The South African wine industry is at a tipping point, warns wine industry body Vinpro following a recent survey which determined the detrimental effect of the fifth ban on wine and spirits sales in the country.
Vinpro says Mzansi’s alcohol industry is buckling under the financial strain of the current round of alcohol restrictions. Many wine businesses, especially smaller companies and those under black ownership, are facing potential closures in the next three to 12 months.
According to the “Impact of Covid-19 on the wine value-chain” survey that Vinpro conducted early in July 2021, 58% of the 549 respondents indicated that their businesses would have to make drastic changes over the next year to be able to overcome the current challenges related to Covid-19. A total of 22% will, in all probability, not be able to survive at all.
“Even more alarming is the fact that 46% of black-owned brands and farms believe that their businesses won’t be able to survive the next year,” the study reads.
“Around two thirds of all respondents’ revenue is generated from domestic wine sales, which reiterates the importance of domestic trade for the survival of the industry.
“The local market is of particular importance to smaller wineries and black-owned brands which are heavily reliant on sales channels such as their tasting rooms, hospitality offering and e-commerce.”
In 2019, Vinpro also conducted the “Economic value of wine tourism“ study, which reflected that wine tourism generated 41% of total turnover of small businesses.
“It is especially the small and micro enterprises that do not have sufficient bridging finance to sustain them through the current and continued restrictions,” says Vinpro managing director Rico Basson.
Lack of assistance from national government
Basson warns that many wine businesses are at the edge of a cliff and the livelihoods of thousands of employees are being endangered in the process.
“South Africa is the only country in which liquor sales have been banned with no financial assistance from national government, despite repeated requests from the wine industry.
“Instead, government chooses to close our industry without reliance on empirical evidence to back their decisions and seem apathetic towards its citizens’ plight for survival,” adds Basson.
Vinpro and its partners in wine, tourism and agriculture have submitted numerous funding proposals over the past year to various national government departments to stabilise an industry that has already incurred financial losses of more than R8 billion.
“The Western Cape department of agriculture need to be commended in heeding the call and for funding two initiatives, namely a R12-million wine tourism worker support stipend and a R13.5-million producer and brand-owner protection support grant,” Basson adds.
Thousands laid off
While speaking to Vinpro, respondents in the survey said that if the ban continues for just another six weeks, they would only be able to cover 51% of their monthly payroll. In comparison, black-owned brands and farms will only be able to fund 31% of their payroll.
“Black-owned brands and farms have worked hard over the years to stay abreast and try to be sustainable in an ever challenging industry,” says Wendy Petersen, operations manager at the South African Wine Industry Transformation Unit.
Owner of PaardenKloof, Daphne Neethling, says over 99% of their sales and income are dependent on local tourism, their wine club, tasting rooms and restaurants.
“We will not be able to sustain the erosion of our cash flow for more than three weeks. We employ 35 people across our organisation, and will have to reduce staff to between five to eight people and go into care and maintenance from 1 August 2021.
“Given our fixed operational costs, we will permanently shut down all components of the business from 1 September 2021 if the lockdown continues beyond 11 July 2021.”
Key findings from the survey
- 66% of all participants’ turnover is generated from local sales, compared to 30% exports and 4% from other sources. Black-owned brands and farms receive 64% of their income from local sales, 27% from exports and 9% from other sources.
- 57% of all respondents have a turnover of less than R10 m per annum, compared to 87% in black-owned brands and farms.
- 38% of all respondents indicated that there is a high probability that their business would close down if the local wine sales ban continues for six weeks after 11 July 2021, compared to 68% in black-owned brands and farms.
- All participants indicated that they would only be able to fund 51% of their total payroll should the ban be reinstated for another six weeks after 11 July 2021, compared to 31% in black-owned brands and farms.
- 22% of all participants have indicated that their business will not be able to survive the challenges related to Covid-19 in the past year, and 58% would have to make drastic changes to be able to survive. In comparison, 46% of black-owned brands and farms have indicated that their business will not survive, and 50% would need to make drastic changes.