Our marketing people often encounter resistance when marketing South African wines. Some overseas buyers claim South Africa is not a reliable supplier.
Even worse, we lag behind our new world competitors, in particular Australia and Chile, although, measured in shipping time, they are further from the European markets.
Closer investigation revealed that various other factors could have a detrimental influence on the supply channel. For example, Australia has only four large wine exporters, while approximately 160 exporters are trying to do business from South Africa. The former organisations are backed by powerful capital resources, which means they are capable of presenting the product for export within two days of receiving the order, while in many instances South African exporters take up to two weeks to get the product ready. Often the cause of the problem lies in the lack of sufficient cash flow at some of the cellars, who cannot take the risk of bottling, labelling and having the quality approved before packaging the wine in cartons, ready to be exported. Furthermore, in many instances the buyers only pay 90 to 120 days after receipt of the product, putting even more pressure on the supplier’s cash flow position.
Certain suppliers blame the Directorate Plant Health and Quality for the delay, but these accusations appear to be unfounded if the correct procedures are followed. There is an awareness that the system can be streamlined to make export procedures more flexible by using effective information technology. However, the proposed solution requires capital input which will also have to be cleared first, in order to comply with the legal stipulations. After quality approval, producers who can afford to do so, store their wines en masse (bottled and in crates), usually without labels (“clean skin”), so that they are able to react very quickly to orders.
In recent years, with the modernisation of cellars, a laboratory usually constitutes a very important part of the facilities. These laboratories are able to apply quality control on an ongoing basis; in certain cases they are even more strict than the Directorate Plant Health and Quality. The general feeling among cellarmasters is that they would like to bear the responsibility for the quality of their products themselves and that possibly the government should only verify, on a sample basis, whether the product complies with the prescriptions. The producers also run the direct risk of marketing poor quality products, which they will try to avoid at all costs.
Many sellers of South African wines also lack the basic skills to become involved internationally and oversell volumes in many instances, when selling the wine in rand terms.
Traditionally wine sales have been taking place through agents. One can imagine the extent to which an agent has to be courted in order to secure his goodwill. Our Australian friends recognised this problem a long time ago and in the main make use of their own structures to market their products. Ownership is the best motivating factor to ensure that the transaction succeeds. The Australian producers are also so confident that they will sell their products, that they ship them to the market even before receiving the orders.
The labelling of bottles may also be a source of problems. Label design is becoming increasingly complex and there are more and more opportunities to make mistakes. One should possibly look at simplifying labels, since bottles that have been labelled for exports cannot be used for the domestic market and vice versa. The formation of the European Union (EU) has the advantage for producers that they can rationalise their labels, since a single label can be used throughout the entire EU area.
It is also a fact that 70% of wine sales take place through chain stores, in which case large volumes of the same brand, the same quality and the same packaging are required. South African exporters will have to attend to this matter. Apart from the above, some buyers insist that purchases will only take place on the basis of one litre of red wine for each litre of white wine purchased. This arrangement forces cellars to specialise in both red and white wine and means they cannot produce either red or white wine. The production cost of red wine is considerably higher than that of white wine.
The role played by agents in the marketing of wine should not be underestimated. Naturally those wines that ensure the biggest amounts in commission will be purchased. Furthermore the commission structures of agents who sell wine to the retail trade differ from those of agents who sell wine to restaurants.
In some European countries there is a kind of monopolisation where suppliers are approved first before products may be supplied in terms of a listed system. Unfortunately producers cannot enter this market without the help of agents.
Wine cellars are reluctant to carry large quantities of dry stores (for example labels, bottles and cartons), due to the cost involved. Unfortunately this state of affairs contribute to the delay of export orders. In some instances it takes three weeks at least for dry stores to be delivered. The cause of the problem may possibly be found in the monopolistic supply pattern of most of these stocks.
The bigger wine producers base their planning on forecasts of the extent of the wine market and bottle and label accordingly. In such cases the wine usually lies ready, waiting to be shipped, which means that a lead time of eight weeks is sufficient to get a product to Europe. These wines can be offloaded at the cellars or warehouses in two weeks’ time.
There is also a trend among the bigger wine producers to rationalise their range so that they can market in a more focussed fashion, and drive specific brands so that buyers might request specific products.
With regard to the shipping aspect, the quality of the product is temperature sensitive and shipping space must be booked long in advance to ensure sheltered, cool storage during voyages. Wines that are shipped to the far north (the Scandinavian countries), may be exposed to extreme cold and those to the East, to extremely hot weather if stored above deck.
