The Small Producer Squeeze

New Zealand is a small market dominated at the retail end by just two large supermarket companies.  Since supermarket shelf space is finite and extremely competitive, it is not exaggerating to say that the large majority of small wine producers have little or no meaningful representation on those shelves.  What little opportunity there is may be driven by the limited independence of some local provincial outlets to stock local produce.  That does not change the fact that the lack of an opportunity to “go national” is a significant constraint against the ability of many quality-oriented producers to expand.  The distribution sector has its own issues and has tended to contract as the number of specialist retailers has diminished (unable to compete with supermarkets or online retail) and as restaurants/on premise outlets have reduced purchases during the recession.

None of this is new.  It is well publicised and understood.  It is a reflection of the structure of the industry in a small country.

However, there are other less well understood consequences.  One that has come to my attention from several sources in recent times has been the contraction of bottling capacity available to smaller producers.  The expansion of production of larger producers in recent years has meant an increased reliance on contract bottlers as such companies have not always wanted to invest in too much capacity themselves – it uses both valuable space and capital and is very difficult to downsize if production contracts in future.

The extent to which the large and larger medium sized companies have occupied the capacity of many of the contract bottlers in several regions has meant that contract bottlers have ended up turning away business from other customers – usually the less cost effective small bottling runs of smaller producers who now find that even if they do find a gap in the schedules, it may be months away, or it may disappear altogether.

This is causing some producers to fall back to stop gap measures such as lower tech, limited filtration, limited control and slower bottling options, right down to DIY just like a home bottler!  Moreover, producers selling out of one vintage and needing to bottle in order to switch to the next vintage of a product all too often end up with gaps while they wait for bottling to be completed, sometimes rushing product to market without giving it time to settle in the bottle.

Yet the state of the industry is such that who would want to invest in new bottling plant when there are so many unknowns and so much risk?

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