Neal Martin has called South Africa “the most dynamic and exciting New World country”. Tim Atkin MW is on record as saying that “it's time the best Cape wineries were recognised for what they are: world class.” Jancis Robinson MW, reporting on the New Wave South Africa wine tasting in London in September quotes Steve Daniel, the man who was the force behind Oddbins’ wine selection in its heyday, saying “I can't remember when I felt such energy at a trade tasting.” However, those whose job it is to sell meaningful volumes of South African wine in international markets are the first to admit that while demand is strong, the price points are only beginning to reflect this new, more upbeat message. Douglas Green Bellingham's (DGB) CEO Tim Hutchinson concedes that “South Africa’s mistakes of the past are now haunting us in many of our traditional markets – where the average selling price of our wine tends to be far lower than those from any other country.”
Time warp
After the sanctions-driven 1980s era of isolation, South African wines became the focus of international attention on the news of Nelson Mandela's release in February 1990. Many countries waited for the outcome of the first democratic elections in 1994 before committing to serious purchases. From that moment onwards however, worldwide interest swiftly emptied the Cape’s cellars. The statistics tell a staggering story of sudden and unprecedented demand. Total volume exported in 1991 was 23m L; in 1994 this rose to 50m L; in 1995, 73m L; in 1997, 110m L.
Since then the purchasing pressure has never really eased. Allowing for seasonal fluctuation and the ebb and flow of the international trade, it's been pretty much an upward trajectory in volumes. Exports now account for significantly more than domestic consumption and represent a twentyfold increase in as many years. In 1993 they amounted to 24m L. In 2013 they peaked at 525m L (almost 200m L more than was sold on the domestic market). South Africa has virtually no more wine to offer abroad: the only way it can improve on its export performance is to increase the value per litre of what it supplies.
From the outset, this has been the nub of the problem. When the international buyers descended on the Cape in the early 1990s they found an industry locked in a time warp. Many of the so-called top wineries and top winemakers had lost touch with international trends and the expectations of a discriminating world market. Cut off by years of isolation from what had been happening in Europe, America and Australia, they had become complacent. Since their domestic customers had been left with little choice but to buy what was on offer, they confused their sales success in the local market with authoritative recognition of the quality of what they were producing.
The national vineyard was in an appalling condition. Planting material was the responsibility of a vine improvement board whose failure to address the problem of widespread vineyard virus had resulted in red wine harvests characterised by low yields of variable ripeness. The average quality and quantity of whites was generally better, but here the problem was a predominance of mainly undesirable cultivars. The supply of reds to whites was the inverse of the international demand. In 1994 over 65% of the country's vineyard was white and roughly half of this was Chenin Blanc. Another 20% was made up of Sultana and Colombard. Sauvignon Blanc, Chardonnay and Riesling together accounted for less than 10%. Of the (mainly virused) reds, Cabernet, Merlot, Pinot Noir and Shiraz made up less than 9% of the total.
For overseas buyers the problem wasn't finding wine to buy: the difficulty lay in finding wine worth selling. As long as they had customers who were happy with nondescript whites and faintly herbal, slightly underripe reds with astringent tannins, there was business to be done. If, however, they wanted to offer wines to discriminating customers while meeting the obvious requirement of saleable varietal names on the label, the tanks were largely empty. Still, the world wanted Cape wines, and in the first few years of the Mandela-led Rainbow Nation, demand seemed insatiable and anything would have to do.
Curiosity and excitement over South Africa's peaceful transformation created the market, but sanity still prevailed. Supermarkets were obliged to offer a suitably optimistic selection, but they understood they still needed to satisfy (more or less) the quality expectations of their consumers. Their solution was to apply a reality check to what they were prepared to pay the brokers and export agents who had sprung up like wild flowers after a summer storm. In those early days of the post-elections export trade ,Cape wine was firmly in the sub-₤4.00 ($6.00) average price range, with some bottlings landing up on the shelf at under under ₤3.00, with little over ₤4.50.
