Category Archives: South Africa

The Tax Man, Carl Lewis, and the Paradox of South African Wine

March 19, 2024 By in economic crisis, Economic impact, South Africa, wine, wine markets 4 Comments

It was an unlikely pairing. Thirty years ago the legendary Olympic champion Carl Lewis became the face of Pirelli, the Italian tire maker. “Power is nothing without control,” the advertisements proclaimed.

This photo of sprinter Lewis in high heels made the point very well (as did a spectacular television commercial). Power without a strong foundation isn’t very useful. It is important to assess situations from the ground up (where the “rubber meets the road”) rather than simply top-down.

The Tax Man Cometh

What prompts my interest in vintage tire advertisements?  I am inspired by recent reports from South Africa. The wine industry there, as I will explain below, is robust and resilient, and yet fragile. However, the South African government doesn’t seem to appreciate the situation’s complexity and has recently announced an excise increase of 7.17% on still wine, 7.17% on sparkling wine, and 6.67% on brandy. This is a harsh blow to an economically important but fragile industry just as it moves to recover more fully from the dismal pandemic days.

It is worth noting that South Africa is not the only wine region facing detrimental tax or other policies. One survey of winegrowers in Ontario, for example, lists discriminatory tax treatment as one of the top two or three headwinds and I know other regions with similar concerns.

It seems to me that the officials behind this tax fail to appreciate the wine industry’s double nature. It is robust, resilient, and an important economic driver of the national and many local economies, which is something to be protected. But, at the same time, it is fragile because the foundation of the wine industry is farming, and especially in South Africa, that is a difficult business.

Read the Report!

I recommend that government officials study a recent report issued by South Africa Wine titled “Macro-Economic Impact of the Wine Industry on the South African Economy.” The report traces the economic impact of the wine and brandy industry on the South African economy, making the case that it is an effective driver of economic growth.

The wine and brandy industry’s extensive value chain, which is deeply rooted in agriculture, has, over the past 365 years, played a significant role in South Africa’s cultural and economic history. Its distinct role within the South African alcohol industry landscape includes an extensive rural footprint, tourism, foreign revenue via exports of wine to more than 120 countries, and the associated brand reputation for the country.

You would not think it necessary to make such a case, but the industry suffered a variety of headwinds in recent years, including devastating drought and covid-related policies that banned the domestic sale of alcoholic beverages for long periods and also limited port access that is necessary for export shipments. What a nightmare!

Unsustainable Foundations

So it is important to dig down into the report to assess the condition on the ground, which in this case means the wine growers. The news is not good.  Winegrape growers in South Africa, as in many places including the United States, have been hit with rising costs and limited opportunities for price increases. Margins have been squeezed like a fragile grape.

This chart from the report shows how quickly a fragile situation has worsened. In 2018 only 20 percent of grape farmers reported profits high enough to justify continued investment. Fifty-two percent of growers reported unsustainably low profits. Twenty-nine percent experienced losses. This is a picture of an industry on the edge.

Fast forward to the 2022 vintage and you can see that conditions deteriorated significantly. Only 12 percent of growers experienced sustainable profits while nearly a third reported losses and almost half unsustainably low net revenues. It is no wonder that hectares under vine have been in steady decline.

The Curse of Stein’s Law

In the past, the report explains, winegrowers have responded to higher costs by pushing up vineyard yields rather than through price increases. This strategy is difficult to sustain, however, and Stein’s Law holds that if something cannot go on forever, it will eventually stop. The steadily falling quantity of producing vineyard land indicates Stein’s Law at work.

So what should the government do when an economically important industry, with substantial domestic and international backward and forward linkages, is in such a fragile condition? Raising taxes on its products doesn’t seem like the obvious answer. Some may argue that the tax increases are intended to reduce alcohol abuse, which they might do, except for the existence of robust illegal alcohol markets, which would likely expand as the regulated market declines.

The South African wine industry has many problems, just like other wine regions today, but it has one thing going for it: professional organizations like Sound Africa Wine that provide unusually strong data and analysis that could and should help guide public policy. Now it needs government officials to wake up and understand that the wine industry is a powerful but fragile engine for growth and change and not just a conveniennt source of tax revenue.

Margins? What Margins? The Big Squeeze in Winegrowing 2023

February 7, 2023 By in economic crisis, South Africa, Unified Wine & Grape Symposium, wine markets 7 Comments

I was talking with a group of California winegrowers just before the Unified Wine & Grape Symposium‘s State of the Industry session a couple of weeks ago and the stories they told me made me understand that The Big Squeeze, which I wrote about around this time last year, is still going strong.

Margins? What Margins?

The Big Squeeze? Many winegrowers have for some time been caught in a squeeze between rising costs and stagnant or sometimes even falling wine grape prices. Your margins are getting squeezed, I asked? Margins? What margins? they replied. Margins got squeezed away some time ago.

The Big Squeeze is significant and not limited to the United States. When I travel the world speaking to wine industry groups I will ask quietly about how the growers are doing? Often the reply is a shrug, downward look, and slow shaking of the head. Not so good, they tell me.

