'NZ spirits industry ripe for investment'

According to Coriolis Research, with a study backed by several government agencies, New Zealand's spirits sector is in the early phase of its growth cycle and is ripe for expansion.

Tim Morris, Coriolis's managing director, told FoodNavigator-Asia that the report was part of a larger project to assess the segments that could drive the country’s future exports. At the end of the study it became clear that “spirits stood out.”​

The report pointed out that the segment is currently worth US$47m in exports and has been growing at a compound rate of 10% per year over the past decade.

Premium is the way​

Morris remarked that the spirits industry is still at an early stage of development, having arrived late largely because of the country’s protectionist attitudes that lasted until the end of 1980s. “But since a more free-market attitude emerged, a lot of smaller firms have grown and so have the opportunities.”​

He pointed out that the spirits industry in New Zealand can now be compared to the country’s wine industry, which went from nothing to worth a billion dollars in just 20 years.

“Around 30 years ago, New Zealand’s wine industry was all about cheap, me-too wines aimed at domestic consumption. But then it changed track and built its success on high-quality premium and super-premium wines,”​ Morris explained, adding that spirit makers should leverage the wine industry’s knowledge and networks.

The market is currently dominated by small firms that mainly distribute low-margin ready-to-drink (RTD) beverages. This has have helped grow the scale of the entry-level drinker segment, especially among women.

“RTD beverages have been good for the industry in the sense that they have helped many firms get off the ground. They now have to transition to higher-value, super-premium products for their next stage of growth,”​ Morris said. 

Brands like 42 Below, a premium vodka, have already entered this next stage, having already been acquired by Bacardi in 2006 for US$90m, along with newly developed products such South Gin and Seven Tiki White Rum.

“42 Below really paved the way for other small brands in the country to show that they too could make a global impact. I compare it to the Japanese auto industry, where Honda and Toyota cleared a path for others to follow,” ​said Morris.

More capital needed ​

However, the report warns that such acquisitions have already created a situation whereby a few global multinationals already control the handful of large firms that exist locally.

“Given this ownership, and the fact that many of these firms have only changed hands over the last five years, it appears to be limiting opportunities for new participants in the larger end of the industry,”​ the report said.

“Beyond the top four, there is a large and growing group of small-to-medium sized spirits firms. Most of these firms would welcome investment due to the capital-intensive and cash-flow negative nature of being an export-driven growth company in the spirits industry.”​

Accordingly, new funds are needed for such small producers, either via the private equity route or by acquisition—the latter can give them instant access to a global audience, especially in North America and Europe.

“There is increasing global interest in new and unique premium and super-premium spirits, which is tied to the growth of micro-distilleries,”​ said Morris.

“A local producer that can get his premium identity right can then leverage the parent company’s global distribution network, much like 42 Below is able to now with Bacardi.”​

The report added that New Zealand is already well positioned in key markets as a trusted, premium producer of safe foods in a natural environment, and that smaller producers can leverage this reputation to tap export markets.

No alcohol identity​

New Zealand has one inherent challenge in that it does not have an identity spirit—the way Mexico has a traditional association with tequila, France with cognac and Ireland with Irish cream.

“The lack of an identity spirit has always been a challenge. Having said that, it does not mean it cannot be overcome. You associate vodka with Russia but then you see Absolut vodka being so popular​,” Morris said, pointing to how identity spirits can also be unique branded products owned by specific firms.

Indeed, 42 Below used some uniquely local flavours, such as manuka honey and fejioa, while there are other indigenous ingredients that can be used to create distinctly Kiwi liquor for the global export market.

One such product, Ti-toki Liqueur, has been on the market for over three decades, and uses the local kawakawa plant. 

For now, Morris said that he does not foresee any brand that can replicate the success of drinks like South Africa’s Amarula cream liqueur, which is made from the indigenous Marula fruit. This drink alone has singlehandedly driven the country’s export success in spirits.

“But it is a matter of evolution. I see that we are on the cusp of seeing an explosion of new products, new brands and new producers,”​ concluded Morris.