Sweeter reds help to turn the tide for SA wine sales

Monday, 13 April, 2015
Cassie du Plessis
A total turnabout in the situation regarding South Africa’s domestic wine sales and exports in the past year could mark a watershed phase in the industry – hopefully indicating that the long-lasting slump of the domestic market has come to an end and, on the other hand, that exports are facing serious uphill.

Whether the domestic sales surge of 7% in 2014 is really reason to pop the bubbly corks is yet to be seen and industry role players are reserved in their optimism. However, if you look at the past two decades, this is a significant swing and there are signs of something big happening in the local market – which has a lot to do with a new taste for sweeter red wines, of all things!

The export market has decreased from all time high volumes and 26% growth in 2013 to an almost 20% decrease last year – according SA Wine Industry Information and Systems (Sawis). This despite the favourable exchange rates from the weak rand during 2014.

Industry leaders say this is no reason for alarm as the export slump is due to a sharp decline in exceptional but unsustainable bulk exports – a sort of necessary evil of recent years. In fact there’s a “return to normal” following the 2012/13 boom.

The monthly VinPro Snapshot (March 2015) of strategically significant figures, shows that bulk wine exports had dived by 23% from 319.7 to 245.7 m litres in the 12-month period ending February this year, as follows in the five biggest markets by percentage: UK -5, Germany -14, Russia -18, France -33 and Denmark -7. At the same time packaged wine exports grew by 1% during this period. This means that overall exports decreased by 14%, from 501.3 - 428.7 m litres until end February.

Sawis figures for the past 18 years show that the export volumes (value figures are not available) have grown from 110.0 m litres in 1997 to a high of 411.7 m litres in 2008 and then again peaks of 417.2 and 525.6 m litres in 2012/3. 

Over all these years, the domestic market has just about remained flat until 2013, growing from 366.9 to 369.4 m litres – with a low of 333.8 in 2003 – but by no less than 23.4 m litres during the last calendar year. An interesting contributor to this growth, according to authoritative industry sources, is a newish category, Sweet Red Wine.

A special report on the Sawis website, titled Liquor Consumption Patterns in South Africa (July 2013 - June 2014) states “of note in the Super Premium sector (more than R30 a bottle) is the emergence of more and better Chenin Blanc wines and new white blends, as well as the growth of Sweet Red wine. We believe this trend is driven by new consumers and this augers well for the wine industry”.

Meanwhile, it is understood that the sugar levels have been raised in certain red wines of trendy brands like Tall Horse, Obikwa, The Saints, Fourth Street and Van Loveren (and its Four Cousins) to about 8 grams/litre to find more acceptance among new and younger consumers – resulting in plenty of action around the R30 price point.

Van Loveren CEO Phillip Retief confirmed that their African Java Pinotage was a case in point and this style change had brought substantial growth.

According to the above-mentioned Sawis report, Four Cousins is the Super Premium market leader in glass, its Natural Sweet Red (60 g/l residual sugar) being part of the new generation of sweeter red wines.

“It would appear as if the upswing in the domestic market is sustainable at least over the next few years and that the new middle class has discovered products like these as lifestyle beverages with aspirational value. Thereby the industry is reaping the benefits of innovation and a value offer of the past decade.

“We’ve seen creativity with labels, brand names and new wine styles (many off-dry), like coffee-flavoured Pinotage, coupled with aggressive and imaginative marketing. 

“The comparatively low wine inflation has also played a part in the local consumption growth. We’ve been fortunate to have good and large harvests in recent years to help us compete at certain price points,” said Retief.

A recent VinPro press release stated that the 2015 South African wine grape harvest shows great promise and marks another large wine grape crop, albeit 3% lower than the record harvest in 2014.

The high domestic market growth was largely driven by bag-in-box packaging (+17.4%), which represents close to 29% of total local sales. Wine sales in 750 ml glass bottles, which represent 30% of the local market, grew by 11% and bubbly sales are lively in a growing alcohol market overall.

“The growth in domestic sales and the promising wine harvest are definitely worth celebrating,” said CEO Rico Basson.

With regard to the apparent ebb in the export markets, Wines of South Africa (Wosa) CEO Siobhan Thompson, emphasised during an interview that the exports for 2014 were a return to a normal situation after an extraordinarily favourable period for South African wine exports in 2013, driven strongly by bulk wine. 

“The year 2013 was an anomaly. We had the second large harvest in a row while countries such as Italy, Spain, France, USA and Australia had less than favourable harvests. Our producers capitalised on this as we had stock available to offer the world. Our bulk exports to countries such as France, Spain, Italy, Russia and USA rose substantially and sales were up by 38%.

“The situation was also positive for packaged sales, which grew by 9%. European countries were recovering from their economic slumps and while most of our sales there were relatively flat, we did see a good recovery in the UK – where our packaged wine exports grew by 31%. We are still seeing growth there into 2015, although at a lesser level.

“If you compare total 2014 exports to 2012 and ignore 2013, we did see growth. While the recessionary slump still has an effect on sales in the target EU countries, the UK, which represents 22% of South Africa’s packaged exports, showed 2% volume growth in packaged wines and we moved from sixth largest exporter for in-country sales to fifth position.

“Another area of good growth was China where exports have risen sharply from 5.7 million litres in 2013 to just more than 8.7 million litres at the end of 2014 – the majority being packaged wine. This can be attributed to various factors such as the latest Chinese investments in SA wine businesses, greater marketing efforts by all parties and wine consumers becoming more knowledgeable on wine and experimenting with different styles.

“I’m excited about where South Africa is right now; we have world class quality wine, innovation and energy. Sometimes we’re just too negative about ourselves. We are definitely being noticed for what we have to offer; this being reflected in reviews and ratings by opinion leaders around the world.”

When asked on the export market performance for 2015, Thompson said she expected 3 to 5% growth. But as far as bulk wine exports goes, “it’s anyone’s guess. Hopefully with the growth of the domestic market we’ll see an absorption of some of the excess bulk wine stocks,” she said.

The South African wine industry on average produces 900 million litres of natural wine. Exports represent 55% of natural wine sales, with 45% sold locally. The rest of the annual production from wine grapes (expected to total 1.152 million litres in 2015) goes to distilling wine, grape juice concentrate, grape juice and brandy production. The latter category being alarmingly down by 23 million litres from its peak of 53.3 in 1999.

This, in turn, contributes largely to the so-called carry-over stocks, namely wine held in cellars under maturation and as unsold or “surplus” – that dreaded word which refers to the historical oversupply burden of the SA wine industry, which just keeps on growing and is expected to reach more than 500 million litres at the end of this year.

Certainly, SA wine needs a sweet sales swing more sorely than ever.

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New generation wine for with-it newcomers to wine. Four Cousins Natural Sweet Red.
New generation wine for with-it newcomers to wine. Four Cousins Natural Sweet Red.

Still upbeat about SA wine exports, Wosa CEO Siobhan Thompson.
Still upbeat about SA wine exports, Wosa CEO Siobhan Thompson.

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