South Africa is a good case in point. Every year Vinpro, the important South African winegrowers organization, reports its survey of vineyard profitability. Rico Basson, Vinpro’s executive director, released the results for 2022 at the annual Nedbank Vinpro Information Day last month and the chart above summaries the conclusions.

Unsustainable Operations

Only about 9% of the South African winegrowers were earning a sustainable level of income per hectare — a high enough return to support long-term investment. Fifty percent were caught in a low profit zone, with positive net income, but less than they might earn elsewhere. (If you remember your Econ 101 definitions, this would be positive accounting profit but zero or negative economic profit — it’s an opportunity cost thing.)

The actual level of income per vineyard hectare (the green line in the chart above) is far below the sustainable income level (black line). Fully 41% of the South African winegrowers in the survey were either at break-even (3%) or bleeding red ink (38%). The average return on investment in 2022 was minus 2.4% and the gap between costs and revenues was widening. That, my friends, is a really big squeeze.

Volume or Value?

Which is the better strategy to escape the squeeze: volume or value? Do you push to raise vineyard yields or  try to raise price though lower yields  but higher value?

I don’t know the answer for South Africa today, but when I spoke at the Vinpro event a few  years ago the answer was clear. The higher the yields, the better the chance for success. Sacrificing quantity for quality didn’t consistently pay, I was told, because South African wine found it hard to break through the premium price-point ceiling on international markets. Most producers couldn’t manage to raise price enough to compensate for the higher unit costs. Ouch!

I told this South Africa story to my winegrower friends and they shook their heads. Pretty much the same here, they said. Given the limits on what buyers would pay for their grapes, the best way to profits was to increase yields to, say, 12 tons per acre or more depending on grape variety.

Limited Yields, Limited Opportunity

But there were two problems,, I was told. First, some buyers won’t go along — they were concerned about loss of quality at the higher yield, although modern viticulture practices make it possible to raise yields without loss of quality possible in certain circumstances. So in these situations raising yields is a non-starter.

And it isn’t always possible to get yields up to an economically sustainable level because many older vineyards just aren’t set up for that and have built-in limits that were OK when they were planted years ago, but make life difficult today.

So what are you supposed to do, one grower asked me, if you have an older vineyard that needs to be renewed at high cost? This is where the unsustainable profitability issue really hits. Do make a big bet that the Big Squeeze will loosen up in the future? My winegrower friend was less than optimistic.

Unsustainable?

Not all vineyards bleed red ink, of course. The situation is different in different winegrowing regions with different market conditions and vineyards of different ages and farming set-ups. But the problem remains. As I reported last year, wine prices have fallen in real terms recently and one result has been to make the already-serious vineyard squeeze even worse.

When you talk about sustainable vineyards, people naturally think about environmental sustainability. But economic stability is an issue, too.

Book Review: The Wines of South Africa

September 1, 2020 By in book reviews, South Africa, wine, wine history, wine markets, wine price 6 Comments

gi_157779_newsimage_vcsprasset_1603936_157779_a1e0438a-e7e6-4421-b354-a406a5fa9579_0Jim Clarke, The Wines of South Africa (The Classic Wine Library) Infinite Ideas, 2020.

Conventional wisdom holds that books with titles that begin “The Wines of …” are organized around what I call the “Three Ps” of wine: the people and their history, the places (geography, climate, terroir), and the plants (most important grape varieties). Good wine books provide interesting and informative accounts of each “P,” but the best ones find a way to rise above orthodoxy to give readers a taste of what really makes a particular region special.

Jim Clarke’s book on South Africa’s wine industry does just that and it is why I recommend it to you. Clarke is U.S. marketing manager for Wines of South Africa and that puts him in an excellent position to analyze South Africa’s wine sector. It is an important book and I encourage anyone interested in South Africa or global wine to read it, but it is not (and does not try to be) definitive for two reasons. First, Clarke wisely chooses to highlight selected wineries in each region rather than trying to cover them all. Balance is key — breadth can be the enemy of depth in this as in so many things. So you will want to have a recent edition of the Platter’s Guide for maps and comprehensive coverage of working wine cellars.

The pace of change is the second limitation. History is moving at warp speed these days — have you noticed? — and it is impossible for books to keep up, even if like this one they are hot off the presses.  Clarke tells the people story though his account of the twists and turns of South Africa’s wine history, which is necessarily intertwined with the country’s history more generally. One inevitable theme here is the importance of turning points — people and events that caused conditions to suddenly change, with effects that sometimes take years to fully unfold.

Balancing Act

2020 looks to be a year of turning points for South African wine. South Africa’s wine sector has for some time been balancing uncomfortably on an economic knife’s edge.
Some producers who go for high yields are able to coax out profits in most years despite low prices in bulk wine markets. Those who restrict yields and aim for higher quality achieve it — the best of the wines are simply spectacular — but often fail to earn prices high enough to produce profits. For at least part of South African wine, quantity pays better than quality. And many wine growers in both camps fail to earn sustainable returns.

