There are a number of issues here. First, is why do wines cost what they do? The second is that there are inexpensive South African wines, and there are expensive ones: are they all too cheap? Do they all offer genuine value? And the third is, is there really cultural cringe?
If we are going to explore this issue properly, we also need to segment the market a bit. Here in the UK there are a lot of inexpensive South African wines. Pop into Tesco, Morrisons or Sainsbury’s, for example, and you can pick up a tasty wine for £6-8. In their price peer group, these wines will perform well and offer value for money. The price of these wines isn’t really all that flexible. They are often made in large quantities and at that end of the market, the producers need the retailers more than the retailers need them – it’s their only route to market. If they put their prices up, then they’ll get delisted by the buyers, who know that they can, for example, sell 100 000 bottles of wine X at £6, but only 1000 bottles of the same wine at £8. This issue isn’t unique to South African wine, so it’s not really the segment of the market we are talking about here. [As an aside, Tesco has a South African Chenin Blanc for £3.79 which they describe as an Aldi price match: no one can make any money selling a wine this cheaply.]
Why do wines cost what they do? On one level, they cost a certain amount to make. Producers have to either be sitting on a substantial asset (they already own the vineyard) or they are paying money to the bank on the vineyard they bought, or they are renting the vineyard, or they are buying in grapes. Farming costs money in labour, equipment depreciation, sprays and maintenance. Then they have a winery with expensive kit that is only fully used for a few months a year. Then there are dry good costs and power. It all mounts up, and if all this is divided by the number of bottles made each year, then the producer can arrive at the production cost. [Of course, it’s possible to make wine without owning anything, buying grapes and then paying for contract winemaking – or even just buying bulk wine on the spot market and getting someone to bottle it for you.]
Click HERE to read the full article.