The Rich Are Intoxicated By Wine Making

Two hundred new wine cellars have opened up in South Africa over the past two years.

This is particularly surprising, given that there is a global over-supply of wine and the local market has been stagnant for years.

Wine making is seldom a big money-spinner: the market is simply too competitive, here and abroad. But the new entrants include the rich, for whom producing one’s own label is intoxicating enough without having to make any money from it, at least in the short term.

A new report on the liquor industry by Who Owns Whom shows that there has been surprisingly little consolidation in the wine industry. It is still dominated by small and medium players.

These estates are mostly situated in the Stellenbosch/Paarl area of the Western Cape, which is increasingly being given over to so-called “boutique estates”.

Bigger scale vineyards are moving out to areas like Robertson, Worcester and the Northern Cape where land and labour are cheaper and growing conditions just as good.

South African producers are increasingly recognising the importance of guaranteed markets. Supermarkets now buy directly from some estates — such as Simonsvlei, one of the bigger players with a 7% market share — although competitive shelf prices mean slim margins for producers.

South Africans drink, on average, nine litres of wine a year, a paltry amount compared to the citizens of Luxembourg, who down 66 litres a year each. Or the French who drink 48.5 litres.

The obvious area for expansion is among the black diamond classes, and marketing should be focused there. The indications are that black women prefer white wines, but reject so-called “critter” labels — those with animals or with African names. Their preference appears to be for mainstream, premium wines.

In general, South Africans prefer white wine. Red wine accounts for less than 15% of local consumption.

But it is in the export market that South Africans are likely to make the biggest gains.

Currently, we are the world’s eighth-biggest producer with just more than 3% of the global market.

The best bet for the SA wine industry is to go for niche markets — high quality, high-priced wines. The other possibility is to aim for environmentally and socially aware markets .

The global thirst appears to be for New World labels, which South Africa fits into nicely with its cultural diversity and the promise of reinvention as epitomised by the democratisation of 1994.

Spirits have also shown some movement.

The Distell Group, of which SABMiller and KWV each own 30%, now consumes 10% of the total alcoholic beverage spend in South Africa.

International wine and spirits conglomerate Pernod Ricard, which is listed in France but established an office here in 1994, controls key brands such as Jameson and Chivas Regal. Another player is The Really Great Brand Company, which controls Brown Forman beverages such as Southern Comfort.

Diageo, Heineken and Namibia Breweries have a joint venture company in South Africa called brandhouse which recently took the Amstel franchise from SABMiller.

By Andrew Mcgregor (MD of Who Owns Whom).

Source: www.thetimes.co.za