The producers were not unhappy with this arrangement. Firstly, in the isolation era, many had been selling a significant percentage of their crop at the floor price paid by the KWV (the buyer of last resort in a statutory surplus disposal scheme which had been in place since 1918). Almost anything was better than the pittance they recovered once the KWV had converted whatever was surplus to the demands of the local market into alcohol, grape juice concentrate, or wine of “Eastern European” origin for sale through the international bulk wine trade. Secondly, notwithstanding the optimism which accompanied the country's first free and fair elections, the South African rand continued on its downward slide even after Mandela's Government of National Unity took office. This meant that low hard currency prices still translated into good returns in soft rands. No one thought of the long-term image implications for Brand South Africa.
This, more than anything, is what has constrained South African wine in its traditional markets since those now long distant days: the consumers remember very ordinary whites and reds selling in the lowest price brackets, and don't see the need to risk spending more money for the current offerings. At the same time, supermarket buyers, acting as gatekeepers, recognise that what is being supplied now massively over-delivers in terms of value, and are disinclined to give way to higher price points. With the rand now weaker than ever, producers can still do business at an average UK price point of little over ₤4.25. With the local market largely stagnant, poor hard currency prices which still translate into a reasonable rand income are not to be sniffed at.
A palpable change
Still, it does appear that this logjam is slowly breaking. An increasingly upbeat international press has played an important role, though their primary focus has been the small boutique growers whose minuscule production is not sufficient to influence the country's total wine exports in a meaningful way. Key to what has sparked their interest has been the change in the composition of the vineyards and the proliferation of small- production facilities. When Mandela became president there were fewer than 300 wineries in the country, and at least half of these crushed upwards of 500 tons. Today there are almost 600, and around 65% of them handle less than 500 tons, with a clear majority processing under 100 tons. In short, South Africa has gone from a co-op wine culture to a fine wine industry and those who have been fortunate enough to taste the best examples of these low-volume, high- profile “rock star wines” have been unstinting in their praise. They have also helped to create a level of interest for which there is little or no wine to meet the demand. Suddenly the bigger-volume producers find themselves in the unlikely but happy position of being the only exporters with sufficient supplies to take the newly fashionable message of Cape wine to the international markets.
Talk to any of the main players and they will readily acknowledge the changes, and the benefits they have wrought. Distell's commercial director for international wines Naas Erasmus is very clear about the value this offers to the bigger players. “The attention that the New Wave and boutique producers are generating is definitely helping to lift the image of the South African wine industry,” he says. “Over the past 12 months we have seen strong growth on a number of our key wine brands in major markets. I think there is a window of opportunity that we as an industry need to capitalize on, especially in North America. The biggest challenge for South Africa is to increase the average price per litre/bottle on the export market while growing volumes. To do that we need a few strong brands.”
Hutchinson sees “more opportunity and awareness around Brand South Africa than ever”. He says that the traditional northern European markets of Germany, Holland, the UK, Sweden and Denmark have “always had reasonably high recognition and it has been relatively easy to get business... if you are prepared to negotiate on price. For me what is encouraging about the newer ‘emerging' (for South Africa) markets where we don’t have as much recognition – China, USA and Russia – is that, because we don’t have a strong brand positioning, we are able to be more responsible in terms of our pricing. This is offering the bigger companies such as ourselves a massive opportunity to try and build premium brands at premium prices.”
The common thread from all the strong, export-oriented producers is that there has been a palpable change across a broad range of markets. It is becoming easier to sell Cape wines: for the first time since 1994 price is not the sole inducement to the purchaser. The way South African wine is perceived has changed, and whether this is the result of years of hard brand-building or the cumulative effect of more column inches in more publications is not clear. Despite resistance from supermarket buyers – mainly in European markets – the price thresholds are aligning to the new, more visible profile.
Provenance is becoming more important to the consumer. This in turn means that South Africa is selling more packaged wine and less bulk.
In the world of wine, change is never instantaneous. No one should be surprised that it has taken 21 years – almost to the day – since Nelson Mandela was sworn in as the first president of a democratic South Africa for the Cape wine industry to come of age as a wine producer with an international reputation.
