How Babich Wines has changed its winemaking strategy to suit growing global markets
By Richard Siddle
The growth in New Zealand wine around the world over the last five to 10 years has been staggering. Driven initially by the demand from the big supermarket chains for its Marlborough Sauvignon Blanc, particularly to the UK, this has now being surpassed by the huge steps it has taken in opening up key new markets around the world, most noticeably the United States.
In the last year alone the value of New Zealand’s exports to the US have now surpassed Australian wine (Rabobank) as its total exports to the country have gone from 2.5 million litres in 2000 to 61 millions litres in 2016 (New Zealand Winegrowers).
It has meant New Zealand’s major wine producers have had to scale up their production capabilities and be far more open to the kinds of wines they are prepared to make and how. No longer is New Zealand dominated by bottled wine. To grow and really take advantage of the demand for its wines, producers are having to embrace contract, third party and bulk wine opportunities.
None more so than one of the country’s oldest and most respected wineries, Babich Wines, which celebrated its 100th year anniversary last year. It might have a famous family name which it emblazons across all its bottled wines, but it too has become far more open to trying new revenue streams and ways to capitalise on the boom in New Zealand wine. A strategy that has helped it double its business over the last five years.
“There are just more layers to our business than ever before,” says David Babich, general manager of the family run business which now has vineyard production from its 350 hectares in Marlborough, 150 around Hawkes Bay and 15 in Auckland, which is split between its own vines and those it runs on a contract basis.
The main Babich branded wines remain the key and most important part of the business, but the second labels and contract work it is increasingly doing is becoming more significant and requires a different strategy and way of thinking, says Babich.
It is now, for example, shipping 1.8 million litres in bulk wine and knows the market can take more providing it can access the right quality juice. “Marlborough, though, is getting trickier,” he adds.
Flexibility through scale
The reason bulk wine has become far more attractive to a producer of Babich’s scale is the flexibility it now gives it to handle its inventory more effectively.
“It is also good for cash flow. It now ticks a lot of boxes for us,” he adds. “It has become a lot more serious part of our business than before and grew around 30% between 2015 and 2016.”
“You have to look at your winery far more on a 12-month cycle,” explains Babich. “So if you can do some contract and service work with bulk and second label wines it all contributes to our total revenue which we can then re-invest in Babich Wines. Bulk wine is contributing far more to our profits now.”
That said the recent 20% currency hit that New Zealand has taken on the back of the slump in sterling has meant it has had to scale back its bulk wine work to the UK and other affected markets by around half a million litres.
Instead it is looking to do more contract winemaking to make up for the shortfall in its bulk business. “You also get paid quicker too.”
It is not just in bulk wine where currency has had an impact in the UK, but the market as a whole has become a “lot harder to work in,” says Babich. The need to hit certain price points to be able to compete on a branded level has also been difficult for Babich.
It has enjoyed a long relationship with Bibendum in the UK and is now within the Walker & Wodehouse stable, which is focused on servicing the independent merchant market, as part of the new look Conviviality PLC management structure.
He says it is still early days for how the Conviviality model is going to work, but on paper a producer of its size, longevity and flexibility should be able to do well. “We do see the long term potential there.”
Babich also confirms how important the US has become in recent years, particularly now that the currency is so much in New Zealand’s favour. “We are really strong there. Everyone is also making money in the US thanks to the currency.”
Thanks partly to its Croatian family background the business has always done proportionally well in Eastern Europe. In fact Babich had arrived to last month’s Prowein straight from a two week tour of all its key markets in the region.
Babich was also one of the first New Zealand wineries some 14 years ago to get a foothold in China and says that although it remains a difficult market there is still so much opportunity there. “Over the next five to 10 years it is just going to grow and grow.”
It has equally been in Japan for 20 years and Hong Kong for 15 years. All the Asian markets, he says, are more exciting for New Zealand producers because there is much more interest in its white wines. “It used to be 90% red, 10% white, but is now closer to 60% red, 40% white,” says Babich.
But for a producer with already 100 years under a belt you get the feeling it has only really just got started in many of its global markets.