|
putting you in touch with the SA wine industry community
|
|
PREVIOUS WINELAND ARTICLES | WINELAND HOME
by Henry Hopkins
But in the following 12 years, three factors brought about a rethink:
Retailers also seem to prefer fewer suppliers and that has spurned a large range of mergers and conglomerations in other countries. Pundits for the re-consolidation of the South African companies point to the 80% of the Australian industry that is represented by only four companies, of which the two most prominent, Southcorp and Rosemount, are in a consolidatory phase, and ascribe their success in the fast growing market for premium wines to an ability to supply and distribute at least ten million cases of a particular brand. This is the "critical mass" listed by the Rabobank as a key factor for wine companies who want to compete globally. On their own, neither Distillers nor SFW could hope to achieve volumes on this scale.
"Now the merger between Distillers and SFW has galvanised the strength of two industry leaders into a united South African front which will create global brands and spearhead new overseas markets," explained Jan Scannell, MD of Distell, when announcing the listing of the new company to the media.
The merger leaves the new company with a wide brand portfolio and sales of over 43% of the country's top quality wine, market leadership in brandy and alcoholic fruit markets, high brand awareness levels, an extensive distribution network, combined knowledge of the local market and strong trade relationships.
Scannell said although the Competition Commission has not yet formally approved the merger, the Commission had twice informed them that a consolidation of Distillers and SFW did not require approval, as it was not a merger as defined in the legislation. He expected that view to be confirmed (but this decision has since been reversed by the Competition Tribunbal).
Talks started in April last year and the process was facilitated by the fact that both companies shared the same majority shareholders, namely KWV, Rembrandt and South African Breweries, who each held 30%, with only 10% being public shares.
Marrying the two companies was also strategically viable because both were established, well-respected entities in the South African liquor industry. Distillers Corporation, which was established in 1946, was the industry leader in brandies and spirits. SFW, established in 1925, was the industry leader in wines and alcoholic fruit beverages. Both were headquartered in Stellenbosch, both had a portfolio of world class products and both had established and loyal consumer bases.
But sales figures for the local market were disturbing, mainly due to notable expenditure on cellphones, which grew from R1,2 billion in 1997 to R15 billion last year, compared to the R24,2 billion spent on alcoholic drinks.
In the period under review (1997 - 2000) the industry has seen losses in the sales volumes of brandy, whisky, fortified wine and, albeit to a lesser extent, in natural wine as well. On the other hand, there were substantial gains in the alcoholic fruit beverage sector and a moderate but positive movement in white spirits.
Before the merger, Distillers generated about a quarter of its turnover in offshore markets and SFW about 15%. Scannell said the objective was to increase the new company's total to about 30% and indicated that the African continent was to play an important role in market extension.
Scannell said South Africa had a cool growing climate and an enviable range of terroirs for growing fine wines of all varieties. It also had the best human resources, including researchers and winemakers, to unlock this potential.
New offices - staffed by South Africans who previously worked for either SFW or Distillers - have already been opened in North America, England and Singapore, with sub-offices in South America, Germany and Australia. Apart from Johannesburg, which will serve Southern Africa, operations for the rest of the continent will be directed from offices in Kenya and Ghana.
In total, the company now owns over 300 products and hopes to gain international ground with its popular Amarula Cream and Savanna apple cooler, both of which exudes an African flavour. Other top names in the combined portfolio include the Nederburg, Zonnebloem and Fleur du Cap wine ranges; Oude Meester and Flight of the Fish Eagle brandy; white spirits like Bacardi, Gordons, Old Buck, Three Ships whisky and top alcoholic fruit beverages like Hunters, Bacardi Breezer, Bernini, Crown and Esprit.
The new Distell group has a market capitalisation of R1,34 billion and an annual turnover of about R4 billion.
Dave Nurek is chairman of the board of 12 non-executive and ten executive directors.
