As if there was not enough sobering economic news recently, the most depressing article we have read for some time was a Business Day article on wines and spirits group KWV, in which CEO Andre van der Veen reported that brandy sales dropped in 10 years from 55m litres to 33m, and are expected to drop further to 30m litres this year. It wasn’t clear whether this was the company’s sales figure or a national one, but either way the brandy market seems to be shrinking steadily. Now, one advantage of local brandy is that it is produced locally, from local grapes.   This contrasts, of course, with imported cognacs and brandies, and with other spirits, notably Scotch and Irish whisky and whiskey.   Michael Olivier leads our weekly Die Vine Intervention podcast tastings of ZA wines and spirits, which are posted on ZA Confidential, and we have enjoyed some stunning local brandies.   Then, of course, there is the far larger market for mass-produced brandies, often consumed when mixed with cola or in other cocktails.

We do not advocate excessive consumption of any form of alcoholic drink, but are concerned that the local market for brandy is shrinking.   This may be a generational matter, with younger drinkers preferring different, clear, spirits – such as vodka, tequila and gin.   However, we would like to see more effort in the promotion of local brandies, both the cheaper ones and the more up-market versions. Clearly one important market is the black diamond – successful black South Africans who are wealthy and can afford and enjoy the finer things in life. Much advertising appears to be targeted at them, and we hope this is having an impact.   However, there remains a belief in South Africa that the best things in life need to be imported – be they brandies, sparkling wines, bottled mineral water or anything else.   What we need to realise is that we produce wines and spirits, port and sherry (even though we can’t legally use these two terms any more) in this country which are world class, and that there is nothing second rate or inferior about ZA brandy.

Conclusion:

Next time you are in a bottle store, take a look at the local selections. And try one of our finer South African brandies.   In terms of price and quality and value for money, you can’t do much better!

Tweets of the Day:

¿ jay ? (@jaymeisterrr): You can tell a lot about a person when perched in a tree looking into their bedroom.

Latie (@latiejonker): “Take me to your dealer”, said the alien to the first person he met. “Don’t you mean, leader?” “This is Hillbrow, I know what I mean!”

PUNS (@omgthatspunny): If a child refuses to take a nap, is he resisting a rest?

 

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We don’t think we see enough serious research on the ZA wine industry, so we were delighted to receive the latest PwC report today. Lots of figures, so I tried to distil a few highlights by putting a few questions to author Frans Weilbach, a partner/director at PwC:

 

ZAC: Over half of producers expect a decrease in red wine prices in the short term.   Was this a response from SA producers?   And why does white seem to be doing better than red?

FW: The response was from South African chief executives of wine businesses. When the same question was posed to international respondents, 80% indicated that they expect the price of red wine to remain stable in the short term. The positive sentiment towards white wine from a grape production point of view might be the result of better overall revenue per hectare on the farm because of higher tonnage yields. From a price perspective it might simply be the result of demand, especially from new wine connoisseurs, who could prefer the light, fruity elements that white wines offer, compared to the heavier tannins that red wines have.

 

ZAC:   North America and Africa present best export opportunities, followed by Asia.   What is your advice?   Should the industry prioritise a few markets, given limited resources?

FW: Wine businesses should continue to focus on markets in which they have performed well in the past, to ensure that they retain market share. If markets are well researched and investigated prior to entering, there is no reason why they should only be focussing on a few markets. Obviously they look to established and profitable markets in the short term, but as these markets become saturated they need to explore and find new opportunities. They should by no means follow a shotgun approach to their strategies, but getting a foot in the door in as many markets as possible will do well for growth. Knowing your product and being in control of your marketing function will be very advantageous for expansion.

 

ZAC:   Your report shows SA CEOs seem positive for the next 3 years, with a stable outlook for the current year. BUT….might their views differ if they were asked again now, given recent government statements about having to hand over half of agricultural land to the workers?

FW: It might certainly change their views, although there have been talks along those lines for some time.

 

ZAC:   There is untapped government support for export promotion. What needs to be done for this to be tapped? Is it the industry which is slack, or government?

FW: We think that both industry and Government are trying to promote growth. It is not that either party is slack, but what could possibly be improved upon is the coordination of export efforts, better information and education about available Government support, and providing industry with the necessary skills, assistance and expertise to maximise their utilisation of available support.

 

ZAC: You say that bulk wine sales represents “the main opportunity for growth”.   But won’t this continue to dilute and destroy Brand ZA?

FW: Brand SA might suffer some dilution in the short run. However this needs to be weighed up to the additional profits in this market at the moment and the potential to utilise this in the future to really stimulate Brand SA.

 

ZAC:   This may have fallen outside the scope of your report, but what do you think of current efforts by wine farms to diversify into hospitality – with restaurants and other attractions?

