Red Wine Overshadowed by White, PwC Report Suggests

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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