While the South African wine industry’s competitors focus strictly on the market, our focus is inward and we are falling further behind – which could mean that we are bound to remain a second-rate international competitor despite producing excellent wine. Thus cautions Prof STEPHANUS LOUBSER, co-director: international affairs, Stellenbosch University Business School, in a special contribution to WineLand.
Introduction: Radical change
When one realises that five individuals decide which wines will be offered for sale in the United Kingdom (they are the buyers of more than 70% of the wines in the biggest import market in the world), then it is clear that the wine industry has changed irrevocably and radically. This is only the beginning. These changes are strategic and structural and not of a passing nature.
So for example there is a chronic oversupply of wine in the world, but plantings in Australia, Chile, Argentina and South Africa are on the increase; prices are forever being forced downward, while quality is steadily improving; the consolidation at buyer level is increasing, while producers function in a fragmented manner.
The final say about what is being offered in the market is devolving more and more on buyers; globalisation means that wines from all over the world can be offered at competitive prices everywhere. And consumers are increasingly nonchalant about the traditional rituals of wine consumption and the views of winemakers – they are drinking less, more selectively and have higher expectations of the role of wine in their lifestyle. If this is the environment which has developed over the last decade, what will the wine industry look like in 2010 Is South Africa prepared for such a challenge
Are we following the right strategy Are we doing the right things
The earnestness with which wine producing countries are viewing this turbulent environment is apparent from the number of strategic plans that have seen the light in recent years. Australia was the first with its Strategy 2025. Then followed South Africa’s Vision 2020, the USA with Wine Vision, France with New Impulse for French Wines for 2010 and Argentina with the plan they are currently developing.
With the exception of South Africa’s Vision 2020, all the strategies address ideals such as achieving a leadership position in world wine markets, to dominate certain market segments, to create a specific character and personality for their countries’ wines, and the most important – to move away from a production focus to a market focus.
The success of the Australian wine industry is by now history. They achieved their 25-year goals within the first 10 years and increased their market share in the leading UK market from less than 5% to more than 20% to give the French a run for their money. France, still a dominant leader in the wine world, is in the process of transforming to compete with the so-called “new wine countries” such as Australia, Chile and the USA. The Chileans and the Argentinians are quietly growing into significant forces and are becoming more acceptable in growth markets because of the large volumes they have to offer, increasingly improved quality and low prices.
South Africa’s Vision 2020 is summarised in ten strategic guidelines, three of which refer to social, economic, empowerment and labour representational issues.
Since being founded more than a year ago the South African Wine and Brandy Company has been preoccupied with these dimensions which are unique to South Africa. The task of the SAWB is to make Vision 2020 a reality in the wine industry. While competitors are therefore focussing strictly on the market, our focus is inward and we are falling further behind.
Let us not beat about the bush: obviously the challenge is much bigger for the South African wine industry than for any of our competitors. We have no other choice but to transform the industry. But at the same time we shall have to move away from a production focus to a market focus. International achievement is absolutely vital, seeing that the South African market is too small to keep the industry going.
Sawis is an important, essential and highly developed source of information for the industry. But it is mainly focussed on production statistics and provides little insight into what the market is looking for or even trends in the market. Wosa has the international market in its sights and concentrates mainly on market promotions, exhibitions, releases and selected market reviews, thereby putting further emphasis on the lack of an integrated market strategy for the industry.
Beer is currently growing in the market at the expense of wine, mainly because that industry is making a substantial investment in brand and lifestyle promotion. What is more, excise has an increasingly negative impact on wine. It looks as though the beer people simply have a much better understanding of the market.
The South African wine industry is mostly focussed on production instead of the market. This creates the possibility that in due course we will occupy an increasingly insignificant place in the wine and liquor world – a situation which is usually reflected in price pressure.
How do we get a market focus
It is easy to fool ourselves that we do indeed have a market focus in South Africa. After all we advertise, we entertain buyers, we arrange promotions and exhibitions and we talk about being focussed on the market.
To have a market focus entails a lot more, inter alia:
- We have to grow the grapes and make the wine that will satisfy consumers and buyers. Australia gets its wine to the client in half the time that South Africa does (from order to delivery). Therefore give the buyer and client what he/she considers to be value.
- The key elements of a wine brand must be in place before other aspects of the business take shape. This means that the reliability and consistency of the quality of the wine and the entire value chain should be in place, from both a rational and an emotional point of view.
- A market focus is essentially a philosophy. This philosophy can be seen in a business’s leadership, its management style and established views, its culture and how it acts. The behaviour of the business can be seen in the extent to which it has mechanisms in place to obtain information about and insight into the environment and market, as well as its ability to learn from it and react to it. This situation is also applicable to the entire industry. Each role player must be focussed on the market in order for the entire value chain to be market focussed. This demands less fragmentation and better integration and collaboration.
- In this regard co-operatives have a problem. Their inherent goal is to protect the member/farmer; therefore a production focus. While the marketing team can listen intently to the client, it is eventually to no avail if you do not have a free choice of the grapes that you are going to buy. Most co-ops do not buy grapes; they only handle their members’ grapes.
The bigger wineries’ limited success in the export markets (measured against what competitors have achieved) is an indication that they are perhaps not focussed on the market. Private wine estates are in a better position, since they are usually small and under the direct control of a dedicated entrepreneur. They usually focus on niche markets and collaborate closely with a smaller number of clients. Sometimes they are not even aware that they are in fact much more focussed on the market than the bigger players.
The road ahead
Vision 2020 established good guidelines. But, unlike other wine countries, our situation demands that we handle more things simultaneously. And we have to get people to want to accept this challenge. In order to become focussed on the market we have to implement a few principles:
- The industry requires strong leadership which places the focus on the bigger picture rather than individual interests.
- The concept “Brand South Africa” will have to be elucidated and pursued.
- The SAWB could play a leading role in this, but are they currently engaged in the right balance of activities
- Sawis must be expanded to address the information requirements of the entire industry and value chain.
- Wosa must be expanded to address the overall marketing requirements of the industry, local as well as international.
- VinPro should play a critical role by integrating the requirements of the consumer to a larger extent with that which is happening on the farm.
- The necessary skills, especially with regard to management expertise, will have to be developed to establish a market focus.
- Conclusion: A crisis waiting to happen!
The South African wine industry is facing a crisis. We are doing incredibly important things, but these issues will not necessarily ensure international success. It is our task to tackle both simultaneously – both the internal South African issues and the market aspects.
We shall have to become focussed on the market, otherwise we shall soon discover that we have fallen too far behind the rest of the world – that we are making excellent wine, but remain a second-rate international competitor.