need to "pivot their supply to new channels".

However due to rules in the US system that could be difficult, he said.

"The US alcoholic beverage market operates under a three-tier system made up of manufacturers in the first tier, a second tier comprised of importers, distributors or wholesalers who purchase the product from the manufacturer, and a third tier of retailers.

"Under this system, New Zealand producers are unable to sell directly to US consumers. And it's therefore essential New Zealand brands work closely with their US distributors - who are in regular dialogue with retailers - so they can better understand changes in the way US consumers are purchasing wine."

The report forecast it might take years for the on-premise market to recover and said New Zealander exporters should begin to think more about the role of e-commerce and how their distribution partners are equipped to sell their products online.

The US accounts for 32 percent of New Zealand wine exports by volume and 36 percent by value.