Clarks explains this situation very well and the reader can sense his optimism going into 2020. Maybe this is a turning point moment when the country’s wines will finally achieve the widespread recognition (and higher prices) they need and deserve. I am optimistic about this, too.

But 2020 has turned out not to be that kind of turning point year. Instead it has been a year of disasters — the coronavirus pandemic, the global recession, and South Africa’s harsh national policies that have twice shut down domestic wine sales and once stopped export shipments, too. Wineries on the economic margins, many still recovering from severe drought, have been hard hit. A shake-out seems  likely and some wineries that went into 2020’s recession in weak condition will have trouble coming out the other side.

Follow the Money

The problem remains profitability more than wine quality and the collapse of global tourism flows adds one more woe to the pile. South Africa is a wine tourist dream, as Clarke suggests in a brief chapter on this topic, but it will take some time for wine tourists to return to the Cape Winelands in large numbers.

Who is going to lead South Africa’s wine sector out of the perfect storm it is caught in? As Clarke’s analysis makes clear, there is no shortage of institutions and organizations that aim to lead the industry in one way or another. A lot of people  — including a new group called Save SA Wine — are working very hard to limit the current damage and build a stronger foundation for the future.

I am not an insider, so probably I am wrong, but from my outside perspective I’ve always thought that the key must be Distell, the country’s largest private wine producer. Cooperatives, which are enormously important producers in volume terms, are unlikely to be able to lead the charge to boost prices in export markets, but Distell’s interests and those of the high quality wine sector in general are more closely aligned.

If Distell with its great scale and scope doesn’t do it, I don’t know who can or will. But I keep waiting for Distell to execute a sustained and ambitious strategy and make its big move. So far I’ve been disappointed.

Time Has Come Today

Time moves quickly in a crisis. The unfortunate facts of 2020 do not diminish this book’s relevance. In fact it is even more important now for us to understand South Africa wine’s underlying strengths amid significant challenges. And it is important to understand the stories of people and history that Clarke tells so well. South Africa has experienced turning points before and moved through them, drawing upon deep wells of strength and resilience.

Clarke captures South African wine’s bright promise, which we hope will shine through the current storm clouds. Excellent book. Very readable. Highly recommended.

Around the World in Eighty Wines visits Natalie MacLean on Facebook Live

November 30, 2017 By in book reviews, Shameless Self-Promotion, South Africa, wine 3 Comments

Recently I had the pleasure of visiting with Natalie MacLean, editor of Canada’s largest wine review site, on her “Sunday Sipper Club” Facebook Live program.

Here’s a link to the program website, which includes both the video replay and some of the many comments from Natalie’s engaged, informed, and very enthusiastic viewers.

https://www.nataliemaclean.com/blog/mike-veseth-wine-economist-around-the-world-in-80-wines/

As you can tell from the video, Natalie and I had fun talking about my books, including especially Around the World in Eighty Wines (now available in hardback, Kindle and audiobook formats on Amazon.com) and the good, bad, and ugly of writing about wine.

South Africa Wine Industry: Serious Problems, Lofty Goals, Progress Update

February 14, 2017 By in South Africa, wine, wine markets 4 Comments

rsa1I’ve been to South African twice in recent years and each visit has been eye-opening. The quality and value that the best wines provide is really world class. Wine sales have struggled to gain traction in the crowded, fragmented U.S. market, but I believe that hard work plus high quality equals a bright future for South African wines.

How is the wine industry doing in South Africa? I tune in about this time each year to hear what is being said at the Nedbank  VinPro Information Day meeting, which is the RSA equivalent of the “State of the Industry” session that I chair at our Unified Wine and Grape Symposium.

This year’s conference included an analysis of vineyard trends, a roundtable discussion by industry leaders and a enlightening long-term perspective on RSA wine industry dynamics by my wine economist colleague from the University of Stellenbosch, Nick Vink.

I was especially interested in Rico Basson’s presentation on South Africa’s progress toward the Wine Industry Strategic Exercise (WISE) goals for 2025 because it seems to me that it represents an unusually clear set of objective and  analysis. Each of the eight goals was given a green, yellow or red light rating. The discussion below is based on Basson’s presentation as reported by Jana Loots.

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Making wine in South Africa is much easier than making a living making wine.I know from my visits to RSA that while the wine can be great, the wine industry’s profitability is a serious problem. Only producers that can sustain very high yields can consistently profit from bulk wine sales. And bottled wine producers face great difficulties getting the price premium that their high quality deserves.

The WISE goal is to increase industry average profitability to a sustainable 5% real rate of return on investment and — red light! — there is a long way to go on this front. The 2016 return was less than 1%, which is even lower than 2015. VinPro data indicate that “only 13% of the 3 300 producers farm at sustainable income levels, 44% are operating at break-even and 40% are making a loss.” Yikes!

There are many regions in other parts of the world where profitability is as problematic as in South Africa. I give the RSA industry leaders credit for owning their problem and working to resolve it. Objective analysis and serious discussion, although not always easy or popular, are the necessary foundation for effective action.

