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South Africa Struggles for Survival

DeMorgenzon's top Chenin Blanc label, The Divas, is textured, complex and incredibly refined; something that Nicolas Joly would tip his hat to. "In 2013, I selected two barrels of outstanding Chenin made from a particular portion of our old vineyard planted in 1972," says Carl van der Merwe, DeMorgenzon's chief executive and cellarmaster.

"The 2017 vintage was a larger production and comprised about 1600 liters, bottled into 750ml and magnums. The magnums are not yet released, and the 750ml were released shortly after the 98 point rating from Tim Atkin MW."

But even more remarkable is the price tag – more than $95 for a bottle of South African white. That may be viewed as incredibly brazen, or stupid, depending on your point of view.

"Given its vast size and its turbulent history, you'd think it would have a much higher profile but, for many wine lovers, South Africa is an afterthought when it comes to wine, and especially quality wine," noted Wine-Searcher editor Don Kavanagh in 2017.

Indeed, it is painfully obvious that despite the critical adulation, top-end South African wine is ludicrously underappreciated. There probably is a critical mass of consumers willing to pay $12 for a bottle of Stellenbosch Cabernet Sauvignon – value is still the nation's watchword. But try asking consumers if they will pay more for terroir-driven, artisan wines of superlative quality. You would hear a pin drop in the room for the embarrassed silence.

Of course, the tiny production of wines such as The Divas helps matters a great deal – sold to private clients in the Netherlands, US, UK, and Japan, DeMorgenzon's cellarmaster has every reason to feel confident about its success. "We don't plan to expand the limited-edition range, at least, not for now," he says. "The Chenin offers a unique proposition in that it has heritage – 1972 old-vine block – and will only be released in exceptional vintages."

Nevertheless, it is clear that New World competitors Chile and Argentina are starting to make South Africa look like the poor relation in the super-premium stakes. Real investment and critical recognition of South America's potential for fine wine has instigated a massive change in both fine-wine production and consumer perception. Expensive wines from Chile and Argentina are no longer a hard sell, or so sommeliers tell me. By comparison, South Africa continues to forestall its entry into the global market for luxury wine.

There are, in due fairness, a number of expensive labels (by South African standards) that routinely achieve high scores. De Toren, Sadie Family and Vergelegen all produce venerable wines, but their impact outside of South Africa remains negligible.

"We really have excellent iconic examples but sadly too little leaves our shores. We are still suffering the 'cheap wine syndrome' from our saddened introduction into the world of wine in 1994. We were welcomed in the international markets by the gatekeepers, which kept us cheap and cheerful," says Pieter Ferreira, cellarmaster at Graham Beck.

Yet as Paul Cluver winemaker Andries Burger readily concedes, neither is the domestic market (largely) willing to pay more for SA wine.

"The biggest market for our wines is still the South African domestic market, and local people are not prepared to pay such high prices for wine," says Bulger.

"The average Joe does not drink wine and if he does, he drinks wine of less than R100 [$6.70] a bottle. Ninety percent of all wines sold in South African supermarkets is priced less than £5.50 [$7]. Unfortunately, we do not have the critical mass in the higher price segments, I do think we punch way above our weight in quality in this segment, but we lack the volume."

 Carl van der Merwe adds: "We have to ask for higher prices, and have the guts to stay there. If we keep discounting and cutting our margins, we will never gain respect."

Greg Guy, international director at DGB, takes it one step further. He insists that significant price increases for premium and super-premium South African wines are "essential", rather than desirable, if the quality-focused industry is to survive.

"It is time for the leading players in the industry to realize that South Africa must not be seen as the #1 destination for cheap and cheerful wine," says Guy.

"We most definitely need higher prices for our wines, but we face resistance from the gatekeepers – in the UK read the big multiple buyers – who in turn pass the blame onto the consumer, whom they say will not pay more for SA wine."

A succession of difficult harvests, with lower-than-average yields, has brought this issue into painful focus for South Africa. The 2019 harvest came off the back of a challenging three-year drought – conversely, many of the Cape's major regions experienced cool and windy conditions during fruit set in 2019, leading to fewer bunches and smaller berries.

According to Guy, the impact of a smaller harvest – the lowest total yield since 2005 – meant that grower price rises were inevitable; so too, he argues, will producers have to ask for more.

