The SA wine industry is at the midway mark towards its 2025 targets. We reflect on its milestones, challenges and way forward to becoming a more robust, globally competitive and sustainable industry.
In 2015 the South African wine and brandy industry embarked on a 10-year journey to grow profitability, global competitiveness and sustainability by 2025. The roadmap for this journey was based on a comprehensive industry-wide Wine Industry Strategic Exercise (WISE).
The WISE targets were set to increase producers’ return on investment; grow and open up local and global markets through consumer research, strategy, trade agreements and wine tourism; turn business models around from being production-driven to market-driven and re-evaluate the bulk-packaged wine ratio; increase employment levels, access to black-owned land and water, and volume of ethically accredited wine; and match government and industry funding.
“We are on track with the WISE targets, with some initiatives moving faster than others,” says Rico Basson, managing director of the wine industry organisation Vinpro. Challenges such as climate change, shifts in production and demand, and financial pressures are not new and are expected to still be in force for the next five years. “The waves may break, but keep an eye on the tide – it’s turning,” he says. “The South African wine industry is in a new phase of repositioning, consolidation and reinvestment, and will continue to adapt to changes.”
Do more with less
After sanctions were lifted in 1994, the wine industry focused on increasing production and opening up export markets. But by 2005 the Nelson Mandela euphoria had worn off. Exports dwindled and unfavourable exchange rates led to a consumer-driven approach.
“Now that a recession is looming and there are signs of protectionism we need to create a consumer base that’s fanatical about our wines and meet their needs by producing enough of the right, high-quality products with the limited resources at our disposal,” Rico says. “I call this the era of business efficiency.”
To gear up for sustainable growth, the industry needs to grow the demand for higher priced wines in the local market and premiumise South African wines internationally, while negotiating beneficial access. Businesses also need to rethink the cultivar mix according to this new focus, but also look at consolidating the supply chain through optimising cellar space, setting up long-term supply agreements and ensuring sound corporate governance and skills.
While energy and water are probably top of mind in terms of resources, the industry’s strategy also focuses on promoting access to capital and ensuring there are enough grapes to make wine.
The shrinking area under vines and dwindling number of producers, coupled with the recent drought, have contributed to a decline in production levels that’s in line with demand. On the plus side, this has led to price increases. While cellars made 180 million litres less wine over the past two years, prices increased by more than 40%, which inevitably filtered down to farm level. “We have a third fewer producers than 10 years ago but producers’ return on investment has grown from 1% to 5% in the past five years,” Rico says. “And in 2015 only 15% of wine grape producers were profitable compared with 28% in 2019.”
A full version of this article appears in the April 2020 issue of WineLand Magazine. Buy your copy here