Armed with a South African business degree, Mike Ratcliffe studied marketing at the University of Adelaide before returning to work with his parents at Warwick, one of South Africa’s leading wine estates.
In 1996 he launched Vilafonté, a super-premium joint venture with top US wine experts Zelma Long and Dr Phil Freese, and in 1999 he took over as managing director of Warwick. A prominent and often outspoken member of the Cape industry, he has served on the boards of the South African Wine Industry Trust and Wines of South Africa, and is founder of The Cape Wine Auction, along with Rootstock, an industry group for young people.
MEININGER’S: You studied in Adelaide at a time when the Australian and African industries were very different. How did that change the way you have thought and behaved?
RATCLIFFE: When I went there, the Aussies were talked about as God-like marketing figures. And Adelaide was the first place on the planet that offered a post-graduate course in wine marketing. I went into the very first class and there were only three students and so it was very much the formative years of the entire concept of wine marketing as a subject.
The experience affected me dramatically. Not because it was Australian; it was just that it was a dedicated year of talking and learning about wine marketing as a science. It gave me quite a lot of perspective. There almost wasn’t marketing in South Africa in those days.
MEININGER’S: The two countries’ wines were different, too. In the apartheid era of the 1980s, South Africa’s producers thought they were making the best wine in the world and only prevented from proving that by politics. But in the 1990s, when sanctions were removed, they didn’t perform that well.
RATCLIFFE: Yes, I think the realisation that our wines weren’t the best in the world perhaps represented a fulcrum; certainly a turning point, and it took quite a lot of humility to swallow that pill. I think it’s a combination of generational change and a dramatic amount of investment and realignment of the entire industry. Now we’re starting to see the results of that. But we’re still on the back foot.
I guess there’s a fine line between confidence and arrogance but I don’t think we need to worry about arrogance as a country now. I think [our confidence should be] purely based around a two-pronged axis of quality and value. There are starting to be countless commentators who could be quoted as saying that South Africa’s quality to value is the best in the world, if not the best amongst the best.
MEININGER’S: But your industry is widely perceived to be the place to buy cheap wine in bulk, to bottle overseas, possibly with grapefruit flavouring for the French market.
RATCLIFFE: Bulk is really symptomatic of poor marketing. It’s inexcusable that a country like South Africa that produces one or two percent of the world’s wine should be selling the majority of that wine in bulk. It’s inexcusable and it’s amateur. I think that’s coupled with a lack of confidence; the fact that a lot of South Africans get so excited when somebody is willing to buy their wine that they’re willing to bend over backwards.
One of the best things I did at the beginning of the credit crunch was adopt a policy of saying ‘no’ to deals. Every single person that came along with a deal, we just said ‘no’ - and in the end, we got the business anyway.
But the fact of the matter is that our industry is 20 years old at best. Anyone who tells you the industry is 350 years old has been sucking up too much of their own marketing. Even today there’s more Cinsault and Colombard than Cabernet and Cabernet Franc, and it’s produced along rivers where they can get 25 tonnes a hectare if not 40, all of which will be sold as bulk.
MEININGER’S: How much wine are you producing now at Warwick and Vilafonté?
RATCLIFFE: At Warwick, we do about 100,000 cases, while at Vilafonté we do 7,000, but that makes it by far the biggest luxury brand in South Africa - triple our nearest competitor. But I prefer to call it a high-end brand.
MEININGER’S: How do you handle distribution of the two brands?
RATCLIFFE: At Warwick, 33% goes through traditional channels domestically, and 22% is sold directly and 45% is export. Fifteen per cent goes to America, at least 10% to UK and then we can probably split the rest roughly equally between Europe and China.
The Vilafonté picture is very different, and much more focused in direct selling. Our wine club can deliver in the US, UK, Europe and South Africa. I’ll be very surprised if we get to the end of the year and we’re not 50% direct. And we could easily go to 100%. And it’s working well for us. In South Africa we have 22 restaurants that list our wine, that’s all. But we know exactly who they are, we have a direct relationship with them and they get all the love in the world. Of those 22, probably 15 are carrying multiple vintages, verticals, large formats, the whole thing.