A new development that will also improve South Africa’s image as exporter is local warehousing of South African wines after sales, so that the wine is stored and forwarded by the foreign buyer at his own expense. These wines are ready to be marketed and can be packed and loaded for shipping within a matter of days. The responsibility rests with the buyer to demand the product when required. The cost of warehousing in South Africa is apparently about one tenth of doing so in the United Kingdom, for example. In monetary terms, the cost is approximately R0.08 per 12 bottles per week and approximately R0.80 for the same amount per week in the U.K.
Some producers see the sense of renting warehouse space close to the market. By so doing, they can supply the product within three days. The cost involved is considered not exorbitant, since negotiations often take place with the distributors to shoulder part of the warehousing cost. On the other hand, the cost of warehousing in South Africa is saved. Overseas warehouses usually have good working relations with courier companies, who are able to arrange very prompt delivery. In such cases the producers usually bear the risk, but they remain in control of the available stock levels. The agents are deemed an extension of the producer/cellar and are forced to act in a focussed manner.
The latest trend in wine marketing to individuals or restaurants, is by means of the internet, with delivery from a local warehouse, by making use of a courier service. By getting attuned at an early stage and setting up the necessary hardware and software, most of the actions surrounding sales and distribution can be controlled locally.
South African producers should aim to be the preferred supplier of targeted select wines. In the United Kingdom, where the consumption of select brands usually goes hand in hand with snobbery, it also means that the products must be seen and consumed in the right places.
In an attempt to assist the wine producer in controlling his export logistics so that his products may arrive at the correct destination in good time, over and over again, I compiled a wine export control list, based on my research (Attachment A), which may be monitored by hand or by computer. Any deviations can be followed up immediately and adjustments made where necessary. Also see Attachment B for the most important documentation required.
All actions begin once the order is received. The critical moment is the receipt of the full container in the harbour before the stacks close. If the date is known for the closure of the stacks for the particular shipment that interests the producer, at least seven additional days have to be granted for all the respective functions that are required. Strict adherence to this control list, or an amended version, will ensure that the product is always delivered at the right time.
The key to the success of our wine exports lies in successful marketing, which is why all aspects that may give rise to criticism and irritation should be addressed. This attempt is aimed mainly at overcoming “logistical” problems and I trust that the guidelines that are provided will make a contribution to solving the problems so that our winemakers may be better positioned to compete internationally.
WINE EXPORT CONTROL LIST ATTACHMENT A
DATE WHEN PLANNING BEGINS:
NUMBER OF DAYS REQUIRED:
DAY FUNCTION PERSON DATE
1 Bottling and labelling of wine
2 Arrange final quality testing
4 Result of test – positive (continue) – negative (revise).
Apply for export certificates.
Book space on ship. Note stacking date,
Reserve containers – according to buyer’s requirements
5 Comply with statutory requirements
– Customs clearing/Ad Valorem wharfage
– Obtain certificate of origin
6 Arrange inspection of wine (give notice)
as per export certificate.
7 Pack in container for transport to harbour.
8 Receive in harbour – before closure of stacks
(48 hours before ship sails)
10 Loading on board
UK – 16 days
Europe – 18 days
USA – 20 days
Far East – 22 days
26 Offload in UK harbour (Southhampton)
27 Clearance and payment of all dues and excise in UK.
28 Deliver to agent in UK/Offload in Europe (Rotterdam)
30 Deliver to Buyer/Agent in Europe/Offload in USA (New York)
32 Deliver to Buyer/Agent in USA/Offload in Far East (Osaka)
34 Deliver to Buyer/Agent in Far East
* Bills of Lading provided once the ship has sailed.
Attached documents will be typical
- Certificate of origin
- Quality certificate
- Other accounts for buyer’s attention (inspections agreed to)
ATTACHMENT B: DOCUMENTATION INVOLVED IN WINE EXPORTS
The most important documents required by the export process are the following:
1.Commercial invoice – with specific reference to INCO terms 2000, container number, price, stamp number and quantity.
2.Packaging list – completed in the light of information appearing on the commercial invoice.
3.Bill of Lading – proof of shipment provided by the shipping line once the ship has sailed. Information contained on the packaging list forms the basis of this document.
4.Form F178 – bank document controlling the flow of foreign currency, as prescribed by the SA Reserve Bank.
5.Insurance certificate – proof of insurance agreement.
6.VI-1-document – issued by the Directorate Plant Health and Quality in Stellenbosch. (This is a requirement of the European Union for export to the Union).
7.Analysis certificate – issued by the Directorate Plant Health and Quality in Stellenbosch.
8.Certificate of Origin.