FW:     In this regard it is important to distinguish between the different types of wine businesses. Producer cellars (on whose results the survey is based) generally do not diversify into these hospitality offerings, as they merely act as a producer, representative and coordinator on behalf of members (i.e. the farmers). We have however seen that private estates, which generally grow their own grapes and produce and market their own wine, diversify and offer a complete hospitality package. There are examples of very successful expansions into other lines of business, which make these businesses more competitive. Diversification has both positive and negative implications, but overall these additional offerings help in promoting the brand of the estate, provide (especially tourists) a unique South African experience and basically serve as a one-stop hospitality experience. I think that a well thought through business strategy into diversification offers great opportunities and if implemented successfully, could be great for the industry as a whole.

 

Tweets of the Day:

Latie (@latiejonker): If life gives you melons… You may be dyslexic

David Nobbs (@DavidNobbs): Found a great book on reincarnation by Walter Throdnall (1787-1859, 1886-1953, 1985 – )

Steve Stifler (@SteveStfler): Whose cruel idea was it for the word “Lisp” to have a “S” in it?

 

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It can’t be a matter of money.   We are convinced that the companies and organisations which invite the media and analysts to presentations and conferences pay a lot of money to the hotels and other venues where we gather.   So why is it that so many of these places serve such dire food?   We have recently been to a number of so-called five star hotels in and around Johannesburg, and are struggling to recall one pleasing meal.   How difficult is it to cook and serve a warm breakfast meal?   Too difficult at another luxury hotel, where the eggs were cold on the first attempt and tepid after we had asked them to try again. And the catering crisis does not stop at half-baked bacon and eggs. South Africa has some of the finest fresh fruit in the world.   So why do hotels sometimes serve up under-ripe melon and other fruit to their guests?   They should be showcasing what we produce, not putting people off.   And we remain speechless after being served macon and not bacon at the Hilton in Cape Town.  If other guests have an eversion to pork, that is fine by us.  But if you want us to enter the day with our sunny side up, give us eggs and real bacon, not some inferior tasting substitute.  Meanwhile, the in-house catering at Investec is normally pretty good, but an event at another financial services outfit was awful.   Cold and unappetising breakfast.  It can’t have been about the money, as they are drowning in it.  ZA Confidential now carries regular feedback on the hospitality in our coverage of key events. In a spirit of sorrow, and not in a desire to shame, we will tell you where we do and don’t eat well, and are entertained well. We now RSVP to breakfast events requesting warm bacon and eggs and brown toast.  And red wine at lunchtime and in the evening. We will let you know how we fare with the fare. After all, many of our readers host their own functions and need to know where their guests will be well fed, not fed up.   Egg us on, please. ..

Tweet of the Day:

Latie (@latiejonker): If life gives you melons… You may be dyslexic

 

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Our new Finance Minister Nhlanhla Nene has attended his first public engagement since his appointment a month ago, at a KPMG forum in Johannesburg, with a focus on cooperation between the private sector and the state. In a conciliatory speech, he insisted that the private sector is a key partner in growing the SA economy. The Minister noted that economic activity contracted in Q1 of this year, mainly due to manufacturing and mining production losses.  The private sector has endured three consecutive quarters of job losses, but Nene expressed the hope that the end of strike in the platinum sector should have a positive impact. However, he cautioned that until workers start working, he is not going to start celebrating. The minister noted that electricity supply shortages have had an adverse impact on investment decisions and on our growth potential. He looked to the National Development Plan (NDP) to provide a menu of options to boost development and growth. Nene insisted that the government intends to improve competitiveness of private sector, and he spoke of the dynamism and agility of private sector. He spoke of a few measures outlined in the last budget to support business. These include R847 billion over the next three years for infrastructure investment, the bulk of which will be for power generation and freight logistics. There is a simplified trade regime for firms doing business with the rest of continent. 25% of SA’s manufacturing exports are destined for Sub Saharan Africa. The suite of industrial incentives has been increased and adapted. These include R2.4bn for clothing and R10.3bn for manufacturing development incentives, as well as R15.2bn in economic competitiveness and support programmes and R3.6bn for special economic zones (SEZs). Nene said that the government understands importance of SMEs for economic growth and job creation. The new SME ministry will pay particular focus to this sector. He said government and business are working together, and suggested three areas of future collaboration: sector specific interventions to increase productivity and innovation, the development of more housing rental stock for workers near their places of employment, and the identification of growth opportunities on the continent.

Conclusion:

A confident and encouraging speech, and less left wing and interventionist than one might endure from some of his cabinet colleagues.   But time will tell who yields the real power inside government.

Hospitality:

The media were invited late in the day to this event, and it did not help that the minister started speaking 20 minutes early – before some had arrived in the over-cramped venue    Sad to see a number of CEOs and overseas visitors getting overcooked food which was served over too long a period. And no wine.   Thank goodness for the Nene other business.    

Tweets of the Day:

Fake Dispatch (@Fake_Dispatch):   “I wish I could lose weight.” “Have you tired eating less and exercising more?” “Does that come in pill form?”

Funny Tweets (@Funny_TweetsQ): How to get a hot body: – preheat oven to 425° F – get in oven

Frankie Boyle (@frankieboyle): When games are 0-0, an extra ball should be introduced every 5 minutes or so

 

ZA Confidential is a subscription newsletter.   For subscription details or any other communication, please contact:   zaconfidential@gmail.com     Follow us on twitter: @zaconfidential