The Generic Marketing of Wine in SA??

The other night while watching a bit of TV, I noticed a red meat commercial produced by the South African red meat producers association. It reminded of one of my favourite hobbyhorses – the total lack of generic marketing of wine in South Africa! No wonder domestic consumption of wine showed zero growth last year, while exports grew 34%!!

We have WOSA tasked with the export promotion of South African wines, but no body funded by local industry to help develop a healthy wine culture in South Africa. Not sure why that would be, as most other agricultural sectors have been able to organize themselves.

The key to a healthy, long term sustainable wine industry lies in a healthy domestic market as we have seen in all of the other leading wine producing nations. In South Africa, our per capita consumption of wine is still very low at 7L vs the 25L  in the UK and Australia, and more than 60L per person per year in France, Italy, Spain and Germany!

Two other things supported this blog entry: (1) looked at a Checkers wine add in the newspaper this morning with a bunch of Chenins advertised at less than R20 per bottle and some reds at the low R20s; (2) a call yesterday from a group of co-ops who was desperately looking at how they can band together to get to a stronger bargaining position in order to improve on the R3 per liter a leading SA wine company was paying them for their wines.

I can’t see the co-ops making any money at R3 per liter, which means the growers who own the co-ops make no money either. And a lot of this wine goes into very popular brands and not box-wines!

When you look at a bottle wine at R17 in retail the following sums come into play: R2.08 in VAT and R1.80 in duties goes directly to SARS = 22% of selling price.

Deduct the retailer’s margin, which I have to believe is at least 16%, or else it will sell at a loss. Minus at least R2 and more likely R3 at a national average for the logistics of getting the wine from the producer to the retailer, less the distributor margin, the cost of the bottle, labels, closure, boxed and you end up with very little left for the wine!!

At these levels, the industry can’t survive and we will never attract meaningful BEE participation due to lack of profits and the need for supporting high levels of capital investment in the wine industry.

How could we get together a meaningful budget? A recent SAWIS report stated that the 2009 harvest was expect to total 1.3 million tons of wine grapes, resulting in a total production of 1 billion liters of wine, of which 746 million liters will be sold as table wine.

I believe that both grape growers and wine producers need to contribute to such a generic wine marketing fund, as stronger sales will result in higher prices for the grape producers and make their farms more profitable & valuable!

So, if one places a levy of R10 per ton of grapes (less than ½% of the average price per ton) and 3.4c per liter of wine (1% of the 2008 average price per liter according to SAWIS), it would bring in R13m from grape growers and R25m from wine producers. That would result in a budget of R38m  per year!

I suggest that the most efficient home for such a generic marketing body would be as part of WOSA, as one could leverage a core existing infrastructure and resource. Even if R8m per year is used for market research, the right staff, promotional materials and external consultants when required, it would leave R2.5m per month to help develop and grow a better SA wine culture.

With R2.5m to spend every month, one could really do quite a lot, if the money is used smartly. There is much education to be done re the documented health benefits of moderate wine consumption.

I for one, would love to see the kind of fun adds one could produce pitting wine against the likes of brandy & coke or even beer! Show the consumers that the typical spirits mixer contains about 100gr sugar per liter vs.  a few grams for most wines!

How much growth would we need to make the investment in generic marketing pay?  All you need is sufficient increase in demand to get R10 more per ton of grapes and 3.5c more per liter of wine.

Can it be that difficult to achieve?

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7 Responses to The Generic Marketing of Wine in SA??

  1. Chris says:

    Dana

    You need a proofreader for your many gramatical errors.

  2. Dana Buys says:

    That happens when real people (vs PR companies) write their own thoughts on a blog – imperfect grammar. I apologize for that – thanks for your feedback!

  3. Henre says:

    I would like to jump in here and say that Dana, you don’t need a proofreader for your blog. As long as the point you’re trying to make comes across, the rest doesn’t matter.

    I’ve long been a skeptic about the little importance wineries place on the local market…and I also believe the reason why our consumption per capita is so small is a direct result of bad or non existent marketing.

    I hope the recession will now force wineries to rethink strategy and try and strike a balance.

    Would you mind if I publish your article in my own words on the WineCountry blog and newsletter?

    It’s great to find VNL blogging.

    See you on Twitter.
    Cheers
    Henré

  4. Dana Buys says:

    Thank Henre!
    You are free to use the article as you see fit!
    Lets stir up the debate!

  5. Stephan says:

    I agree that the domestic wine market is stagnant and monopolised. For years I have been involved in selling my wine locally as I’d like to support and educate the local market. That said and done, recently the international market has discovered my wine and without too much hassle I have sold a substantial amount of my production overseas with no quibbles. In contrast, selling locally is a nightmare with being pressured to offer my wine at cellar prices at various establishments, plus paying for their umbrellas, aprons, menus, etc. – honestly, my wine pricing is designed to keep one company afloat, not the entire distribution chain.
    In principle I agree whole-heartedly that we should focus on the domestic wine market, but that I need to pay another R10 per ton for this is unacceptable. Is the wine industry not paying for enough at the moment? Consider that the government makes more revenue off the wine industry, than all the wine cellars make profit combined is food for thought.

  6. Dana Buys says:

    Thanks for the input Stephan! I think that one has to be thankful for a strong and growing export market – no doubt.
    The main problem with too much export dependence comes from currency movement against the Rand. The Rand has been quite weak recently which has helped exports a great deal. Problem is that it can also go the other way – like it did in the mid-2000′s. It went from very weak in early 2002 to very strong by the end of 2005. That killed many export deals as wineries could not keep prices calculated when the Rand was weak. Wineries that were very export focussed all came running back to the local market and then had to battle for a place at the table.
    It is thus best to try and hedge your bets by have a well balanced sales portfolio between domestic and export sales.
    I agree with you that doing business in the domestic market is tough. That is because the demand is weak and thus those with access to the customers have the power.
    By creating stronger demand & pull from the consumer, the wineries will gain more power and control. So building greater demand is very key to a more profitable local market.
    And yes, the government gets a lot and gives us very little in return….don’t expect that to change any time soon :-(
    We have thus no choice but to take more control over our destiny…..

  7. Cameron says:

    Dana said: “We have thus no choice but to take more control over our destiny…..”

    I say you hit the nail on the head!

    Being an “inkommer”, I see plenty of opportunities.

    The effort is going to be in the paradigm shift for all involved and the resistance you will encounter from many invested parties.

    Impossible is Nothing. You will do it again Dana!

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