New Zealand: southern magnet for North American investment

Wines & Vines, Oct, 2003 by Susan Low

Not so long ago, the closest your average Californian vintner would get to owning a bit of New Zealand--terra incognita to many in the business until, say, 10 years ago--was in the form of a much-coveted bottle of Cloudy Bay Sauvignon blanc.

Times have changed. U.S. producers no longer consider New Zealand an obscure pair of islands floating around somewhere off the coast of Australia. New Zealand is hot property for wine producers, and a growing number of North American investors seem keen to get a piece of the Kiwi action. According to the 2003 edition of The New Zealand Wine Industry Review, over the past seven years American investors have bought more vineyard land in New Zealand than did investors from any other country, purchasing a total of 39 vineyards between 1995 and 2002. (In second place was the UK, with 27 purchases.)

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The most recent North American acquisition in New Zealand was in May, 2003, with Vincor International's purchase of Kim Crawford Wines, based in Auckland on New Zealand's North Island, at a cost of US$8.6 million. Before that, in February, 2003, business partners Julian Robertson (a fund manager from New York) and Reg Oliver (owner of the El Molino Winery in Napa Valley) bought the "cult" Dry River winery in the Martin-borough district of the North Island for an undisclosed sum. Robertson and Oliver also own another hugely desirable winery in New Zealand, Te Awa, in the Gimblett Gravels region of Hawkes Bay, an area noted for Cabernet Sauvignon and Merlot.

Earlier, in July, 2002, Gary Andrus, formerly of Pine Ridge Winery in Napa Valley and Archery Summit in Oregon, left both businesses and purchased land in the Central Otago district of New Zealand's South Island--prime Pinot noir territory. The land includes an 11-acre vineyard currently planted to Pinot noir and Pinot gris and two other plots totaling 21 acres which will be planted to Pinot noir.

Other Americans involved in New Zealand include Dick Berridge, who was a founding investor in Duckhorn (but is no longer involved with the California company), and is now establishing vineyards and a winery in Central Otago. Marquis Sauvage, an American wine dealer and importer, has also invested substantially in the Central Otago region. New Zealand-born Lindsay Harrison, founder of Harrison Vineyard in Napa, bought land in Otago with her husband Robert Leslie. The U.S.-Australian Beringer Blass Wine Estates owns Matua Valley (in West Auckland) and Ponder Estate and Hawkesbridge, both in Marlborough. There are plenty of others buying there, too.

Obviously, the fuss about New Zealand goes way beyond the Hollywood hype of "The Lord of the Rings" (which was filmed in the scenic hills and valleys of the South Island) and The America's Cup yacht race. So, what's the attraction for U.S. investors in the wine industry? Reg Oliver agrees that there has been "a lot of fuss" about New Zealand in the press recently," but points out his common-sense reasons for investing there. Oliver's business partner, Julian Robertson, already had substantial investments in New Zealand, most notably the Kauri Cliffs golf resort near Keri Keri, north of Auckland, and in Cape Kidnapper's in Hawke's Bay. "We saw that there were synergies and opportunities to heighten the pleasure of New Zealand wine," Oliver explains. His mother's family is from New Zealand and he has "monitored the New Zealand wine industry for more than 10 years."

Oliver believes that the New Zealand wine industry has much in its favor. "New Zealand has done an outstanding job with white wines and the red wines are rapidly improving," he says. "New Zealand has a big potential in the major export markets and the wines are attractively priced, considering their quality."

Foreign investment, Oliver believes, is something that New Zealand's wine industry truly needs. "We have purchased operating wineries that we intend to take to the next level. Our two properties are in good shape, but the facilities are sub-par. So the initial capital will go into things like barrels, storage facilities, etc., where there is room for improvement." Beyond that, Oliver says, "There will be few changes in the winemaking practices. Our emphasis will be on vineyard development and expanding winemaking facilities."

Oliver's point about foreign capital being needed by the industry is echoed by others. One industry observer, who welcomes American involvement, says: "Americans (in New Zealand) are planting smaller, taking a longer-term view and understanding the price-points better, because in general they are from the wine business and understand the economics of making expensive wine .... My experience is that most of these American investors are taking the whole exercise very seriously. Nearly all these people are being much more fastidious with their vineyard consultancy, design and management, and most have the funding to build first class wineries.

"By contrast," the source, who asked not to be named, says, "many New Zealand investors (in the Otago region) are more slipshod, more contract winemaking-oriented and more shoestring in their budgeting. This is often because they are getting consultants from Marlborough or North Island who are much more Sauvignon blanc or mid-range wine oriented, and who don't understand premium Pinot noir."