Michael Jordaan on wine innovation

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Michael Jordaan is one of the most impressive people in the SA wine scene, so it seemed apt to feature the speech he recently made to the Nederburg Auction:

It will come as no surprise to anyone here that South Africa’s wine-producing regions are, without exception, presented as beautiful, lush, fertile and prosperous. Wine and the landscapes that produce them have a timeless aura about them that only the most hardened cynic can resist.

But scratch a little below the surface, and you’ll find a grim reality.

Only 14% of South African wine producers are sustainably profitable. Half struggle by with very low or no profit, at the mercy of every shock in the weather, the vines or the market. Almost four in ten wine producers run at an outright loss.

Against prices that have been declining in real terms, wine production costs have soared relentlessly, and there appears to be no end in sight.

The area of land under wine grape vineyards in South Africa has declined by 7% over the last ten years, and that decline has accelerated since 2015.

South Africa has lost almost a quarter of its primary grape producers, and the number of cellars has also been trending downwards.

Because of the severe drought in the Western Cape, there was a sharp decline in South Africa’s production for 2018. According to VinPro, production was down 15% year-on-year.

And globally, wine production is also at its lowest ebb this century.

So far, the state of the wine industry, both in South Africa and overseas, looks pretty dismal.

On the upside, however, worldwide wine consumption has remained stable, and South African consumption has been on a steep rise.

We drank 21.6% more wine last year than we did five years ago. Don’t tell (Health Minister) Aaron Motsoaledi, but sin taxes don’t work. In fact, they just encourage us.

While drought has slashed production, it has also increased grape quality, which makes for less, but better, wine.

According to Nicolò Pudel of Port2Port, almost all the future growth in the South African wine industry will come from the premium segment. That is, wines that retail above R65 a bottle.

Although about 60% of South Africa’s exports still consist of bulk wine, the quality of the country’s wines has risen steadily since 1994. The premium wine segment is ripe for exploitation by local winemakers.

Wine is a complicated thing. And to be fair, I’m just an ordinary wine enthusiast so this is a very daunting audience for me. You are far better qualified in all aspects of wine from production to taste to marketing.

When I sniff a glass of wine, I’m likely to say, “Mmm, do I detect a hint of grapes?”

Show me a wine stopper, and I think, “Why would you want to stop the wine?”

But not only are you better qualified than I am, you also all have strong and widely varying views on wine and what should be happening in the SA wine industry.

To give you just a few examples of the advice offered to me by a few wine fundis who’ve crossed my path in the last few days:

Jan-Boland Coetzee from Vriesenhof told me that optimal wine production is all about understanding the light intensity on every block of the vineyard. The idea is to plant the right varietals according to sunshine and then treating blocks, and even vines, in each vineyard individually.

Amanda Barnes, a leading wine journalist, told me that South African reds are still harvested too early and we should not worry about higher alcohol levels, but rather get the slight green taste to go away.

Johan Olivier from Beau Constantia says the problem with our wines is the same problem that most people have: namely that they are trying to hard to be someone else. We should stop trying to be like, say, the French wines and produce our own style of wine.

My wife Rosemary – from Bartinney – tells me many things all the time: mostly to do more stuff at home. But she too has strong views on everything from women in wine to making gin out of wine grapes infused with seasonal fynbos.

Nicolò Pudel makes the point that the future is all about data and that wine producers have very little data about who exactly bought their wine, what did they pay, how it is stored, when and where it was drunk, whether it was paired with food , and which food, and how consumers felt about the wine.

I respect all these opinions, as well as those that I am likely to hear later today. I think this diversity of viewpoints is exactly what makes us strong, together. And I know better than to take you on.

So instead of talking about wine directly, I’m going to talk about innovation. Innovation is all about challenging the status quo, sometimes disruptively so, in order to achieve not only high revenue growth, but, more importantly, profit growth. This is an area that I know a bit better than wine on its own.

There are complex ways in which innovation interacts with tradition, and that is especially true in a grand old industry like viniculture.

Innovation is easy to do, in principle. Just change something. Anything. Come up with ideas, even if they look ridiculous at first.

The computer pioneer Howard Aiken used to say, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”

Some people would say if you understand it, it isn’t innovation. It’s very fashionable to say if you’re not failing, and failing often, you’re not innovating.

Innovation has become a necessity for good business, but it has also become a bit of a cult, even spawning gurus that claim to be able to teach you how to innovate, just like maharishis will teach you how to meditate.

But there is plenty of innovation that isn’t worth a damn, because the innovator did not understand what they were doing, or why they were doing it. My background is in banking. In my business, innovation that goes wrong can literally break the bank.

The same is true for the wine industry. Innovation for the sake of innovation can be a bigger risk to the business than not innovating at all.

Digital disruption is happening in many industries.

The world’s largest taxi company owns no taxis.

The world’s largest accommodation provider owns no real estate.

The world’s largest phone companies own no telecommunications networks.

The world’s most valuable retailer owns no inventory.

The world’s largest media company creates no media.

