On November 28th, New Zealand's government and wine producers announced a major new initiative that could significantly stimulate NZ's long-term growth as a quality wine producing country. It is also a great lesson on how to manage Niche Marketing and product development on a grand scale.
The catch in going after such a niche is that it takes more than just making the decision to do so — and even more than also executing it well. Because others serving your same market (and with potentially much larger resources) could easily make the same decision and know equally well how to make it happen.What they announced was a $14 M (U.S.) research project into the the development of a new class of “lifestyle” wines. Lifestyle wines are a product category where the immediate market draw comes from offering lower calories and alcohol content than you normally see in conventional wines. This is not a new category, but it has historically been a very small part of the market. In recent years, however, the growth rate of such “skinny” wines has been much faster than the mainstream business, often in spite of often “just okay” quality of the finished product. So for the right wine producing group with something different to offer it could be a smart move to pursue it. Especially so if you are New Zealand, the second lowest ranking country (in terms of liters of wine imported into the U.S., the biggest target market for New Zealand) in the so-called Southern Hemisphere of major second tier wine producing countries. The only lower import volume in the group is that of South Africa.
So what does it take to go after and capture such a niche? A good first step is to have already established a high and differentiable quality in your existing lines. Ideally your existing positioning should not only be good enough so people will want to try your new niche brands when they come out, as well as innovative enough that the experts in your industry will be looking to you for the best in what's new in your industry. Being “just okay” with strong backing might allow you to open up such a niche, but you'll never maintain high market share or growth that way.
In addition, even though New Zealand's imports into the U.S. only account for 3.3% of total imports, the overall Southern Hemisphere group of wines is itself growing rapidly and already has a surprising 48% of U.S. import market share (by volume of wine sold, not price). That compares to a 46% market share for the “Big 6″ group which has dominated imports for a very long time. So although New Zealand's market share may seem small, it is part of a highly visible “whole” which gives it a better platform to grow from than it might appear.
On this first criteria, New Zealand is already positioned well. Their wines are already some of the most highly regarded in the world, with its Sauvignon Blancs in particular seen by many experts as some of the best made anywhere. And a combination of attention to quality plus savvy marketing has rocketed its Pinot Noir sales growth up by 42% and its Pinot Grigio growth up by 8% just over the last year.
Also, while New Zealand's wines do not command the same U.S. import price/bottle of the market leading French wine industry, their prices are ranked as second highest in the world — after France (for major wine producing markets), with their average 2010 U.S. import price/bottle of $4.67/bottle, beating out those of Italy, Spain, Portugal, and Germany. (See the chart below. We have grouped them showing the “Big 5″ on top and the Southern Hempisphere pricing in the bottom group.) They also happen to be the most valued (again by price/bottle) among the rapidly-growing and well-respected “Southern Hemisphere” group of wines. Their average $4.67 is decidedly distinct from the $2.57 commanded by South Africa, their next closest competitor by price in that Southern Hemisphere group.
So New Zealand's wine industry is in a good place. But to make the biggest impact in the lifestyle wine market they still need to do more. There are many paths they could follow. But to stay ahead they specifically need to innovate in the area of product development, and in this the new announcement from the wine producers is telling. In the past the way others have entered this “low calorie, low alcohol” business would have been primarily driven by one or more tricks of the trade. One such trick is to pour in other grape blends at just the right moment to stop fermentation, thereby lowering the alcohol level before it reaches its peak. Excess sugar can also be extracted during post-fermentation processing. The result is a “good enough” wine but not necessarily great.
As you might guess from everything else about their wine business, the leadership behind the New Zealand wine business has something bigger in mind for how to create their new lifestyle wines. Instead of going for “good enough”, for this new initiative the New Zealand wine producers are going to develop produce these low calorie, low alcohol wines naturally (by techniques which aren't yet developed). By which they mean to use all the techniques master winemakers already use now for more conventional wines, but this time directed to create this lower calorie, lower alcohol mix. It will include a different selection of grapes, growing in areas with different access to sunlight and overall growing seasons, managing yeast content, and playing with other (natural) variables in the fermentation process. By doing it all naturally and drawing from the already strong heritage and viticulture of the region, the producers expect their lifestyle wines to be seen as premium offerings compared to what their expected competitors will be producing.
It's a gamble, but considering the rest of the factors surrounding the decision to innovate in this manner it makes excellent sense. And — if it goes well — in a few years we all may get a chance to sample a “lifestyle” New Zealand Shiraz that will surprise the world with its rich complexity of aromas and palate. Plus lifestyle whites that build on their brilliant Sauvignon Blanc and Pinot Grigio offerings in other categories.
And that once small niche which the joint Government/Producer partnership just scratched may end up blowing wide open.