Getting WET.

I was trying to avoid weighing in on this tax reform issue currently before the wine industry.  I have contributed on behalf of my business, but was going to steer away from stirring the pot.

Except…

Except there seems to be a hefty dose of the ludicrous going on here.

Basics: WET tax is a 29% tax added by the government when GST came in because they – the government – wanted a higher tax on wine. Not alcohol: wine. The rebate – up to half a million a year – was instituted to assist small to medium wine producers in building business. There has been some rorting. And why we have been allowing NZ producers to claim the rebate on their wine sold in the country is beyond me. The tax was tightened up last year to ensure that the one batch of wine could only have the rebate applied once. Makes sense.

These new (ish) proposals from the WFA are intended to grow the wine business. And to build sustainability. And to stop the rorting.

So, the idea is to limit the WET to producers who process 70% or more of their wine in their own facility or have material investment in the region like a cellar door. Paraphrased, obviously. Because the actual phrasing has left most of us scratching our heads wondering whether or not we qualify.  Is just growing grapes enough? Why do we need to then process in our own winery? For some, that is an expense too far. And would put some of the bigger employers (ie: the contract processing facilities) out of work. What about a cellar door? Sure. Need to build one. It needs to be economically viable in and of itself rather than just being a rebate-grab (like a tax-grab, with even more red tape), and the producer must find an extra six plus hours or so in each day to run it. And the funds to build it, and to pay for staff.

Has anyone actually spoken to cellar doors operators recently? Asked them how business is? How sales and revenue are going? And how many events and additional input is required to make that side of the business viable? Which all cost money, and don’t necessarily generate much more than some hijinks and overwhelming fatigue. Very many cellar doors report sales declining, with customers trying wines, and checking to see the cheapest possible price online rather than buying there and then. Order forms are dispensed, and then disposed of wholesale at the end of the trip by the customer. And then there are the very many customers who treat cellar doors as an excuse for nothing more than free wine.

Not all of them, of course. And running a cellar door can be a rewarding and glorious experience. But it takes time. And money. And making the WET rebate claim of a winery contingent upon cellar door business is a clause which will benefit very few. The whole idea – as best I can manage from the mangled proposal – is to award the rebate to parties building the business in their area. Putting funds back into local tourism and business to build the community. Brilliant. Maybe we should ALL open new cellar doors. Except last time I checked, building a cellar door does not ensure hordes of customers and a flood of business. Build it and they will come? Maybe. But the cost benefit of building and opening a cellar door versus potential sales to a group of people more used to buying discounted wine online seems problematic.

And what about those of us with properties in multiple regions? How does that work? Or those of us using a regional cellar door facility, as opposed to having one of our own? Anyone?

So, we are building the regions by building new side of the business which might not actually be viable. No probs. Will get right on that.

The WFA also plans to limit the wines on which the rebate might be claimable. So, no cleanskins or retail own-brand wines, because they ‘play no role in regional development’. Umm… Where to start?

  • Many consumers get their start in wine by trying different styles from different regions at a cheap-ish price point. Sometimes cleanskins, sometimes entry-level branded wines, sometimes retail own-brands. This actually lets the consumer find regions and styles they like. And will probably continue to drink.
  • Just because it doesn’t have a winery’s own brand on it doesn’t mean the sale of that wine has any less input into the region.
  • Indeed, for many producers, contracts to supply cleanskin or retail own-label are the method by which they are able to fund the growth of their own brand. Much like the supermarket contracts for own-brand honey might save a long-standing family of preserve and condiment producers. One helps the other. The sale of all has a positive effect on the region.
  • Just because we like to think that own-brand wine is somehow inferior (which has its own inherent issues, to be addressed another time), does NOT make it so. It is a valid channel to market, and in the current state of the market, ceasing to provide the rebate on these wines will not hurt the duopoly, it will ONLY hurt the producer. And how is that good for anyone?
  • What about Kemeny Hidden Label? The Wine Selectors range? The Aldi ranges? Where is this magical line drawn?

The market has changed. It has evolved. This is what happens.

So, if we are going to change the WET system, let’s be smart about it.

Yes, there is a duopoly. They buy a LOT of wine of a LOT of us. Consistently. They pay on time, and we choose whether to deal with them or not.

Yes, there are own-brands being circulated – these help the restaurant groups, the caterers, the retailers – both independent and not quite so independent – make margin which helps offset other costs, and have brand which reflects their business.

Yes, there are cheaper wines available now. This does in some cases help to get more people drinking the stuff, expanding our market.

Yes, there are the online and auction sites. These have always been there (at least as auction or clearance channels). Only now? Now they are available on our phones, our tablets. They are easily accessible, manifestly simple to use, and the wine is delivered to the door. This is the change. This also means that those who might need to clear something have a raft of options from which to choose. There will always be businesses needing to clear stock for whatever reason. The internet and our smart devices just make these a little more visible. And accessible.

Yes, we have had a strong dollar for some time. Hence the flood of quality, reasonably priced imports. It happens. Equally, some exports have been impacted, hence the flood of cheaper wine made available to the market, and to the clearance outlets.

And yes, we have a lot more producers these days, all looking for market share. Yes, some of them are ‘virtual’ producers.  Contrary to the 7:30 Report story last Friday (25 Oct), the virtual producers are not exclusively buying bulk/fruit and on-selling to the supermarkets at super cheap prices in order to claim the WET. Some do, it is true. But many of them? Many of them are young winemakers, starting out. They have arrangements or contracts with growers – who are in the business of growing and selling fruit, and need buyers like these virtual producers for this to work – and often work for larger producers. They do not, however, have their own land or wineries. They are often making some smart, interesting wines. They are working hard, often at multiple jobs. They – sometime more than the bigger names – have a stronger voice representing regions, and regionality. These are the winemakers and personalities we need in the wine game. They enthuse people. They spark interest. And why should we rip away the WET rebate for them when their voices do so much not just for their own businesses, but also for the industry?

I agree that there needs to be some change. I agree that there are businesses using WET as their profit to sustain unsustainable business. But this haphazard approach seems to have irked much of the industry. And perhaps, just perhaps, if you have managed to make so many people so very irate, there is a flaw in the thinking.

A couple of the bigger players want the WET rebate eliminated. Great. It wasn’t enacted for them in the first place.

The WFA is having secret squirrel discussions rather than open debate. And then threatening unwarranted legal action against a media outlet. Nice work. That will help everything go smoothly.

Maybe we can start over? Because the way this is going so far is not helping anyone.

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