Wild Ferment -
The business of wine, here and now
05 April 2005 by Bruce Jack

Headlines the world over lament the desperate state of the French wine industry on a daily basis. Consider for a moment the drought our winelands are grappling with, unprecedented oversupply and consequent wine dumping, a strong currency and the recent onset of utterly unprofitable viticulture. What emerges is a rather bleak picture of our own industry. If ever there was a time to get behind Brand South Africa, it is now, writes Bruce Jack.

Negotiating your wine business through what I have come to term the ‘swamp of brands’ is a perilous undertaking. A plethora of new names lurk below the oily surface like hungry young crocodiles, while the re-financed, re-packaged old hippo brands keep charging impressively through the sticky undergrowth, trampling you underfoot if you don’t look out.

All sorts of lethal pitfalls await you: the quicksand of borrowed money, the slothful venom of uninterested bottle suppliers, the entangling web of trade gossip, the ethereal whispers of brand loyalty and the quagmire of distribution. This is not, as Captain Haddock would bluster, an adventure for the fainthearted.

And each day you push your little kayak into the swamp and carefully, purposefully paddle to that next island of achievement, hopefully a bit closer to established success and safer water.

Unfortunately, things are about to get tougher. The swamp of brands is getting more hazardous by the minute. Suddenly there are also fast-flowing tributaries of unprecedented oversupply feeding into an already crowded space. Some call it ‘wine-dumping’ – introducing wine into the market, well below cost, just to get it out of the cellar. When there’s a harvest ripening out there, space has to be made for the new juice…

In December of 2002 there were 214,3 million litres of good, sellable wine stored in our co-ops and private cellars. Three months ago this had swelled to 394,9 million litres – a 54% increase. That’s 180,6 million litres of extra wine sloshing around, some of which, despite being good enough to be bottled, has been sent for distilling purposes.

The frantic telephone calls for bulk wine storage going around the winelands in December last year was, in my experience, unprecedented. Tank manufacturers did good business. Many co-ops I drove past on my pre-season vineyard visits had massive storage tanks lying outside waiting to be installed.

Smaller players who couldn’t afford new tanks scrambled for storage space in other cellars. Even medium-sized, rapidly growing wineries with strong brands and above average sales stopped buying in grapes and suddenly grape prices plummeted.

Flagstone rents most of our vineyards by the hectare, but we did buy in grapes this year because it was difficult to say no to beautiful Robertson Shiraz at R1000 a ton or wonderfully complex Cabernet from Constantia at an average of R2500 a ton. Last year we were being quoted triple that.

In 2003 South Africa exported 239,5 million litres. It was expected that exports would have increased by about 14% in 2004. Hopefully we will do another 11% this coming year. So we should be selling 303 million litres overseas by the end of the year.

We sold about 298 million litres in South Africa in 2004. So overall we managed to get rid of just over 600 million litres in both markets last year. This year it is estimated we will have made at least 688 million litres of good, sellable wine from the 992 litres produced.

While noble in their achievements so far, the small increase in export sales will not, it appears, absorb the growing dam of wine held precariously back by thousands of square metres of 3mm thick stainless steel.

Where will we put the further 88 million litres of surplus wine we would not have sold at the end of this year? Or the conservative estimate of 180 million litres extrapolated from these figures by the close of 2006?

One place to lose this excess is the market. This is good news for the local consumer, who should see even keener wine prices this coming year. There will, no doubt, be even more brands selling below cost than there were last year. However, this is not good for Brand South Africa and our attempts to build a viable and sustainable export business.

Ironically, I fear the strong Rand will only add to the chaos, rather than stem the suicidal tendencies of panicking producers. After all, some may feel that if they are going to lose a few cents in every Rand, they might as well send it overseas, lose a few more, but at least steal market share away from others, while getting those tanks empty. Even a weaker Rand will not shield the fallout.

And there’ll be many First World buyers rubbing their hands as they gesture the wine lemmings over the precipice again. Everyone else around the world is in the same boat in the same swamp of over-production.

For small dynamic wineries, with a strong brand presence, selling at high prices overseas, this chaos offers great opportunities for growth. Grapes and bulk wine prices will be under pressure for the next few years, while fledgling brands are being shaken from the nest even before they’ve learnt to fly.

There’s something wrong in a picture in which the tiny guys can hold the farmers and co-ops to ransom, while new brands cannot break into the marketplace. It doesn’t bode well for our industry because the bigger guys will have exponentially more power as a result.

Some have argued we need to ask probing questions of the consultants and major bulk buyers who encouraged indiscriminate, financially self-destructive plantings, possibly suspecting the market couldn’t support them profitably a few years down the line. But business is business and their profits, like ours, will be bigger as a result of this mess.

Never before has market penetration and strong through-sales been so pivotal. In some cases even modest market share can now be leveraged to catapult brands forward.

Unfortunately the exact opposite is true of those furthest from the market - the brandless grape farmers. Some already reeling from drought will not easily survive the next five years of unprofitable viticulture.

What is more important and constructive to highlight is the desperate need to pull together and support Wines of South Africa more than ever. Only through making better wine and adding extra momentum to the rumbling Brand South Africa have we got any chance of profitably selling the excess stocks we are fast accumulating.

And although the Department of Trade and Industry has been very supportive, it might also be an opportune moment for government to throw an even more sensible amount of money into marketing the wine industry abroad.

Not because we are in trouble, but because the trumpet of South African wine should majestically herald our African Renaissance and add sparkle and pizzazz to our global contribution.