MEININGER’S: How much of Vilafonté is sold at cellar door?
RATCLIFFE: We have no formal cellar door structure. Almost every day we have a number of different visitors but they would be members. Our cellar door facility is closed to the public but everybody that’s connected to the brand as a member gets lots of VIP access.
MEININGER’S: So very much a high-end US model in that sense?
RATCLIFFE: Yes, absolutely. You have to watch costs carefully. Whereas most people would assume that a wine club would have 30 points higher margin than a wholesale channel, it’s probably more like 15.
MEININGER’S: How much has having US partners at Vilafonté affected the way you’ve run both businesses?
RATCLIFFE: Phil Freese and Zelma Long are highly experienced, highly revered and extremely academic people and so have taught me a huge amount, not just about horticulture and winemaking but basically about how the whole system works. So I don’t think you can understate the enormity of the impact of being partners for the last decade and a half.
MEININGER’S: Why hasn’t South Africa performed better than it has in the US?
RATCLIFFE: Yes, it’s a real bugbear of mine, because we sell well there. If you could choose a single factor, it would be lack of funding. The amount of money that Wines of South Africa spends in the US is likely less than my marketing budget.
MEININGER’S: But the marketing message matters too, surely?
RATCLIFFE: I resigned from the board of Wines of South Africa because I was really unhappy with the way the marketing message was going and I actively campaigned against the biodiversity message.
But similarly I think that America is the home of marketing. Brands grow, survive or die on the back of their marketing efforts and marketing is just another way of saying story telling, and the Americans don’t know our story and we’ve squandered so many opportunities largely because of funding. We currently do not get one cent of funding from the government.
I’d say that there has been zero leadership in the industry – nobody in charge directing traffic for brand South Africa. At best, you have Wines of South Africa, but their mandate is extremely limited and it’s pretty undemocratic. It’s based on proportional representation for every litre of wine you export, as opposed to every dollar, pound or Yen that you export, so it favours bulk.
MEININGER’S: So what is South Africa’s story? What is its message?
RATCLIFFE: It’s very difficult to communicate who you are before you know who you are, and at the moment I think that we’re only now getting to a point of knowing who we are.
The one thing we do know is that we do not hang our hat on one hook. As convenient as it would be to have one signature variety, we just don’t have that. But some calling cards are emerging. For example if people come to South Africa now, they might ask for cool-climate Sauvignon Blanc, for Stellenbosch Cabernet Sauvignon, Swartland Chenin Blanc and maybe Swartland Shiraz as well. So there are some messages that are being crafted. But I’ll be the first to admit that that’s not the perfect message.
MEININGER’S: How understood do you think South Africa’s wine regions are within and outside South Africa?
RATCLIFFE: I think perhaps the only identifiable regions at the moment are Stellenbosch, Constantia, and Swartland a distant third. Swartland has done a remarkable job of defining themselves in a short period but they are facing a lot of headwinds in the sense that they built their message around tiny little producers producing wine barrel wonders – yet they don’t have the oomph to supply the demand. So big players moved in and suddenly Swartland is on the shelf in Tesco. There is an uphill battle there but it’s a nice battle to have.
MEININGER’S: In the US, there’s a greater readiness to charge premium prices for premium wine.
RATCLIFFE: I’ve been on a lot of soap boxes criticising producers for selling their wines too cheap. I’ll give you an example, both from a friend of mine. Bruwer Raats makes a wonderful wine called Mvemve Raats de Compostella. Every year, the highest Wine Advocate and Wine Spectator scores always come between Vilafonté and de Compostelaa. Bruwer takes great pride in telling me he sells out in three weeks every year and I call him a fool because why would you sell out in three weeks if you could sell out in 52 weeks at 10 times the price? He’s not harnessing supply and demand.