Not all the signs are “red light.” There is some good news on the inventory front, for example. The overall RSA wine sector swung from surplus in 2015 to tight conditions in 2016. Elusive equilibrium is the 2025 target. It is obviously difficult to raise price or even sustain it in a surplus market, so this progress is significant.

But it will always be difficult to balance the market both because wine is an agricultural product, subject to natural output variations, and also because of market cycles. Bulk wine equilibrium is especially difficult to achieve because of large yearly swings in global production.

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The local RSA wine market provides a second optimistic green light. The domestic wine market grew more than 14% by volume over two years ending December 2016. That is very good news, but 80% of local wines are sold for less than 26 Rand (about $2) per liter.Less than 5% of wine is sold are more than 65 Rand (about $5) per liter. Early days, but moving in the right direction. Low domestic prices put added pressure on export markets for profitability.

The fourth goal is to transform the industry by increasing black ownership of wine businesses to 20% by 2025. That is a worthy and ambitious goal and certainly in line with the priorities of the South African producers Sue and I met.  The 2016 ownership level is only 2% but Basson reported that progress is being made to lay the institutional foundations for transformation. Check back in future years to see how this develops.

rsa3

Bulk versus Bottled: there is always tension between these two parts of the wine industry in any country. The WISE goals envision moving the industry from 60/40 bulk to 60/40 packaged goods. The rating is yellow here — cautious optimism due to higher export values and a new EU wine export agreement.Much remains to be done, however, both to develop new markets (see below) and to improve margins on export sales.

I think wine tourism is a key to South Africa’s future because the wine tourism opportunities are fantastic and visitors are often your best brand ambassadors. There is good progress to report in this area for many reasons. When I asked about the biggest barrier to wine tourism on my first visit to RSA I was told that there needed to be more direct flights to Cape Town. International landings increased by 22% last year. Green light.

rsa4Basson’s report ends on two positive notes. Good progress has been made in expanding both export volumes and values in the target markets of the U.S., China, and Africa (Africa represents a very solid wine opportunity today and in the future).

There has also been success in getting more producers to gain ethical accreditation for their wines. The goal of 100% ethical certification by 2025 is ambitious, but it would be both a great achievement  in itself and could be an important distinguishing element of “Brand South Africa.”

So, is South Africa’s glass half full or half empty?  Both, I think. It is critical to make progress on profitability because economic sustainability is a necessary condition for success in other areas. It is going to be difficult to achieve all these goals in less than a decade, but nothing happens unless you try. And keeping a public scorecard as Rico Basson has done here is one way to keep the RSA industry both honest and focused.

Anatomy of Wine Profit and (Mainly) Loss: South Africa versus Australia

May 10, 2016 By in South Africa, wine, wine markets, wine price 1 Comment

Australia and South Africa are rivals on the rugby field, where they compete at the highest levels, and on your store’s wine shelves, too, where they fight for shelf space and consumer attention.

It is a good idea to study your opponent to see similarities and differences and that is just what Christo Conradie did earlier this year at the  Vinpro Information Day meetings in the Cape Winelands in a talk called “Producer and Winery Realities.” Conradie revealed the results of a study of profitability within South Africa’s wine industry and the data were sobering. (You can download a pdf of the presentation here.)rsa

Profit and Loss

Overall, only about 15% of South African producers are making strong profits while 49% have what might be unsustainably low profitability and 6% are breaking even. Fully 30% of producers reported losses. That’s a lot of red ink.

That news got my attention, but Conradie’s comparison with Australia really made me sit up. Breaking profitability down by region, the data for Australia show what you might expect. Profitability is best in some of the premium wine areas — Barossa, Yarra Valley, McLaren Vale, Coonawarra — where a majority of producers are profitable. But in Riverland and even in Mudgee the red ink flows and flows. Almost no one reported a profit in 2014 in these two regions.

Lots of reason for red ink. Weather, exchange rates, market momentum, problems in China and so on. Margins are the key to profitability and the premium prices that Barossa and Coonawarra producers are able to earn are certainly an important factor in their success.oz

The Premium Premium Problem

Now turn to an analysis of South Africa’s regions and a somewhat different picture emerges. Stellebosch is a premium wine production zone but also a high cost area. The price premium that  Stellebosch wines receive in the market does not appear to be enough to offset higher per bottle costs, eating into margins. Only 8% of Stellenbosch producers reported strong profits while 56% indicated loss.

The South Africa regions with the best profitability were generally those where higher yields were possible, which brings down cost, although Conradie made a point to show that the problem is not as simple as getting higher yields. A balance of many factors is needed to produce sustainable profit levels.

Supermarket Empiricism

Sue and I last visited South Africa in 2014 (I was a VinPro Information Day speaker) and we were surprised by the wine prices we saw. Converted into dollars, the inexpensive wines (including a South Africa-sourced Gallo Barefoot that we spotted in one supermarket) were about where we expected them to be. But premium RSA wines, many of them world-class, seemed  under-priced, especially when converted to U.S. dollar amounts.

