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Pressing matters for South Africa’s wine industry

Labour relations leave a lot to be desired. The proportion of wine drinkers in SA compared to beer and spirits drinkers is small. The hectares under vine have declined over the past few years. It’s tough out there.

Fully 80% of the industry is either just breaking even or loss-making. The drought over the past few years in the Western Cape has reduced yields and forced farmers to pull out vines, so SA’s total hectarage under vine has dropped around 10% from about 102,000 hectares in 2008 to about 93,000 now.

Still, that’s a lot of grapes. And it’s easy to think of the industry as a kind of side issue in SA’s economy, but it employs and supports about 300,000 people. That’s not a whole lot less than the 450,000 people employed in the mining industry.

Being a complicated, brand-driven, export-orientated industry, wine business constitutes a good example of how SA could and should be marketing itself, and how an industry should organise itself to create jobs and opportunities. Yet government involvement in assisting the industry is almost non-existent, in sharp contrast to almost every other government in every other wine-producing region of the world.

SA’s total wine marketing budget is drawn from a small excise deduction on SA’s exported wine by bulk – not by value. The numbers are not disclosed, but experts say it comes in at about R20-million. Compare that with the R500-million, three-year programme Wine Australia has just been granted by the Australian government in addition to its existing programme. Australia has about 146,000 hectares under view, substantially but not hugely larger than SA. Regions in France spend more on marketing than the entire SA.

According to South African Wine Industry Information and Systems (Sawis) figures, although SA’s wine exports (which are normally about half the total harvest) have dropped for the past three years, they are still almost double what they were a decade ago.

Maryna Calow, the communications manager for SA’s export-supporting body Wines of South Africa (Wosa), says the main reason for the declines over the past three years has been the drought. The effects have also lingered longer than many thought it would.

SA’s biggest challenge, she said, is that in the past, SA’s marketing message in major export destinations including the UK and Germany was something along the lines of: “Buy our wine, it’s cheap and cheerful.” “That message sadly has stuck. It’s a huge problem”.

South Africa’s wine quality is generally better than that, but breaking into a higher sales category has proved difficult.

SA still exports about 60% of its wine in bulk, and Wosa is aiming to get that proportion inverted. Usually, bulk wine, exported in huge tanks, is mixed into generic brands and sold ultra-cheap.

What about the local market? According to Rob Gower, Woolworths’ head of wine sales, the local market is holding up – more or less. When surveyed, consumers say they intend to buy cheaper brands.

But in fact, wine sales at Woolworths have stayed pretty constant. Consumers often decide to buy cheaper brands, but having traded down, they reward themselves by buying more. Clearly, there is some drinking going on to forget the hard times.

As far as the industry is concerned, Gower says, “We are at quite an interesting juncture”. Some weak producers have recently been forced out of the industry by the drought and rising prices. The price of a wine bottle in SA is now twice what it is in the UK, he says.

Yet, the industry has some very fundamental problems. “Winemakers … well … you know, they are artists”. Finding people who are good winemakers as well as having serious business acumen and heavyweight marketing savvy is a big ask. Some have managed brilliantly, but many have not.

And yet, winemakers love being in the industry even though profits are minuscule. Gower says many winemakers are running little or no debt and much of the value of the farm is constituted by sunk costs, so the farms just roll-over their production year after year. But marketing is one of the most crucial aspects of winemaking, and as a result, the true cost of selling wine is obscured.

SA does have a few marketing champions, and black consumers are beginning to enjoy wine. One recent success for Woolworths was TV personality Bonang Matheba, who has launched her own sparkling wine brand called House of Bonang.

SA’s wine industry might be under strain for some time, but Gower says in the longer term, he is optimistic.

But if you aren’t, at least you are making the right product to drown your sorrows. BM


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