The company recently announced its team of six winemakers. They are Callie van Niekerk, who will head the group's combined cellars at Papegaaiberg and Adam Tas in Stellenbosch; Razvan Macici as cellar manager at Nederburg; Frans du Toit as cellar manager at Tulbagh; Niel Bester as cellar manager at Plaisir de Merle; Melanie van der Merwe as head of the sparkling wine division and Newald Marais (previously winemaker of Nederburg) as extension winemaker. In this newly created position Marais will advise the group's suppliers on new wine styles and wine production activities.
What the chief executives say:
Jan Scannell, Managing Director
The turnover is R4,6 billion, we have assets of R3,8 billion and headline earnings amount to R277,7 million.
We are establishing cost-effective supply chains in various overseas markets and we have identified key markets where we expect strong growth in demand for the products in our portfolio and for distinctive new products still to be developed. We have invested in new structures in Europe, the Americas and Asia/Pacific in order to manage the supply chain effectively.
Shareholding is a decision for the shareholders and, as a member of the management, I am not in a position to comment.
As I've just said, the question of shareholding is a decision for the shareholders.
The management of the company will act in the best interest of all its shareholders and the relationship between Distell and KWV as business partners will be managed to our mutual benefit.
We have invested a substantial amount in setting up our own structures in key areas. We do however view it as essential to co-ordinate our efforts with major players such as KWV, particularly in the wine market, in building "Brand South Africa".
Smartryk Genade, Group Operations Director
Yes, the reason for our existence is the demand for our brands in the market. Everything I do must be aimed at creating a link in the supply chain that will give us a competitive advantage on the local and international markets. This implies that we must be able to compete at cost and service levels with the best in the world.
We have set out to systematically reduce our levels of working capital and fixed assets to free up capital for investment in growth opportunities. This suggests that we will rationalise our operations where possible, but we will also invest in capacity where we need it - for instance in pressing and maturation facilities.
The consolidation of our operations should be completed by September/October.
Distillers and SFW together had a total of 36 distribution depots, most of them in the same town and many of them in close proximity to each other. We are planning on selecting the 19 most suitable depots and to equip them with systems that will provide the best service to customers. One of Distell's strategic investments has been in the area of integrated systems. We have invested R80 million in the installation of a state-of-the-art system in order to optimise supply chain efficiencies.
The supermarkets and chains are already important clients of ours and it would not require any major adjustment to expand the range of products we supply to them, should there be a change in the legislation.
Hennie Heyl, Primary Production Director
The merger itself will not have any immediate effect. Due to a lack of time and to avoid disruption it was decided not to make any changes to the traditional arrangements for the 2001 vintage. But we'll have to consider new developments. If we succeed in building the market, primary producers should benefit. But we will expect them to enter into a relationship with us, where each one will have a clear understanding of their role in the supply chain and will develop an interest in making it as efficient as possible. From our side we will assist suppliers by providing technical assistance and clarity about our requirements. The state of the brandy market has left its effect on the producers of rebate and distilling wine, but we intend to return to normal distillation levels as soon as our stock position allows us to.
The competition for grapes is on the increase. This is positive, because where complacency creeps in stagnation is bound to occur. In this competition for raw materials ownership of vineyards is one option for securing supplies, but there are also a number of others.
We have more than ample capacity and do not foresee a further investment in production facilities. We do, however, plan to extend our brand portfolio in the white spirits segment.
The decline in the brandy market has been a reality for a few years. Before the decline, production was geared for an increasing market. The combined result was an over-supply that had to be corrected. We opted to do this over a number of years and in a way contained the impact on some co-operative cellars. Unfortunately we had no other option but to stop buying rebate and distilling wine from a number of our suppliers. In the medium and longer term we foresee building stable relationships with suppliers that will focus on cost efficient production of rebate and distilling wine.
We have a long-term relationship to buy from KWV. We also distribute KWV (brandy) products in South Africa as part of a business agreement. Our relationship with KWV will continue for as long as it makes business sense.