In other words, it seems that the quality price premium for South African wines is relatively low and I think this is true in the export market as well as for domestic sales. Higher quality South African wines get higher prices, but not always to the same extent as producers in other countries. Or at least that our unscientific observation.

This is not news to the South African winemakers, who seem divided about whether to focus on the profitable higher-yield sector of the industry or to invest in reputation  and regional identity to differentiate products and raise the premium premium (if you know what I mean). Selling more is important in the short term, but earning higher prices is key in the long term.

Cape Wine Auction Update: Groot Expectations for South Africa

February 3, 2015 By in South Africa Leave a comment

capewineMy forthcoming book Money, Taste and Wine examines the tensions and trade-offs between and among the three things that make up the title — money, taste and wine — but the final chapter is a little different. It proposes that under the right circumstances money, taste and wine can come together to promote social change. The chapter is called “Groot Expectations” and it is set in South Africa.

Changing Times in South Africa – Wine Leads the Way

Once upon a time a concerned wine drinker might have avoided South African wine for ethical reasons — because of that country’s apartheid policies, which put a taint on all its many products. Now, the chapter argues, it is just the opposite — at least in the case of wine — because so many Cape Wineland producers are leveraging wine to promote equality and social progress.

The second annual AfrAsia Bank Cape Wine Auction, which takes place on February 13 and 14, 2015 is a great “Groot Expectations” project. The auction has identified a worthy set of local non-profits to support including the Pebbles Project. The inaugural 2014 auction raised about seven million Rand (about $600,000) for charity and the 2015 event aims to exceed that amount by a good deal. The auction packages are fantastic — click here to view the catalogue of wines and experiences that are available. Definitely the sort of project that wine lovers should support.

Paddles Up! On-line  Bidding is Open

The last time I looked tickets for the live auctions were nearly sold out. The good news is that on-line bidding is available and, with the Rand at a favorable exchange rate for those of you holding U.S. dollars, it is possible to do good and do well at the same time.

The auction packages are simply amazing — the donors have been exceptionally generous and creative. Some of the lots include entire barrels of wine bottled in the winner’s choice of format, which reminds me of the historic Hospices de Beaune auction. Here are a few examples of the packages to whet your appetite and maybe provoke you to make a bid. I have groot expectations about this!

 The Warwick Estate ‘Trilogy’ Lot

  • A one-of-a-kind vertical collection of three five litre Jereboams of Warwick Trilogy including the 2009, 2010 and 2011 vintages.
  • Presented in a custom wooden presentation box, signed and personalised for the winning bidder.
  • An incredible summer party for 100 friends at Warwick Wine Estate.
  • All food supplied with catering by Warwick’s Chef.
  • All wines for the event chosen and supplied by The Ratcliffe family.

Wait. Does that say “party for 100 friends?” Yes it does! Hmmm. And the Delaire Graff Estate lot is pure luxury.

The Delaire Graff Estate Lot

  • A helicopter flight from Cape Town to the beautiful Banhoek Valley in Stellenbosch.
  • A two-night stay for two people in Delaire Graff’s Luxury Lodges.
  • A private art tour hosted by Lionel Smit.
  • A specially commissioned set of Lionel Smit prints.
  • A dining experience at Indochine.
  • A vertical wine tasting.
  • A gift set of Delaire Graff Botmaskop Magnums.
  • A seasonal spa escape per guest.

I like “The Godfather” lot because it honors Dr. Cluver. He’s one of my heroes for all the contributions he has made to South Africa and the world.

‘The Godfather’ Lot by Paul Cluver

  • A combination of gorgeous experiences and wine from the parents of two of Paul’s god children.
  • An exceptional collection of 60 bottles of Paul Cluver Pinot Noir blended by Andries Burger.
  • An amazing week-long stay at an 18th century Chateau in the Loire for eight people.

There is an international celebrity element in this one: Sir Richard Branson.

Sir Richard Branson’s Mont Rochelle Lot

  • Three nights at Sir Richard Branson’s new vineyard Mont Rochelle.
  • A three-course dinner for two at Miko.
  • A private wine tasting and cellar tour.
  • A gourmet tasting in the Country Kitchen.
  • A 60-minute Cape Malay Spice Journey Spa treatment for two.
  • Three nights at Ulusaba. All meals and drinks included. A private dinner.
  • A 90 minute La Stone full body massage for two.
  • Flights and transfers included.

And for those of you who love big, really big bottles …

The Swartland Revolution Lot – The Balthazar Collection.

  • An incredible collection from the Swartland Revolution pioneers.
  • A never before bottled 12 liter Balthazar from each of Porseleinberg, Sadie Family Wines, AA Badenhorst and Mullineux and Leeu Family wines.
  • Never to be repeated, it is hard to imagine more of a collectors item.

This is only a sampling of what’s on offer — check out the online catalog for the complete menu.