The world’s largest movie house owns no cinemas.

The world’s largest software vendors don’t write the apps.

According to Tim Atkins, the master wine critic from the UK, a similar thing is already happening in South African winemaking. In the current depressed economic circumstances, barriers to entry for new winemakers are very low, and some of South Africa’s best winemaking talents, such as Duncan Savage, Donovan Rall, David & Nadia Sadie, Ginny Povall, Hannes and Ernst Storm, Pieter Walser and Stompie Meyer, don’t own any vineyards at all.

So, let’s consider some innovations that do and don’t make sense in this environment. As a wine consumer, I see an awful lot of fads pop up. Most disappear overnight. A lot of effort goes into marketing to a younger, poorer sort of customer. Most of these ideas are gimmicks, at best, and some are quite off-putting to the more sophisticated and more traditional wine consumer.

In 2013, William Fèvre released a Limited Edition Hipster Chablis, which lit up under ultra-violet light. Aimed at the clubbing market, it came complete with a QR code that would launch a 360° animation, and a level indicator to monitor how much of the wine had been drunk.

This is straight out of the book of trying too hard. Most millennials look upon hipsters with disdain, and would only use the term ironically to describe themselves. When you’re clubbing, you don’t exactly need 360° animations of anything. And who needs a level indicator to tell them how much wine is left in a bottle?

The McCann advertising agency in Lithuania thought it might be a cool idea to package wine in a paint tin. On the back, it had a colour swatch showing how stained your teeth would get, depending on how many glasses of wine you drink.

Because that’s why people drink red wine. To stain their teeth.

According to Forbes, it has become a bit of a thing, in highly fashionable circles on both sides of the Atlantic, to pair wines with insects such as mealworms and fried scorpions. Apparently, hosting a bug and wine pairing is perfect for team building, sustainability programmes, classrooms, wellness centres, foodies and promotions.

Except, of course, it isn’t perfect for these events at all. You try to feed your staff insects. I can assure you, you’ll quickly become a very unattractive employer, which will be a problem, because most of your staff won’t come back to work.

Then there’s this wine. The label comes off, and serves as a paper cup. Let’s be generous and assume that (using) a paper cup is better than swigging straight from the bottle, as debatable as that might be.

Would you really want a tiny paper cup that you cannot even put down? This idea won a design competition. I’ll bet none of the judges were wine drinkers.

Here’s another one from the “I didn’t know I needed that. Wait, I really don’t,” department.

And before you say USB sticks are great for putting promotional material on, they aren’t. People who get USB sticks delete the marketing junk as soon as they get them. And then they’re going to want to use the USB stick. Ever tried to squeeze an entire cork into the space available for USB sticks on your computer?

From the crazy-rich neighbourhoods of Los Angeles comes the idea of yoga-and-wine retreats. The New York Times even ran an article about it. Write this up as an appeal to people who take neither yoga nor wine seriously. A few of the yogis the New York Times spoke to said, “well, whatever floats your boat”. But most were appalled that people would do yoga drunk, because alcohol totally messes with the vibrations of your astral being.

Shock labels were pioneered 20 years ago by French winemaker Thierry Boudinaud and British wine importer Guy Anderson. The concept was a roaring marketing success, and has been widely copied. Traditional labels almost seem a rarity, these days.

Even in the early days, however, they caused controversy. Advertising leaflets for Fat Bastard were banned in Iceland, because they were considered inappropriate for children. The brand was banned in Texas, because despite their boastful talk about liberty, they’re actually quite narrow-minded under their ten-gallon hats.

Of course, if you want to continue to shock, you have to keep pushing the envelope. And soon, instead of growing your potential market, you risk offending it.

Until you get to ideas that seemed funny at the time, perhaps because you sampled a little too much of your own tipple. This label drew so much public outrage that it had to be withdrawn from the market altogether.

This is not the sort of innovation that will help South Africa’s wine industry. Innovation is not about creating the most ridiculous new fad. In fact, in wine, innovation often means going back to traditional roots, while solving modern problems with innovative production methods, new distribution channels, and marketing that targets broad audiences instead of niche markets. And there’s little point to innovation if it cannot find ways to address the economic challenges of operating in the wine industry.

The challenges for the South African industry include a lack of profitability, a global perception as a value-priced bulk wine exporter, and an over-complicated supply chain that largely fails to create a connection between consumers and wineries.

An innovator would look at what would seem like relentless bad news, such as the critical production shortage caused by the weather in 2018, or the fact that the rand is circling the proverbial drain, and consider how they might present opportunities.

With lower volumes and a weaker rand, winemakers now have an excuse to focus on higher-quality wine, and to raise their wholesale prices. Even as the quality of South African wine continues to improve, they are still inexpensive by global standards, and the weak rand will mitigate higher prices in export markets. And even a small increase in prices can make a large difference in income at the farm gate.

After years of stagnant prices, VinPro is now anticipating sustained price increases. These projections were made before taking into account the production shortage of 2018, so the future might well be even brighter.