Bragging that you’ve sold out your wine in a long weekend means that you’ve dramatically underpriced it and so my point is these guys should be pricing it higher. Last Tuesday we did our first global release of Vilafonté Magnums ever: 30 Magnums each in South Africa, Europe and the States. So it’s only 90 bottles. But we priced them at 7,500 Rand ($584.00) a bottle, which makes it the highest-priced bottle of South African wine ever. The point was not to generate revenue, the point was to crack open the blue sky and actually suggest to people that this space is possible for South Africa.
MEININGER’S: Has South Africa focused too much on the ‘easy’ traditional markets of UK and the Netherlands?
RATCLIFFE: Are we too fixated on the supermarkets in those countries? Well absolutely! A lot of South African production is not necessarily controlled by South Africans. Some of the production is in the hands of big players – big UK shareholders, whose only interest is in producing as cheap as possible.
MEININGER’S: Until 1990 or so South Africa’s was a pretty paternalistic industry in terms of the control the government – through the KWV – had in terms of planting and distillation.
RATCLIFFE: It was an evil that covered every sector of the South African economy. Paternalism is not a word that people use very often, but it’s one that is very much in my lexicon of trying to describe and grapple with the politics. But the opposite is almost true now. I don’t know that there is really any relationship with the government.
I was chairman and deputy chairman of the South African Wine Industry Trust and I interacted with three different ministers and each was more useless than the one before and more disinterested. We used to leave those meetings with undertakings and would never hear anything else. Government basically doesn’t exist in the wine industry and that’s a shame, because it’s a big taxpayer and a big employer. Government and industry are equally at fault, but the future of the South African wine industry is having black and white people actually talking to each other and having conversations. But that doesn’t happen.
MEININGER’S: You’ve done some work on trying to empower young producers from previously disenfranchised communities.
RATCLIFFE: Trying to empower people to come into the industry smacks slightly of paternalism, so I think that that concept is always going to fail. While there is no correct answer, my personal philosophy has always been around backing enthusiasm. So find me the smallest green shoots of enthusiasm and cover it in a wave of support and create a nurturing atmosphere. The problem is the lack of green shoots, not the lack of willingness to do it.
MEININGER’S: What about growing wine consumption among black South Africans?
RATCLIFFE: If you were to talk about the domestic market and probably Southern Africa the answer to just about every question is the emerging black middle class. In my personal businesses, that’s what we are focusing on in a heavy way, but we’re finding it’s an empty space to market into because the wine industry pretty much is not there. The only competitors in that space would be – to a certain extent – the beer industry, and to a large extent the spirits industry. But dumbing down a message to get to the black emerging market is exactly the wrong way to go. The contrary is true: you actually have to smarten up your message, because the emerging black middle class consumer is probably more savvy than their white counterpart. The white counterpart is spoilt for choice – thousands of wines are being marketed towards them – whereas the black consumer has very few wines that are actually being targeted directly towards them.
MEININGER’S: You’re on record as being optimistic for the future.
RATCLIFFE: There’s some more interesting fresh blood at Wines of South Africa. Despite having almost no resources, Siobhan Thompson is doing a really good job. I like the way she thinks; she’s quite pragmatic. The new chairman, Michael Jordaan, is a good friend of mine, but I think he will be a positive force at Wines of South Africa. Then there’s Rico Basson who is the CEO of the industry service organisation, VinPro. He’s as close as South Africa has ever come to having an industry leader.
MEININGER’S: Who are South Africa’s biggest competitors today?
RATCLIFFE: If you can characterise a country as a competitor I think we’re our own competitor. The opportunity is there for us to grasp. I just spent two weeks in western China and almost no one had met a South African. So my wines do well in China, but I’m doing it myself. There is no brand South Africa. If another 100 winemakers started doing what I’m doing, suddenly the brand would start infiltrating.