Be sure to call me when you are ready to pop the cork on your Balthazar! The Cape Wine Auction lets you do well and do good. You know what to do!

Can Wine Change the World? Celebrating the 2015 Cape Wine Auction

December 16, 2014 By in South Africa, wine auctions 1 Comment

Can wine change the world — make it a better place to live? It’s a quite a challenge (the world is a big place), but wine certainly can contribute to the task and the 2015 Cape Wine Auction is part of that story. Read on!

Auctions: Not Just About the Wine

How can a wine auction help change the world? There are several types of wine auctions and while it is generally wine that is bought and sold the wine itself isn’t always the point.

The big auction houses feature multi-day sales of rare wines and specialized collections, for example, where millions of dollars can change hands over a few lots of treasured vintages. The wine is the focus: sometimes to drink, sometimes to hold and resell and sometimes as conspicuous non-consumption collections.

Then there are very specialized auctions, like the Nederburg Auction in South Africa (I was the keynote speaker at the 2012 event). This auction is more for trade than investors of collectors. It was originally conceived as a way to make older and rarer vintages of the best South African wines available to restaurants and retailers so that consumers would have an opportunity to try these great products at their peak. There is an associated charity auction that raises substantial money for local youth programs, but the focus is on the industry and projecting South Africa’s topo quality brand at home and abroad.

Finally there are auctions where the charity element is front and center and where the packages on offer are not just wines but also wine-food-travel-adventure combinations that are meant to leverage wine’s central role to both broaden interest and frankly to increase the amount that the charities receive. The Auction Napa Valley, for example has raised more than $130 million since 1981 for community projects, including $10 million last year alone for local earthquake disaster relief. It is a model of how wine can contribute to social change.

Wine may be just a beverage to many and the wine industry just a business, but wine’s ability to bring people together and to focus their attention on the collective welfare is really inspiring and it is the reason that it is not ridiculous to think that wine (with a little help from its friends) can change the world.

The Cape Wine Auction

The AfrAsia Bank Cape Wine Auction, which will be held in South Africa on February 13-14, 2015, is not yet at the level of the Napa event in terms of dollars and cents, but it is off to a good start and has identified a worthy set of local non-profits to support including the Pebbles Project. The inaugural 2014 auction raised about seven million Rand (about $600,000) for charity and the 2015 event aims to exceed that amount by a good deal. The auction packages are fantastic — click here to view the catalogue of wines and experiences that are available.

The organizers seek to broaden the audience this time around by inviting more on-line bidding and by encouraging wine enthusiasts to schedule a visit to the Cape Winelands to attend the auction in person. Not everyone has the time and resources to do this, of course, but if you do it’s an invitation that is hard to resist. February is summer in South Africa and the weather is ideal.

Add to this the weakness of the South African currency, which now trades at a bit over 11 Rand per Dollar, making both an on-line bid and a tourist visit more affordable (it was about 8 Rand per dollar for me in 2012). Seriously, South Africa is a bargain right now if you hold dollars, pounds or euro.

Sue and I visited South Africa in January and it was one of the best wine tourist experiences of our lives — I even wrote a column speculating that the Cape just might be the best wine tourist destination on earth.  This appeal plus the obvious satisfaction that comes from helping the charities that the auction supports are good reasons to look into this opportunity.

Kudos to the many wineries and their partners who have collaborated to create the auction lots. Congratulations to Mike Ratcliffe and his team for the success of the 2014 auction and the great potential that the 2015 event displays. I hope the Cape Wine Auction gives the Napa folks a run for their money — that kind of race to the top can only benefit both the wine industries and the social initiatives that they support. Cheers!

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Here are the charities that the Cape Wine Auction supports.

The Pebbles Project
Mad Charity™
The Click Foundation
Community Keepers
Pinotage Youth Development Academy
Endurocad SA Endurance Academy
Hope Through Action Foundation
The Sustainability Institute
The CWG Protégé Program
The Anna Foundation

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Where will I be during the Cape Wine Auction? Not, there, alas. In fact, I’ll be about as far away as possible from South Africa — in Alaska, doing events to support  the World Affairs Council groups there. More about that in a future column.

The One Diaper Wine Theory: South African Democracy After 20 Years

April 8, 2014 By in Economic impact, South Africa Leave a comment

Wines of South Africa has released a series of videos celebrating the twentieth anniversary of democracy in South Africa. They call it The Democracy Series. I’ve inserted the first of the eight short films above, but I recommend watching them all.

Wine and Democracy: The Thandi Project

What do freedom, equality and democracy have to do with wine?  I don’t have a general theory yet, but I can tell you that they are very closely linked when it comes to South Africa. The birth of democracy coincided with the end of apartheid’s long years of isolation for the country and its wine industry. To a certain extent, the country and its wine industry were both reborn two decades ago.

As a reader noted in a comment to a previous article in this series, once upon a time not so long ago many people shunned South African wines and investments, etc. because of the lack of equal rights in that country. Things are much different twenty years on and The Democracy Series is a good way to make the point. Now, as I will try to explain below, a person with ethical concerns  might well seek out South African wines rather than boycott them.

