There is a renewed energy in the South African wine industry, as it turns a new corner following a long downward cycle. Now more than ever, wine grape producers need to take ownership of their future and leverage the opportunities, information and partnerships available to them to secure a sustainable future.
The 14th Nedbank Vinpro Information Day, with the theme “It starts with you”, was held yesterday at the Cape Town International Convention Centre (CTICC), with a record attendance of close to 900 delegates throughout the wine value-chain.
The effect of climate change and water shortages on the 2019 harvest, pricing and profitability pressures and uncertainty surrounding land reform were some of the hot topics addressed at this year’s annual wine industry conference.
Stock levels low, pricing up
“The 2019 wine grape harvest is expected to be marginally larger than last year’s much smaller crop, due to vineyards still recovering from a three year drought, bad weather during fruit set in October and a continued decline in wine grape vineyards,” said Francois Viljoen, Vinpro consultation services manager.
The quality of the 2019 vintage will depend on the weather over the next few weeks, which looks promising with cooler conditions. Average to lower yields are expected, but grapes are generally healthy due to looser bunches that lower the risk of rot setting in. Sufficient water resources will be available in most regions.
Low wine stock levels will provide the opportunity for the industry to raise the bar in terms of pricing. “We’ve already seen an increase of 35% to 50% in the prices of bulk wine over the past two years, and 10% in packaged wine. Let’s build on this momentum to ensure a sustainable environment for investment,” said Vinpro chairman Anton Smuts.
Profitability still under pressure
There are, however, still producers selling wine in bulk for less than R4.50/litre to wholesalers locally and R5.50/litre overseas. Nearly half of the packaged wine sold locally trades at less than R30/litre, compared to local bottled water which sells at R6.00/litre and imported water at up to R35/litre. “We can’t possibly remain sustainable at these pricepoints,” said Anton.
These low prices have filtered down to farm level as well, where wine grape producers have been under severe financial pressure over the past decade. “Production costs have risen by 7.4% annually over the last ten years, and with wine prices remaining stagnant up until recently, more than 80% of South African wine producers are farming below a sustainable net farm income of R30 000/ha,” said Christo Conradie, Vinpro wine cellar manager.
The recent wine price increases have however, had a positive impact on income levels at farm level, which resulted in net farm income more than doubling from a low base of R6 644/ha in 2017 to R14 949/ha in 2018.
“This is the year to forge and maintain relationships with your partners in the wine value-chain. Know what wines your grapes are going into, ask yourself why your wine is standing on that specific shelf at that specific retail price, do research on the markets your wines are destined for and speak to your off-taker about it. There is a wealth of information and insights available to the industry through bodies such as the SA Wine Industry Information & Systems (SAWIS) and Wines of South Africa (WoSA). Make them your partners for success,” said Christo.
Treat your customers like royalty
Another important partner for success is the consumer. “A successful business is one that treats its customers like royalty, starting with the end in mind and working backwards,” said Mark Norrish, national wine manager at Ultra Liquors.
Consumers have been “buying down” on brand purchases or even “switching out” of particular subcategories due to financial pressures. A shift towards innovative categories such as low-alcohol wines that can effectively capture and hold consumers’ attention can be expected.
Mark highlighted the increasing role of social media and the rising voice of the customer, which can make or break a brand’s image. “If you treat customers like friends, they’ll become friends; if you treat them like rubbish, you won’t see them again,” he said, advising producers to keep their story short, authentic and memorable.
Keep it simple
Consumers tend to buy wine like any other product – based on convenience, brand recognition and reputation. According to UK-based wine writer and critic Robert Joseph, packaging styles are converging across product lines and it’s becoming harder to tell beverages and price brackets apart by conventional design cues.
Trying to supply to frequently changing tastes also leads to a vicious cycle, as low prices force low margins, leaving no funds for marketing, which means weak brands only able to fetch low prices. Robert warned the industry against persisting in such unsustainable models, and explained that attempts to salvage them have been misguided – for instance focusing on education. Consumers don’t rely on education to buy shoes or cosmetics, and technology increasingly cuts out mediators.
Instead, he advocates a model that relies on brand building. “The most profitable models transcend the category and offers experiences. The purchase decision also becomes simple with generic blends,” he said.
Christo agreed with Robert about the importance of offering experiences to build your brand, and referred to Vinpro’s renewed focus on wine tourism opportunities.
Confidence will drive agribusiness growth
Moving from the controllable aspects to the broader agribusiness environment, Wandile Sihlobo, Agbiz agricultural economist, said confidence is the one thing driving economic and agribusiness growth, as well as job creation.
“To be confident we need trust, reputation, reliability and dependability in government and policies, in business in general and also in agribusiness,” he said.
Uncertainty regarding land reform policy and other key issues need to be addressed to ensure confidence – issues such as climate change and the sector’s ability to adapt, water rights regulations, boosting international trade through non-tariff barriers, as well as addressing infrastructure constraints in some farming areas, particularly the former homelands.
Worry less about the land issue
Elaborating on the issue of land reform, political commentator Max du Preez said producers with productive land shouldn’t be too worried about the hotly debated issue of expropriation without compensation, at least for the next few years.
“The ANC never cared much about land redistribution and made very little progress since 1994, virtually coming to a standstill under Jacob Zuma’s presidency,” he said. Introducing the proposed legislation was a political move from the Zuma camp who was in danger of losing power in the ANC’s leadership elections.
Max has faith in President Cyril Ramaphosa. “The reason most South Africans are pessimistic following the Ramaphoria of last year, is that they’ve hugely underestimated the massive impact that the Zuma-tsunami had on our economy and politics,” he said.
South Africans remain resilient. “Stop being depressed and let’s just make it past the elections.”
Open up the dialogue
The South African wine industry is in a place where the respective stakeholders can’t afford not to talk to one another about the challenges they face, and what the future might hold.
“This industry will not be in a position to sustain itself economically or socially and truly transform without addressing a change in our behaviours – change at industry level, change at farm level and change on a personal level. This can only happen through constructive dialogue,” said Linda Lipparoni, CEO of the Association for Wine and Agricultural Ethical Trading Association (WIETA).
She referred to various programmes in which communities, Government and NGO’s engage to resolve issues at regional level. “As a producer, you can also start to have a real conversation with the people working and living on your farm about day to day challenges,” said Linda.
Continued commitment from Nedbank
In keeping with the theme of partnership and collaboration, John Hudson, National Head Agriculture: Nedbank Business Banking, said it was a privilege to be involved as the title sponsor of the Nedbank Vinpro Information Day for the 13th consecutive year.
“As a bank, we are proud of our involvement in the wine industry and our commitment to the sector is reflected in the substantial market share the bank has gained over the years. We also actively work with the industry on a number of partnerships, including sponsorship of the Cape Winemakers Guild and involvement with the SKOP 30 programme, which focuses on skills development and the training of wine cellar workers,” he said.
Along with co-sponsors Old Mutual and Old Mutual Insure, John said Nedbank is committed to the continued support of the wine industry and events such as the Information Day are crucial in helping the entire wine value-chain to better understand the landscape and how best to tackle the challenges and opportunities that lie ahead.
Vinpro Communications Manager
Tel: 021 276 0458