Are small winegrowers going the way of the dinosaurs?

I read an article somewhere this week about the dilemma facing small contract grape-growers in Marlborough. The typical model was described as professional or farming couples in their early fifties setting up, and living on, a contract vineyard with a view to selling at 70’ish to fund retirement. The problem is that many of those growers are now ready to sell but, given the current industry turmoil and general recessionary pressures, the next generation of buyers are either hiding, or don’t exist.

That got me thinking about small wineries. Of the nearly 700 wineries in New Zealand, some 600-odd, including us, are in the “small” category (producing less than 22,000 cases). Of those 600-odd small wineries, around 450 are actually producing 2,000 cases or less each year. Most, if not all, of these small wineries will be family-owned and operated. I’m guessing that the exit strategy for most small wineries is similar to the contract growers described above i.e. sell profitably to a younger buyer in similar circumstances as they were when they started, and retire on the proceeds. Other alternatives include keeping it in the family for the next generation or selling to a another winery.

For the vast majority of the 450 wineries producing less than 2,000 cases, keeping it in the family or selling to another winery are not realistic options. On the one hand, a winery of that size is unlikely sustain an income for a new generation and at the same time fund the retirement of the founders, nor, on the other hand is it likely to have enough financial attraction or scale to appeal to, or to practically incorporate in to, another winery’s business. In the absence of a foreign investor cargo cult  that leaves the option of selling to a younger, adequately resourced, skilled and motivated buyer and the savage destruction of wealth wrought by the global financial crisis has dramatically drained that pool.

So, unless small winery profitability improves I fear that owners, when they wish to exit, are going to find themselves in the same predicament as the growers described above, either unable to find a buyer or unable to retire. Another aggravating factor is that the founders of many of our pioneering small wineries are from the large baby-boomer generation and will be looking to exit at the same time in the not-too distant future thus putting more pressure on finding a pool of potential buyers.

The likelihood, in my view, is that many small wineries will simply cease to exist. An inevitable part of the re-balancing/evolution of the wine industry maybe, but while necessary, I for one will mourn the loss of diversity, dreams and history such an extinction would represent.