Thandi Wines, the subject of the first video in the series, is a good example of how wine and democracy can mix. Thandi, which means nurturing love in the Xhosi language, was started in 1995 on the initiative of Paul Cluver. A partnership that includes more than 250 farm worker families in Elgin, it was the first black economic empowerment project in the agriculture sector and is today one of the most successful of them. In 2003 it became the first Fairtrade certified winery in the world! Thandi’s success has been contagious: South Africa now leads the world in Fairtrade wine.

My South African friends point out  that not all black economic empowerment initiatives in the wine industry have been as successful as Thandi or the other examples shown in the video — much is left to do, they say — and more resources are needed. South Africa’s social and economic problems are very large and I think it is important that wine — one of the country’s most visible global industries — is part of the solution.

The One Diaper Theory of Development

My good friend Aaron, who works on economic and social development projects around the world, once told me that he aimed to change the world one diaper at a time. His point was that while a lot of attention is focused on big money projects, micro-initiatives that change living conditions for even just a few families can have great value when replicated and compounded over time and space. If enough people take small actions and together change enough diapers for a long enough period of time, the theory goes, pretty soon they will have changed the world.

I think of Thandi as a model of the one diaper theory put into practice for wine and when we visited Paul Cluver and his family we saw that there is actually more to it than the winery. We attended a children’s theater performance at the Hope@Paul Cluver outdoor theater, which is set in a eucalyptus grove on the Cluver farm. The profits from the theater’s programs support local efforts to deal with HIV, TB and terminal diseases and to care for the children of the stricken.  This is just one of several local initiatives that Cluver supports. Do you see the one diaper connection? We saw many other examples during our visit.

Moving Up The Ladder

Even though it is the largest South African export brand in the U.S., for example, there is no way that the de Wet family of Excelsior Wine Estate can by themselves solve all the economic and social problems in the Robertson region where they are located. So they take small but important steps: resisting mechanization, for example, to preserve farm jobs in a region with high unemployment and making a serious effort to promote workers into jobs with more responsibility, moving them up the ladder.

We saw this moving up notion at work when we visited Gary and Kathy Jordan at the Jordan Wine Estate in Stellenbosch. Attention to workers and their conditions was a founding principle at Jordan, where worker housing was built before the owners’ own home in the early years.  Jordan has encouraged farm workers to move up by sponsoring education, including advanced WSET classes in some cases. Jancis Robinson recently wrote about another innovative Jordan program to provide “South Africa Women in Wine” internships.

Education is obviously a key element of any one diaper program and we saw winery worker education  initiatives in many places. One of the most striking was at Durbanville Hills, which is a  partnership between drinks giant Distell and a group of local farmers. Social justice has been a goal from the start for this winery, which formally includes workers in the profit structure and on the managing board. Albert and Martin took us to a pre-school that the winery runs to get the children of farm workers off to a strong start. The winery support for education, paying school fees and so forth, continues as far as a child can go in school.

While South Africa’s economic and social (and health and environmental) problems remain daunting, the wine industry it taking a stand, which is symbolized by a seal that you will find on almost all South African wine.

The Democracy Series videos show us what is possible. There is much left to do, of course, and an understandable debate on when, what and how to move forward. Sometimes it seems like common commitment about what needs to be done is forgotten in disagreements about strategy and tactics. What’s important is that  debate does not become too divisive and that inertia continues to build and change takes place.

Because change is what’s important. Even if it comes one diaper at a time.

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Thanks to the De Wet brothers, Gary and Kathy, Albert and Martin, and Annette.  Special thanks to Aaron.

 

 

Groot Expectations: South Africa Confronts the Wine Bottleneck Syndrome

April 1, 2014 By in South Africa, wine distibution 2 Comments

People think that growing quality grapes and making great wine are big challenges — and they are right — but that’s not the whole story. There are a great many obstacles and complications that taken together sometimes make selling wine even more difficult than making it. I call the problem the wine bottleneck syndrome

The bottleneck syndrome is particularly troubling for South Africa just now, which looks to the U.S. to pick up some of the slack left by a stagnant European market. (The South African flag even looks a little like a bottleneck design, don’t you think?)

The largest wine market is the world is hard to ignore, but when I was in the Cape Winelands two years ago to open the Nederberg Auction I sensed great uncertainty about how to get the job done.  Realistic goals, but few proven strategies when it came to the U.S. market.

A lot has changed in two years and now I sense greater confidence and see concrete plans in place. I’ll use this column to highlight a few of the initiatives we discovered on our recent visit.

International Cellar Door Sales

Last week I talked about the importance of wine tourism and South Africa’s many advantages. If there is a better region anywhere in the world for wine tourism I don’t know what it is. But the Cape is geographically remote from both Europe and the United States. Wine tourists who are used to making purchases and taking them home run into significant logistical problems.

