There’s a huge untapped market of South Africans who have the disposable income and thirst for something new and exciting to drink, said Brandon de Kock of consumer insights agency Whyfive at the 15th Nedbank Vinpro Information Day held in Cape Town yesterday.
De Kock urged the 850 wine industry professionals in attendance to “make sure they have your wine in their glass”. He believes the wine industry should be particularly interested in the nearly 12.5 million South Africans wo earn more than R10 000 per month as well as high-income earners. In the last three years, those earning more than R40 000 per month has grown by more than half a million people.
According to him new consumers are also breaking from legacy and tradition and are looking for something out of the ordinary to drink. “Don’t underestimate the importance of food and wine experiences to draw in newcomers to the category. Once you get them to drink any wine, you will get them to experiment more.”
In the meantime Mzansi’s wine industry expects 2020 to be a difficult year, but remains hopeful that it will be able to build on some of the momentum gained in 2019 to overcome major challenges.
Anton Smuts, the chairperson of the South African wine body Vinpro, said, “There was a renewed energy in the wine industry in 2019 following a long downward cycle.”
Smuts acknowledges that two consecutive smaller crops due to the drought led to upward wine price adjustments filtering down to the farm gate. This has forced producers to reinvest. He called on wine grape producers and wineries to keep this momentum, but also warned against pushing prices without adding value.
“Challenges will remain in 2020, including tough market conditions, policy uncertainty, threats of expropriation of land without compensation and unfavourable climatic conditions. However, we can overcome it by continuously adjusting our strategic learning and by working together,” he says.
While Nedbank economist Isaac Matshego warned that there’s been a shift from “Ramaphoria” to “Ramareality” due to the economic decline, others maintain that many opportunities still await local wine producers, cellars and industry stakeholders.
Vinpro managing director Rico Basson said, “As the second largest agricultural exporter in South Africa, the wine industry is one of the few industries worthy of investment at the moment, characterised by great quality products and repositioning taking place.”
The drought had a significant impact on wine production, which decreased by 90 million litres annually in 2018 and 2019. Lower availability resulted in higher wine prices, which filtered down to more sustainable net farm income levels. In 2015 only 15% of producers were profitable compared to 28% in 2019. However, some regions will still take time to recover.
Overall the 2020 harvest is expected to be somewhat bigger than the 2019 harvest, but still smaller than the average over the past five years. The 2020 harvest kicked off at least one week earlier than usual following relatively moderate temperatures during the ripening period.
Matshego laid out the daunting task of fixing the South African economy, characterised by what he described as a shift from “Ramaphoria” to “Ramareality”. South Africa has been stuck in a rut of less than 2% economic growth for the past 72 months – the longest downturn since 1994.
The next upturn is unlikely to come from consumers, Matshego said. Consumer income and spending is constrained by high debt, while the expanded unemployment rate (which includes people not looking for work) is currently almost 38%.
Low business confidence means the private sector probably won’t commit the investment necessary for economic growth. “We need to accelerate growth measures with the right policies to encourage new investment in South Africa. It’s imperative that Eskom is stabilised.”
However, he also expressed confidence in the current executive under the leadership of Pres. Cyril Ramaphosa and said he remains hopeful that a stable government is able to strengthen the economy and stimulate growth.
Agbiz CEO, Dr John Purchase, said on a positive note, government has embarked on a Masterplan initiative, through which government, business and labour will work together to establish a conducive environment for investment and inclusive economic growth in the agricultural and agro-processing sector. He said the respective agricultural commodities are participating in the process, with the overarching Masterplan to be finalised by the end of September 2020.
Trade agreements will be imperative for growth going forward. Nearly half of South Africa’s agricultural exports (in value) are destined for Africa, followed by Europe and Asia. Agreements such as the African Continental Free Trade Agreement (AfCTA) and a preferential trade agreement with the UK post-Brexit will bode well for these two major export markets. A lot of work still needs to be done to secure preferential trade agreements in Asia, a market which holds big potential.
Purchase said, “This will be a tough year, but I believe that things will look up in 2021. We’re putting all of the building blocks in place, supported by government’s willingness to collaborate.”
Attendees of the Nedbank Vinpro Information Day also observed a moment of silence for the unprecedented bushfires in Australia which have decimated millions of hectares of land and billions of animals. It has also claimed many lives, including firefighters who have been battling the on-going fires.
Despite this the Australian wine industry is currently experiencing a revival of sorts, said Andreas Clark, CEO of Wine Australia. Exports to the US started increasing again last year following a long downturn lasting more than a decade. The country is also enjoying unprecedented success in Asia, especially in China where it overtook France as the largest wine supplier by value in 2019.
Clark believes that the South African wine industry can benefit from, amongst others, free trade agreements with specific countries. Another valuable lesson is how Wine Australia has upped it game – moving from a generic wine promotion message to one of regionalism. Australia’s government allocated $50 million (about R490 million) towards developing “Australian Wine Made Our Way”, a new campaign to drive international demand for Australian wine. This is in stark contrast where the South African wine industry is still battling to reach its full potential in partnership with government.