"Market research that shows South African wine is seen as very favorable; I think it is a chicken-and-egg situation, whereby if the retailers gave a bigger share to SA wines at higher price points – and I'm not talking a lot, just shift each category by a pound or so – then I'm sure they would deliver as they still over deliver in terms of quality," says Guy.

But there has been a positive overall growth in the value of South African exports in recent times. Figures released by Wines of South Africa in January 2019 revealed that the total value of South African exports rose to $610 million, yet total volumes fell due to the small size of recent vintages. IWSR data shows that the UK market, which remains South Africa's largest export market by value, continues to also grow in volume, albeit exports to Germany and Holland declined between 2014-2018.

Of course, Guy and his colleagues would argue that these gains are simply not sufficient enough to guarantee the industry a rosy, or even adequate future. Almost 500 private cellars operate in the Western Cape, although South Africa is still predominantly a bulk exporter of wine – according to the OIV, more than 55 percent of South African wine exported in 2016 was in bulk – it remains a growth business. That's not an accolade that South Africa wants to boast about.

"South Africa is getting dusted by the likes of Australia, New Zealand, Argentina and Chile in terms of exporting high-end wines. Maybe that's on the importers," says Zach Jones, wine director at Pacific Standard Time, Chicago.

"I would say there is a general lack of exposure to the higher end of the spectrum of South African wine, at least in Chicago. I can't speak for other markets, but the exposure for me has been somewhat limited to more mid-range and glass-pour wines. Moreover, having worked in both distribution and on the restaurant side, I can confidently say that South African wine is a tough sell – again, I think this goes back to South Africa having a difficult time standing out or distinguishing itself."

 Jones underlines the point that South Africa, unlike Argentina and New Zealand, lacks a strong USP or overarching brand identity.

"Its three most recognizable grapes – Pinot Noir, Chenin Blanc and Chardonnay – are already done extremely well and in abundance in the US – and are done even better in France," says Jones.

"And then there's Pinotage – don't get me started on Pinotage. If South Africa is wondering why Pinotage has not caught on internationally, well ... it doesn't have the most sparkling reputation. Not sure who coined the term, but for many sommeliers the main thing they know about Pinotage is that its most notable aroma is 'bloody bandage'. In my opinion it's an accurate description."

But as Alexander Waibel, co-owner of Constantia Glen points out, South Africa's premium industry is still a baby; the turnaround in quality has only really happened since the 1990s. Is it, therefore, simply a matter of time?

"In the past South Africa produced mainly budget wine and the quality levels on the top-end really only have come to 'excellence' over the last 10 to 15 years," says Waibel.

"A lot of wine writers and international competitions – Parker as one example – only started covering South Africa a few years ago. As you know 10 to 15 years is a very short time in the wine industry; the SA marketing body has very limited resources compared to countries like New Zealand or Austria, which certainly could accelerate the development of the high-end market as these two countries have successfully shown."

Graham Beck's Pieter Ferreira wholeheartedly agrees.

"It has taken Graham Beck five to seven years to get a higher price in export markets," he says.

Carl van der Merwe adds: "The perception of SA internationally is still cheap and cheerful, although this seems to be changing slowly, and is more evident in the markets where SA wine is more established. The super-premium market is tiny, and the appetite for SA wine in this price point is not yet established. Therein lies an opportunity, but it will take time."

Time, however, may be one vital commodity that South Africa does not have. In public at least, owners and investors are optimistic, but in private many firms have admitted to me that rising production costs and exposure to outside economic shocks, such as exchange rate fluctuations, continues to eat into profitability across the board, affecting both small enterprises and major corporations. Another drought-ravaged harvest, with severely reduced yields and inflated grower prices, could see the end of many businesses, several winemakers have claimed.

"If we do not get the necessary price increases then we might as well just shut up shop," says Greg Guy.

"We mustn't be scared to ask for higher prices as our wines are good enough to demand these prices. When France or Italy tells the markets that it 'needs' an increase of 15 percent due to short supply, the market accepts it yet, when South Africa tries, we get pushback from buyers. We need to change this mind set and admittedly it is not easy as ultimately the consumer will decide but if we don't start now we will never get there."

Can South Africa overturn widespread consumer prejudice and demand high prices across the board, or are wines like The Divas a case of too little, too late?

"From a UK market perspective, I think we do have the quality and we need more wines like The Divas," says Burger. "You only need one or two wines at that price point to start to change consumer perception."


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