A balancing act: Adapting to change in New Zealand’s wine sector

With the 2025 harvest season just completed for vineyards up and down the country, those in New Zealand's wine sector will have plenty on their minds right now. From balancing supply and demand to international trade dynamics and changing consumer appetites, there’s a lot to navigate.

So what does the viticulture business landscape look like currently – and what can business leaders do to overcome challenges and maximise opportunities?

High supply, low demand

The wine industry is currently in a dynamic phase of rebalancing due to ever-changing shifts in supply and demand. Large vintages combined with declining consumer demand have resulted in surplus wine, presenting a significant challenge for the industry.

This isn’t a new concept - the wine sector has always had to balance supply and demand. However, recent years have amplified these challenges, demanding innovative approaches from growers and producers alike.

There’s no doubt that many of the 2024 New Zealand vintage wines are of exceptional quality, and 2025 looks to be another high-quality vintage. In 2024 supply exceeded demand for wine, and there was still 2024 vintage wine in tanks prior to the 2025 harvest. This is a clear sign of the market slowdown.

The 2024 New Zealand Winegrowers Inc Annual Report reinforces this message, saying that while exports totalled $2.1bn for the June 2024 year-end, this is down 11% on the preceding year. There have been fewer replenishment orders from importers, distributors and retailers, who are instead filling orders with their existing stock. Meanwhile, the domestic market for NZ wine has also declined.

With this in mind, it’s essential for businesses to implement adaptive strategies to strike a balance between grape production and market demands while maintaining the quality that New Zealand wines are renowned for.

2025 vintage

Early results from the 2025 vintage are showing one of the largest grape yields in recent years. This, combined with reduced demand, has meant that many wineries have implemented yield caps and left a significant volume of grapes unharvested in an effort to rebalance supply and demand.

Many growers will be feeling the cashflow impact of this in the upcoming year. With lower volumes and a lower price per tonne, there will be less income generated from the annual harvest and growers will need to assess cost reduction measures and prioritise working capital requirements for the upcoming season.

Growers with contracts coming to an end of term may find they are not renewed. Those without contracts are faced with the decision to either proceed in the hope of negotiating a contract or may take the opportunity to replant if the vines are nearing the end of their productive life. When these new vines reach full production, the market will hopefully have improved.

Increased costs create profitability concerns

Coupled with the more challenging sales environment is an increase in costs. Wineries and growers are facing inflation, higher excise rates and greater production costs. And while average grape prices have been sitting at high levels of around $2,200 - $2,400 per tonne in the past two years, the oversupply in the market means a large reduction in the price growers will be paid for their grapes this year. After years of steady annual grape price increases, this drop may be quite significant for many growers. While wineries will have a lower cost of grapes, other production overheads have increased, and the expectation of tariffs will likely absorb any potential margin gains.

Riding the global wave

New Zealand is one of the world’s most export-focused producers of wine, with nearly 90% of wine sales occurring overseas. As such, geopolitical tensions – and tariffs – have a significant impact on the viticulture sector. Winemakers are keeping a close eye on US President Donald Trump’s tariff decisions; the US is the biggest growth market for the New Zealand wine industry, so any tariff increases could require a refocus to other markets.

The impact of any US tariff will hit NZ wineries both directly, through an additional cost, and indirectly through increased competition, as other wine countries will also be looking to grow markets outside of the US. Early talks suggest that wineries and US distributors will share some of the financial tariff burden.

More positively, 2024 saw the ratification of the New Zealand-European Union Free Trade Agreement, removing tariffs on wine exports to the European Union and introducing more flexibility on winemaking and labelling – a positive for our position in the lucrative European market.

Keeping up with evolving trends

Changing consumer preferences are having a marked impact on the global wine industry. The 2024 New Zealand Winegrowers Annual Report shows that New Zealanders are drinking less wine year on year, with similar trends overseas. This presents an opportunity for local winemakers to innovate and experiment with no- and low-alcohol wines, though there is work to be done to bring these closer in quality and taste to full-strength wines.

Producing a quality product

While appetites are changing, the quality of New Zealand wine remains incredibly high. Marlborough Sauvignon Blanc remains our hero product and accounts for most exports, and there is a renewed focus on ensuring the standards of Marlborough Sauvignon exported don’t slip. The Appellation Wine Marlborough group was formed in 2018 to safeguard the reputation of Marlborough wines – especially Sauvignon Blanc. More than 50 wineries now carry the AWM badge certifying their wine comes exclusively from recognised Marlborough sub-regions, meet growing and harvest quality criteria, are bottled in New Zealand and independently approved by experts.

And while supply may outstrip demand currently, the 2025 Sauvignon Blanc vintage has been heralded as one of the best we’ve seen in many years. This should result in exceptional 2025 wines which will help move product.

How to navigate the changing market

Despite the slowdown felt by many in the industry, the December Situation and Outlook for Primary Industries still predicts export revenue from wine will grow by 3% in the year to 30 June 2025 thanks to strong underlying demand for New Zealand wine.

And due to development restrictions in Marlborough, only modest sales growth is needed to return to a long-term situation where demand exceeds supply.

There are things you can do to navigate the current conditions:

Look closely at your numbers. While interest rates are coming down, oversupply and reduced demand mean there are likely still tough times ahead for the industry. It’s more important than ever to stay on top of your finances, analyse your budgets and keep your forecasts up-to-date.

Consider cost-saving measures. Reduced profits may lead to tighter budgets. Consider how cost-cutting measures can help you in the current climate. Examples include trialling different pruning techniques and spraying only when you need to.

Maintain high quality control standards. The Marlborough – and New Zealand – brand is incredibly strong in the international wine market – but this relies on high standards of quality control and a high-quality product.

Marketing. Wine companies need to invest in marketing and distribution to ensure future demand is ahead of production, and their wine stands out in a crowded global market. Relationships will be key to securing future orders including face-to-face meetings with distributors and exposure at trade shows.

Speak to your bank. Banks have largely been accommodating throughout the recent downturn. When facing any business challenge or opportunity, it’s better to speak to them sooner rather than later to see what’s available and how they can help.

Continue innovating. As consumer tastes change, it’s vital to stay on top of trends and new ways of doing things. For some wineries this might mean exploring low- and no-alcohol wines or targeted new markets, whereas for others it might be as simple as updating packaging.

Get the right people around you

New Zealand white wines are in a much more favourable position than the global industry. The local industry has worked hard to build a reputation of quality, and although the market conditions are tough now, there is a strong sense of optimism that this is only a temporary tightening, and the industry will rebound stronger than ever.

As the New Zealand wine industry continues to evolve, it’s more important than ever to have the right team in place. At BDO, we have deep experience in the viticulture sector and would love to discuss your next steps.

Learn more about how we can help you here or contact your local adviser to find out more.