Wine price-cutting ‘disastrous for producers’

Press, 13 June 1986, Page 5

Wine price-cutting ‘disastrous for producers’

Price-cutting in the wine industry caused by the recent wine glut may have been good for the consumer but it was disastrous for wine producers, according to Mr Jim Delegat, an Auckland winemaker.

Mr Delegat believed there were no winners in the price war, and he should know. His familyowned company, Delegat’s Vineyards, went into voluntary receivership at the end of last year but has since traded its way out of difficulty. Another company, Villa Maria Wines, Ltd, was

also forced into receivership about the same time and is also trading its way out. Mr Delegat, in Christchurch this week on a promotional visit, said it had been unecessary to take wine prices to such low levels. “It was not a fight about wine but a fight about market share and position — those people in my mind don’t have a place in the industry.” Delegat’s had been competitive with its prices during the price war and still was, he said. The company had gone

into receivership because it had simply run out of working capital. “It was important that we converted (wine) stocks into cash as quickly as possible — we had a lot of stock because of the abundant harvest. “Fortunately, consumers and the trade reacted well to our cause — people had a good image of Delegat’s and when we needed it most, it came through.” Consumer demand from that period was still building, he said. While it sounded very good, the company’s re-

covery from its financial difficulty was not a fairy story. “It’s a story of hard work — we have just stuck with our policy of producing a limited range of premium-quality, medal-winning wines.” A Government assistance programme introduced soon after Delegat’s went in to receivership also helped the company recover, he said. Under the programme, winemakers were paid $6175 for each hectare of grape vines extracted before this year’s harvest. Delegat’s substantially reduced its vineyard, pulling out 59 hectares. Mr Delegat said that the vine-pulling policy had on a “one-off” basis given relief to the wine industry. “In the future more vineyards will be planted but on the basis of the grower’s having total belief in his ability to produce quality grapes which can be sold on their merit rather than on a contract.” This would mean a sharing of the risk between grape growers and winemakers. Growers would plant grapes because of their interest in wine and not for the tax deductions, he said. Problems of over-sup-ply in the wine industry were partially the Government’s fault, said Mr Delegat. “The industry has suffered from over-incen-tives; nobody knew that the way to save the industry was to take away the incentives so that people stayed in the business for the right reasons.”

Because of the vine extraction, Delegat’s had a

“modest” grape harvest this year. “Sixty-six thousand tonnes of grapes were harvested nationally this year which will yield 50 million litres of wine. As the present annual consumption is 55 million litres this is precisely in line with consumer demand.”

Prices were increasing after the price war, Mr Delegat said. Consumption was likely to drop to the 50 million litres produced. “That is opposed to the 78 million litres of the previous year, so that is a big part of the wine industry’s salvation.” Mr Delegat said that present stocks would last about 10 months.

“So we are running about 22 months of stock. We would like to be at 18 months, so we are still six months over-supplied — but that will gradually dissipate itself. “we are drinking about 17 litres a head a year at the moment. I believe we can comfortably go to 25 litres a . head and still enjoy wine for wine’s sake.”

Delegat’s Vineyards was established in 1947 by the late Nikola Delegat. It is now run by Mr Jim Delegat and his daughter, Rosemary. Since 1980, the company has won 20 gold medals and 70 silver medals in international and national wine competitions.

Because of the vine extraction, the company was now concentrating on Chardonnay, Gewurztraminer, Muller Thurgau, Auslese, and Cabernet Sauvignon, said Mr Delegat.