Stellenbosch Vineyards, Vinfruco in merger talks

Thursday, 10 June, 2004
Lynn Bolin

Two of South Africa's largest wine producers, Stellenbosch Vineyards and Vinfruco, have announced that they are in discussions regarding a merger that would see the creation of a company with total annual production of about 2.2 million cases of wine and a turnover of over 500 million rand a year.

As the vast majority of both companies' sales is directed at the export market, the combined group would be competing for a place as South Africa's third largest wine exporter, behind Distell (DST) and KWV, while coming up close to Westcorp International, which exported about 2.0 million cases of wine in 2003.

The two companies are similar in that they are both structured as public companies, have been very successful in their targeted international markets over the past seven years, and both have plans for rapid future expansion. Neither own their own vineyards - rather, they contract out grape production to a large number of quality growers across the premium growing areas of the Western Cape.

Given the highly competitive nature of the international wine trade and the strengthening of the rand over the past 18 months, a merger would be the most practical way for them to consolidate their gains, cut costs and ensure a strong base for reaching their ambitious growth targets.

Even South Africa's largest wine producers, Distell and KWV, with annual turnovers of 5.0 billion rand and 1.0 billion rand, respectively, are small by international standards. This is why the merger, should it be concluded, is likely to herald further consolidation in the local wine industry if it is to remain competitive and continue to grow its share of global wine markets.

According to Stellenbosch Vineyards managing director Hermann Bohmer, being a public company the group was obliged to issue a cautionary regarding its merger talks. However, he is unable to provide further details until the negotiations have been finalized. He also could not provide an indication of the timetable for conclusion of the talks.

Stellenbosch Vineyards produced about 7.5 million liters of wine (850,000 cases) in 2003, and this is set to grow rapidly to 2.0 million cases by 2007. The group is perhaps best well known in South Africa for the introduction of its eye-catching 1000 ml bottles of Versus wine. Yet the company, which was formed in 1997, also has three well-known traditional wineries at its core - Welmoed, Helderberg and Eersterivier.

Its other brands include the flagship Genesis range, Kumkani, and Infiniti Sparkling Brut. In South Africa, its top selling wine brand is Versus, while abroad it is Welmoed, with Versus becoming very popular in more than eight countries. It exports about 70% of its total production (both bottled and bulk), with its principle export markets being Holland (Welmoed), the UK (Shamwari, Versus and Cape Promise), Belgium and Germany (Versus), Scandinavia (Versus and Kumkani), the US and Canada (Helderberg and Kumkani).

Meanwhile, Vinfruco has gained prominence in recent years as one of South Africa's largest quality wine exporters, coming into its own in 1996 when it won the President's Award for Export Achiever of the Year. Until recently all of its production, totalling a substantial 12 million litres (1.3 million cases) in 2002, was shipped immediately overseas, thus local wine fans were not familiar with many of its brands, including Oak Village, Groot Geluk, Kaapse Hoop, Rockridge, Cape Reflections, Mountain Shadows, Koopmanskloof, Eikestad, Klein Begin and Mooiplaas, despite their overseas successes.

Yet it has been Vinfruco's flagship range, Arniston Bay, that has boosted the company's profile in the UK and local markets in recent years. Since its launch in 1996, Arniston Bay has shot to number 17 in the UK's top 20 best-selling wines by volume (according to AC Nielsen statistics), selling 1 million cases worldwide in 2002-3, and to be South Africa's best selling premium-priced wine in that tough market.

According to CEO Louis Kriel, besides producing and marketing its own brands, Vinfruco also markets other labels for its partners and produces brands for its offshore clients--among them many major international retailers---tailored to meet their specifications.

Vinfruco's very ambitious growth plans call for total wine production to rise from 15 million litres (1.6 million cases) in 2003 to 20-22 million litres by 2005. Of this, approximately 92% will be exported.

By Lynn Bolin