This interview was published for Global Drinks Intel subscribers in July. For details on how to join them, click here.
Back in January, figures released by trade association Wines of South Africa showed single-digit declines in wine exports from the country in both value and volume terms. Global Drinks Intel dug further into the numbers with WoSA chief executive Siobhan Thompson.
Global Drinks Intel: Could you talk us through how last year treated South Africa’s wine producers?
Siobhan Thompson, CEO of Wines of South Africa: If we jump to 2021, we enjoyed a really good export recovery after 2020, which was a dismal year. We had a lot of bulk wine that was moving out, some of which was used for non-South African product while some was being packaged in Europe.
The trade was pulling in a lot of stock to keep their holding levels high because of the logistics issues. So, 2021 was very good.
In 2022, we saw things settling more: There were a lot of issues domestically that led to exports dropping. Brand health in our key markets is really sound – we’ve made good progress in terms of image – but we had ongoing logistical issues as well as glass, capsules and packaging shortages. Then, we had the electricity going on and off all the time, which added to the complexity. Producers were scrambling around and some had to delay orders.
Then, we had freight issues with the port in Cape Town: The weather was bad in October, which is a high supply time for us. We also had strikes in April last year. We had a strong December, though, so that helped make up for things.
GDI: How’s this year shaping up?
ST: What we’ve seen in January and February is definitely a slump, although that’s partly because December was high. I’m hearing from importers and exporters that the trade has definitely cut down in terms of stockholding.
Forecast-wise, markets are struggling in general, with high inflation putting pressure on consumers. I expect they’re buying less and buying better; instead of buying three bottles, they’re buying one. Our biggest challenge right now is the weakening of the rand, which makes supporting marketing programmes in countries difficult.
Even with all this, the trade still sounds very comfortable with our quality. One of our success stories is the change in our channel structure – supermarkets are still key, but our value growth has jumped in specialists and independents. There had always been such disparity between South Africa’s value and volume share but we’ve seen that equalise, so it’s pleasing to see that strategy work out.
GDI: Have things been worse for South Africa’s wine industry than other countries?
ST: I do think we had a torrid time with the alcohol bans in South Africa, but that’s gone. Cape Town port, meanwhile, is quite small and it’s wind-bound – if the wind gets over 80km per hour, the whole port shuts down, but we’ve always had that.
Generally, these problems are affecting other Southern Hemisphere countries. We South Africans always worry about how the world sees us – that comes with our history. Sometimes we underrate our ability and our quality and I think we’ve been vocal because we worry about reputational damage. But, I’m regularly told that we’re not as bad as we think we are.
GDI: You mentioned the disparity between value and volume, yet most of the movement in last year’s figures was in bulk wine.
ST: In 2021, we managed to get back some of the entry-tier listings in supermarkets that we’d lost in 2019. A lot of the bulk that was exported last year was actually quite high-level wine; The majority, if not all of it, went into branded product being bottled in the UK or Germany. Not all bulk is equal!
We did see a bit of cutback at the higher price level but that was mainly because of glass availability. Where we’ve still got a big gap is in the middle section – I call it the girth. There’s an opportunity for South Africa to get more brands into the GBP10-to-GBP15 [US$12.50-$18.70] area to create that ladder approach.
GDI: What impact is there from the bottling-in-market approach on the longer-term health of South Africa’s wine industry, where you’re also dealing with societal disparity?
ST: It’s a catch-22. We’ve got 35% unemployment in South Africa and our industry is very labour-intensive. At the same time, we’re managing this tension of carbon footprint and low glass supplies. We find that the minute cost becomes an issue, companies move their bottling offshore. The minute that there are advantages, they’ll move it back.
Buyers are telling producers to lower their carbon footprint but also saying they need to have ethical trade. So, what do you want? It’s very much an economic issue but for us it’s important to keep bottling in South Africa – We’ve always said that.
GDI: How do you feel South African producers have approached the US market?
ST: Some of our small and medium-sized producers have got to grips with the US. It’s 50 markets in one – We all know that. You’ve got to be very selective about where you go. The pleasing thing is that we didn’t go in and do a mass, lower-end approach. We’ve been very niche, and we’ve got some producers doing very well and some that are hit-and-miss.
I think we’re making progress, but it’s an incredibly hard slog. You’ve got to have someone in the market who knows how to operate, then you’ve got to have the right product and constantly chip away at it.
The diversity trend that’s happening in the US is probably also helping South Africa. People are looking to different cultures and for different ways of working. If you’d spoken about sustainability in the US five years ago, you would have had no interest. Now, there’s an interest.
GDI: What about the potential for other New World producers in China, following the implementation of tariffs on Australian wine?
ST: We were managing to make some momentum in China, particularly in the higher price tiers, before Covid struck. Then, they were shut down for the whole of last year as well, which really set our marketing programme back. We’re now seeing marketing efforts picking up.
South Africa doesn’t have a trade agreement with China the way that Chile does, for example. So, they’ve got that leeway that we don’t have.
There’s still potential for South Africa: we’ve seen white wine start to grow as well, which is a sign of some maturity happening. So, I’m still optimistic. We’ve lost two years in China, but everyone has. We’ve got the offerings to be able to satisfy that market.
Europe is our big footprint and the UK is our biggest market – The US and China oscillate between five and six.
GDI: Where else is on your export radar?
ST: The one that’s very interesting is the rest of Africa. We’ve seen such good growth happening in countries such as Nigeria, Ghana, Uganda, Tanzania, Kenya, and even some recovery in Angola. We’ve seen consumers become very interested in wine – They’re thirsty for knowledge.
They also see South Africa as part of the African offering, which is good. But, there’s a similarity between the way China and Africa operate in terms of consumer life stage – the way they drink and socialise, for example.
GDI: The main Africa-related headline in recent months has been Heineken’s acquisition of Distell. What knock-on effect do you see the transaction having on South Africa’s wine industry?
ST: Distell is quite strong in entry to mid-tier in wine, which is similar to where Heineken plays in beer. The challenge is, does Heineken have the ability to deal with top-tier wine? I can’t see Heineken’s distribution network being able to do that.
GDI: What’s the mood like among South Africa’s wine producers at the moment?
ST: They’re all really getting to grips with the big basket called sustainability. Our biggest challenge is how to migrate the carbon footprint issue with our location. Some of our environmental practices are world-class. We’ve always been pretty bad at telling people – that’s our problem.
GDI: Why is that? Modesty?
ST: Producers in general are modest, but they’re also not good marketers. They just put it on there and then think that everyone knows.
In true South African style, it’s just another problem, we’ll get over it.
This interview was published for Global Drinks Intel subscribers in July. For details on how to join them, click here.
