The bulk wine industry is flooded with examples of opportunism, where desperate cellars force already low prices even lower in order to get tanks empty. No wonder then that alternative crops are becoming increasingly popular, but for buyers this presents a threat to a sustainable supply.
IN SEARCH OF SOLUTIONS
The bulk wine trade platform, Ibeta, was established in 2014 to fulfil the clear need to make this segment of the wine industry – which represents just below half of South African exports – more profitable and effective. According to Philip Jonker, co-founder of Ibeta, there is a “massive need” to take the bulk wine business to a higher level with regard to the quality of the product, as well as the quality of service, and this is where Ibeta wants to provide guidance.
“Our vision is a collaborative initiative with integrity and sustainable profitability for the entire wine value chain as its aim. Ibeta wants to effect unity by setting strategic goals that buyers and sellers can achieve together, while also eliminating harmful opportunism,” says Philip. He adds that Ibeta wants to help replace the vagueness and uncertainty with transparency and useful information.
“Suppliers of bulk wine are often in the dark about wine styles, price points and up-to-date market information. If South Africa wants to compete internationally, we need brands that can gain market share in substantial volumes at respectable price points. South Africa will only achieve this if our foundation of bulk wine supply is ready and the brand launching thereafter is effective.”
Ibeta doesn’t hesitate to shine the spotlight on issues and ask direct questions in an effort to improve quality, effectiveness and ultimately profitability, says Philip. Words were turned to action at the recent Ibeta Bulkwine Seminar at Allee Bleue near Franschhoek, where participants in a panel discussion had no qualms in pointing out the challenges facing the bulk wine industry.
The panel included representatives of the industry’s biggest local commercial wine buyers, as well as winemakers and cellar managers. The following were among the key points of discussion:
1. PRICE PAINS
As long as there is unsustainable, dirt cheap wine on the market, downward pressure on prices will remain. If a new lowest price emerges, it becomes the new norm. DGB winemaker and Ibeta panellist Jaco Potgieter says the demand for distilling wine has diminished. It now forms part of the bulk wine pool and the greater supply has contributed to low prices.
His co-panellist and production manager at Perdeberg, Albertus Louw, says it is very difficult to raise prices after you have entered a market at a low price – a common pitfall for South African cellars.
Jaco is of the opinion that it “won’t hurt the industry” if bulk wine prices are raised uniformly by a rand per litre for the producer. This R1 move has become symbolic of the industry-wide adjustment that is required to be sustainable, yet prices still seem to have moved in the wrong direction.
2. FROM WINE TO FRUIT
Crops like citrus and pecan nuts are increasingly being planted in the place of less profitable wine grape vineyards. William Stacey, head of wine buying at Distell, says a dependable wine supply is non-negotiable and that other crops pose a threat in this regard. Hermias Hugo, winemaker at Origin, spoke frankly about the threat of alternative crops. He says that mixed farming, which includes wine grapes and fruit, could be a possible solution to ensure sustainable profitability.
“But there are wine farmers who are lazy,” he says. “While progressive farmers are cultivating other crops, they want to go on holiday. It’s simple – if we cannot compete with fruit, we are going to see our businesses fold.”
3. STRONG BRANDS
A strong South African brand will always mean more for the industry’s image than wine merely being sold in bulk. It can also bring about added value throughout the value chain.
Gerhard Swart from Accolade emphasised the importance of a strong international brand – especially at prices above entry level. William says that a greater demand for South African wine is critically important, but it can only truly happen once the “global wine excess” is a thing of the past.
Cellars that hold wine back until just before harvest in an effort to obtain a higher price often find themselves in a pickle and then have to move the wine at write-off prices. Hermias says cellars have to learn to read the market better and realise that there are specific needs. “Yes, occasionally wine must be held back, but it also has to be sold at the right time. It is important that cellar managers spend enough time in foreign markets to be able to understand this dynamic better.”
Analyses of wines that have been traded on the Ibeta platform, show that everything is not necessarily right on the production side, with volatile acidity and sulphur readings in many cases indicative of poor winemaking practices. In such cases it surely can’t be expected that a strong brand or better price can ensure a sustainable industry.
According to Philip, Ibeta believes that distinction should be made between good and bad wine, as poor quality shouldn’t be remunerated above merit through pooling. Good quality should likewise earn a better price than is currently the case. Ibeta therefore wants to strengthen its offering and representation of South African bulk wine and in so doing give the entire industry momentum and take it forward strategically.