The Top 100 is based on volume and does not fully reflect the importance of our estate partners. Apart from the ones you mentioned, out portfolio also includes Meerlust, Jacobsdal, Uitkyk, Rietvallei and Theuniskraal. The diversity, colour and interest they contribute to our wine portfolio are essential to our success and we will certainly be looking to expanding our existing relationships. Although we do not market the products from Mont Blois, Goedehoop, Bonfoi, Meerendal and Middelvlei anymore, we still maintain a suppliers' relationship and we buy some of their grapes.
Apple concentrate for ciders can be considered as a commodity product. Price and quality are major considerations, but provided our criteria are met, we will probably continue to source them from the same areas.
Koos Fouché, International Director
We are constantly evaluating our network of agents against specific performance criteria and this won't change. We have opened new offices in New York, London and Singapore, with sub-offices in Sao Paulo, Bonn and Sydney for the Americas, Europe and Asia/Pacific respectively. These offices are manned by our own people, previously employed by Distillers or SFW, and are in a position to manage the markets in their regions more effectively. Simon Dewhurst and Gary Greenfield have been posted in New York, Gerard van der Watt and Jacques Vanderwalle in London, Alex Louw in Bonn, Werner Swanepoel in Sao Paulo and Andy Mallet in Singapore.
We believe that our African heritage and ambience allows us to develop distinctive products that will give us a sustainable advantage in highly competitive world markets. The success of Amarula cream and potential for Savanna dry cider is evidence of this. And we've got our own South African wine variety, Pinotage. We have immense potential for varietal diversity.
The world market offers great potential for the growth of premium wines from South Africa, but the requirements for success are difficult and costly. You need substantial investment in brand building and you have to take a long-term view. Therefore it won't make sense to try and compete on a price basis only. Developing a value-for-money perception requires us to focus on the premium portion of the quality spectrum. We have already identified the key drivers, which we believe will meet consumer expectations in these segments and all our efforts will be focused on the successful development of the supply chains for these brands, from primary producer to consumer. We also believe that South African marketers will have to take a far more co-ordinated stance. We fully agree with Zelma Long's statement at the Nederburg Auction, that the South African wine industry should present a united front to the world, instead of talking each other down. The KWV Perold and Plaisir de Merle wines are splendid examples of icon wines that can be used in building "brand South Africa".
The appropriate channel will have to be determined for each country, but supermarkets will continue to play a major role in most markets.
We will have to utilise all our potential, including Amarula and Savanna and other innovative products.
We are South African based and have no intention of changing this, although we will need to consider joint ventures and other growth opportunities. We already have investments in operational capacity in Tanzania, Kenya, Mauritius and Zimbabwe. We supply some of the material for these. The specifics of each situation will determine what is most cost effective.
Our aim in Africa is to develop our international products, but our investment in operating capacity in those countries also takes local market needs into account. We have set up a regional African structure with offices in Accra for West Africa, Nairobi for East Africa and Johannesburg for Southern Africa. Namibia is an important market and has its own structure.
Distell appeals against merger decision
Distell has appealed against the judgement handed down by the South African Competition Tribunal that its merger should indeed be subject to approval by the country's Competition Commission.
An application had been brought by Seagram and Bulmers against Distillers and SFW, for an order setting aside the merger of Distillers and SFW or alternatively requiring Distillers and SFW to formally notify the Competition Commission of the merger.
The Tribunal ruled that for procedural purposes the transaction was a merger and therefore required that the Competition Commission be notified. This decision has now been appealed.
* status as on 9 May 2001
|
|
Visit our sister sites:
 2009/10 Directory Now Available! Facts, figures, contact details and much more...
|
The merger of SFW and Distillers Corporation into Distell and the listing of the new company on the JSE in March this year, represents a reversal of the decision in July 1988 to separate Cape Wine and Distillers Ltd into two companies - Distillers Corporation and SFW - and to list them independently. That decision was prompted by the need to generate internal competition within a closed market. 
| UP |
COPYRIGHT (C) 2000 WineLand |