South Africa was a pioneer in producing sustainable wines. Two decades ago, the industry established the Integrated Production of Wine scheme, a world first, administered by the Wine and Spirit Board.

IPW certification complies with international sustainability standards, and builds on the older Wine of Origin certification process. Almost all South African producers are IPW certified.

Local winemakers have also been pro-active in developing fair labour practices and obtaining certification for doing so. According to VinPro, 66% of wine by volume in 2017 was accredited by organisations such as Fair Trade or the Wine and Agricultural Ethical Trade Association. This is up from only 20% in 2015, which deserves congratulations. At this rate, the target of 100% ethical wine will be achieved long before the target date of 2025.

But at the high end, sustainability and ethical labour practices aren’t enough anymore. Premium wine consumers are increasingly attracted by organic and biodynamic wines. Just in the last three years, the number of organic and biodynamic wines entered into the Concours Mondial de Bruxelles has grown by 80%.

Organic wines are produced without any synthetic chemicals, fertilisers or additives. Biodynamic wines are often organic, but go further, by considering the vineyard as a complete ecosystem, and farming within that ecosystem’s physical and natural limits.

Producing organic wine is difficult, as this leaves grapes more vulnerable to the vagaries of the weather, and wine quality can be hit and miss. You have to be a good winemaker to produce decent organic wine.

Only the best winemakers are able to pull off the production of biodynamic wines. The restrictions these disciplines impose on the winemaking process are daunting, and can dramatically influence quality and consistency.

Only a small number of South African wine producers have taken the bold and innovative step into organic or biodynamic winemaking. There are only 17 certified organic producers in South Africa, and a mere two certified biodynamic producers.

So this is an unexploited potential growth area in which to create and market higher-value products for both the domestic and international market.

Another area in which innovative thinking is required is transformation. Although there has been a little growth in the last few years, the number of hectares of vineyard under at least 25% black ownership is a measly 2.5% of the industry total. The tonnage produced by farms with at least 25% black ownership is only 1.9% of the total tonnage.

There is huge political pressure on land ownership, right now, with outright expropriation looming very large on the horizon. Finding ways to introduce black partners into both viticulture and viniculture, not just as owners but as active participants, is a crucial matter of self-preservation for the wine industry.

The wine distribution chain, especially for export wines, is largely old-fashioned and opaque. Winemakers cannot see their customers. They don’t know what their customers like, which wines are being recommended to them, what food it is being paired with, on what occasions it is being drunk, and even at what price the wine is being sold.

Conversely, consumers are often presented with a wall of labels and brands, without getting much of a feel for who the winemaker is, what goes into a particular wine, or why they should select one brand over another, even if the price is higher.

Companies like Port2Port use technology to try to bridge this gap. It enables wineries to market directly to consumers, enables consumers to buy directly from wineries, and delegates shipping and logistics to dedicated courier companies.

It provides a single, integrated online platform that brings together premium wineries, importers, retailers, restaurants and private buyers, facilitating not only physical trade, but also online sales.

The rise of the internet has caused disintermediation in many industries, and it is happening in the wine industry too. Innovators won’t fight this trend. Innovative business models will take advantage of the power of technology to carve unnecessary cost overheads out of the supply chain and enhance the winemaker’s relationship with customers.

Our changing climate also brings about a need for innovation in wine. South Africa’s wine growing regions are perilously close to the 20°C line, above which few, if any, wine grape varietals grow. For the foreseeable future, it is likely that the climate of the Western Cape will get a little warmer, and possibly a little drier.

One of the standout success stories of the South African wine industry has been the development of the Swartland and the region around the Olifants River even further north. Innovative winemakers like Charles Back, Eben Sadie, Donovan Rall, Adi Badenhorst, Andrea and Chris Mullineux, Callie Louw, David Sadie and Marc Kent have turned the region from a producer of rough, rustic wines suitable only for blending, to a producer of some of the most exciting new wines the country has seen.

The Swartland can be as much as 5°C warmer than Paarl or Stellenbosh, and it is also much drier, yet the region’s innovative winemakers are producing wines that critics describe as complex, flavourful and elegant.

According to the famous US wine critic Stephen Tanzer, Swartland vintners replaced most of the traditional stock with varieties from the south of France and the Mediterranean that were better suited to the climate.

Many of these winemakers are also pioneers in naturally produced wines, as members of the Swartland Independent Producers association. They also host events around the country to market the unique wines of the region, along with other local products and food pairings.

This is the kind of innovation that promises to lift South African wine to internationally competitive quality, while being resistant to the vagaries of both the climate and the economy that await us.

Innovation is not just about the latest marketing fad. True innovation is aimed at long-term success. It builds on economic realities, scientific knowledge, traditional values, and new market trends.

Innovation doesn’t just create a product that is briefly trendy. It meets market needs that are far broader than taste and price, to embrace ecological, social and economic sustainability. It creates a closer relationship between winemakers and customers, makes objectively better wines, and supports profitability for years to come.

That’s why innovation will decide who the winners are, even in the most traditional of arts.

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