Stories of NZ enterprise success
This is the seventh article in major eight-part NZ Management series: Stories of NZ enterprise success. Senior business journalists Nick Grant and Vicki Jayne draw on insights from the Deloitte/Management magazine Top 200 Awards and associated lists of the country’s leading companies to conduct sector-by-sector review of the underlying drivers of success in key parts of New Zealand’s economy.
Next month: The tourism and entertainment sector.
In May this year, the then-Ministry of Economic Development released report on the New Zealand food and beverage industry that, among other things, urged the industry to process more of its produce prior to export.
“The industry exports $25 billion in food and beverages each year,” said Minister for Economic Development Steven Joyce at the time. “Much of this is ingredients which others use to make finished products. The report estimates that international consumers pay from $140-$200 billion at the checkout counter for food products that are primarily of New Zealand origin. It’s not all about producing more. It’s also about capturing more of that value for New Zealand.”
Coriolis, the strategic management consulting and market research firm behind the report, is at pains to point out many of its figures are “directional” rather than right on the money. It attributes this to conflicting data from various agencies. Yet, even if one assumes the lower end of international consumers’ estimated spend on food with NZ ingredients, there’s clearly an enormous opportunity for NZ Inc waiting to be exploited in that yawning $115 billion gap.
This is no newsflash. The clarion call to stop shipping raw carcasses, logs and the like offshore has regularly rung out. Before he ascended to the role of earthquake czar, previous MED minister Gerry Brownlee made much the same comments when issuing an earlier Coriolis report on the food and beverage sector in 2010. “The maths is pretty simple,” he said. “A kilo of infant formula is worth 10 times the value of kilo of milk powder – so we know which one New Zealand should be selling.”
It’s not as though these regular calls have gone unheeded, either – as covered in NZ Management’s June issue enterprise success story, our primary sector is slowly but relatively surely shifting from “from pure commodity to higher added-value diversity”, point echoed in the latest Coriolis report (see box story “A perishing nuisance”).
While this transformation still has long way to go (processed food still accounts for only around 16 percent of our total F&B exports, for example), it is underway and there are many excellent examples of local processed food and beverage enterprises that are already making progress in global markets.
Upwardly mobile
Wine is the leader in NZ’s beverage exports in terms of both revenue and growth (see box story “Drink to success”), and it’s the global thirst for Marlborough sauvignon blanc that’s driving 90 percent of that performance
Winner of the World’s Best Sauvignon Blanc for its Single Block S1 vintage at this year’s International Wine Challenge, Yealands Wine Group is prime example of why it’s desirable to pull your business up the value chain from primary to value-added producer and just how successful such upward mobility can be.
The company, which launched in 2008, has its literal roots in serial entrepreneurial enthusiast Peter Yealands’ decision to try his hand at viticulture 10 years earlier. In short order he’d established Yealands Estate in Marlborough’s Awatere Valley, and was doing roaring trade selling his grapes to the spot market.
However, business based on trading commodities is only an attractive one to be in when there’s shortage in the market. By 2006 Yealands could see the signs of coming surplus, thanks in part to others adopting methods he’d pioneered in converting Awatere Valley hill country into land fit for growing grapes.
“So I sat down with the bank and, although I didn’t know anything about wine making and hadn’t been interested in getting into it, we decided the only way to solve this was to build winery that would use our grapes.”
Built in 2007, Yealands Estate Wines was launched, along with its first vintage, on 8 August 2008. That’s an auspicious date in Chinese numerology, Yealands notes, wryly observing he needed all the help he could get: “We had 3.5 million litres of wine in our winery and not one customer,” he laughs. “Christ almighty, recipe for disaster.”
Four years later the company is exporting to around 70 countries and, although it’s now producing 12 million litres annually, is on the verge of having to allocate its wine – an almost-overnight success obviously not entirely down to trusting in magical numbers.
“We’ve always produced high quality wine at an affordable price,” says Yealands. “I suppose the things around the sides of that are: we are NZ, we are family and we are sustainable. We’re the only company in the world that’s been carbon zero since start up.”
Yealands is at pains to point out his commitment to sustainability is born of something of personal revelation while previously living on remote property in the Marlborough Sounds, rather than cold-blooded commercial calculation. Still, sustainability is touted as something that’s increasingly attractive to discerning consumers, so surely such well-publicised, environmentally-friendly initiatives as grazing Babydoll miniature sheep in the vineyards to cut down on tractor use and the attendant diesel emissions provides competitively advantageous marketing story?
“You’d like to think so,” he says, “and when you’re talking about getting your product into Sainsbury’s and Tesco and Marks & Spencer, I think it does help. But at the end of the day, the thing that sells the most wine is the lowest price – it’s got to be someone with really strong views to pay $3 more for bottle of wine because it’s organic or sustainable.”
That said, as it’s moving into period of limited quantities of grapes, the company – now called Yealands Wine Group following last year’s merger with Ager Sectus Wine Estates – is “looking at the premiumisation of the product and trying to recover our growth out of higher prices. So we’re doing all the sorts of things you need to do to get higher prices.”
That includes: the recent launch of new websites for its three key brands; the printing of QR codes on all the 2012 vintage labels that direct customers to brand specific mobile sites with food and wine matches, tasting notes and tour video; and the hiring of data manager to exploit the customer information gathered as result.
Personal touch
Auntsfield Estate is an example of the success small-scale enterprise can enjoy by identifying and servicing niche market appropriate to its capacity. family owned and operated boutique vineyard and winery located in Marlborough’s Wairau Valley, it’s been producing fruit since 2001 and wine under its own label since 2002.
Supplying grapes to other winemakers remains core part of its business, with approximately half of the 500 tonnes it produces annually used for this purpose and the other turned into Auntsfield wine. Having these two income streams is important, reckons Ben Cowley, Auntsfield’s general manager and viticulturist, as it allows the company to grow at sustainable rate. “It means we’re not being held to supplying lots of wine into the market and then having to lower our price, but we have access to more fruit if we have the opportunities to expand.”
Around 80 percent of Auntsfield’s wine is exported, with volumes “pretty evenly split” between Australia, the UK, the US, mainland Europe, and Asia (where the company has one distributor which supplies their product to number of countries in the region).
“We’ve been very strong internationally right from the get-go,” says Cowley. “An important part of our approach has been making sure that members of the family go into t