What you need is a bit of “Star Trek” magic where you taste and buy the wine in Stellenbosch or Robertson and it magically appears at your door in London, Paris, Seattle or New York.  This magic now exists in the form of drop shippers in Germany and the U.S. who stock the wines in their warehouses and then quickly and efficiently ship them to Europe and the UK and U.S. addresses respectively in response to South African cellar door orders. A logistical solution to the wine tourist’s problem. Beam up my Sauvignon Blanc, Scotty!

I discovered the program when I spied a special offer notice at the Durbanville Hills winery tasting room. Buy 18 bottles (mixed cases allowed) and get free delivery to your home in Europe within 5 business days. Wow, what a service. Albert Gerber explained that they use a German  firm called Red Simon that specializes in sale and distribution of South African wines and handles remote cellar door sales delivery for a number of wineries.

Adinda Booysen at  the historic Lanzerac Wine Estate alerted me to a similar program here in the U.S. Cape Ardor is associated with Red Simon and operates in much the same way, although with some difference in terms of participating wineries and subject to the peculiar restrictions of U.S. wine shipping regulations. These long-distance cellar door sales programs have the potential to more successfully leverage the wine tourist market and to make sure that follow-up sales can be efficiently managed.

Defining Brand South Africa

Image really isn’t everything (the old Nike ads were wrong), but it matters a lot in the world of wine and South Africa’s wine image is still being defined here in the U.S. and in other markets. I have argued elsewhere that building a regional wine brand is everyone’s business — it is not just the responsibility of Wines of South Africa or Wines of Chile, etc. — and requires a multi-prong strategy. I have praised a group called Australia’s First Families of Wines, for example, for taking the lead in the ultra-premium export sector of that country’s wine industry.

piwosa

We were pleased to discover a similarly focus effort called Premium Independent Wineries of South Africa (PIWOSA). Like the Australian group, these wineries span the most important regions and present many different styles of wines. What they have in common is a set of values and a commitment to quality, which they seek to communicate to define their niche in the  marketplace and that hopefully will help define South Africa’s position, too.

Prominent on their website (and in the shared goals of the producers, I believe) is an ethics charter. Interestingly, the charter includes not just a set of abstract commitments but a statement of what it means in practice. South Africa seeks to identify itself with sustainability and ethical production and this group makes a strong statement.

PIWOSA isn’t the only private group that is taking the initiative to raise the country’s profile on world wine markets. The Cape Winemakers Guild  and the Nederburg Auction have a long history in this regard, for example, and the recent successful AfrAsia Bank Cape Wine Auction used Napa-style flair to raise money for charity and raise awareness of South African and its wines.

Three of the PIWOSA members — Paul Cluver, Jordan (Jardin here in the U.S. because of trademark considerations) and The Winery of Good Hope — have taken the next step by collaborating on import and distribution in the U.S. market, gaining scale and exploiting their shared goals and diverse products lines.

Developing Distribution Channels

We were also impressed with several other positive initiatives to develop Cape Wine distribution in the U.S. market.  Some U.S. importers and distributors have really embraced the potential of South African wine. For example, we found ourselves in frequent conversation with clients of Broadbent Selections, one of the leading importers with an impressive Cape Wine portfolio that includes A.A. Badenhorst, Cape Point Vineyard, De Wetshof, Delaire Graff, Dorrance, Sadie Family Wines, Savage, The Curator, Vilafonté, and Warwick Estate.

Broadbent (and they are not alone in this)  seems to be making a major investment in developing the South African premium wine market here in the U.S. and these wines are a great foundation. Our discussions with Mike Ratcliffe (Warwick and Vilafonté), Danie De Wet (De Wetshof) and Duncan Savage (Cape Point and Savage) revealed both distinctive wines and strong brand identities, both of which are surely necessary when taking aim at the cluttered and competitive U.S. market.

Some ambitious export projects are still in the development stage.  Distell, the South African wine, cider and spirits market leader with a portfolio of brands that includes Nederberg, Durbanville Hills, Two Oceans and Fleur Du Cap, is putting resources into a  focused assault on the U.S. market. I am hopeful that Distell’s initiative when it is fully implemented will be successful for its own select brands and will also help elevate awareness of  South Africa and its wines more generally.

When Size Does Matter

Volume is valuable in the U.S. market if only because the fixed costs of market penetration are high, so we were impressed by multi-tier programs, with higher volume premium wines paired with ultra-premium products. At Stark-Condé, for example, their limited production Stellenbosch and  Jonkershoek Valley Cabernets and Syrahs (which I compare to wines from Napa Valley’s Stags Leap AVA) share a distribution channel their more popularly priced M-A-N Family Wines, which are made from grapes sources from 30 farmers in the Agter-Paarl region. The resulting scale is a market advantage.

The M-A-N wines are both delicious and very good values — the Cabernet, Chenin Blanc and Pinotage have been selling for less than $10 recently in my area. The Pinotage will surprise any Pinotage-haters in your circle. The fruit comes from low-yield bush vines and the easy-drinking wine can give popular Argentinean Malbecs a real run for their money.

Although the market strategy is a bit different, Antonij Rupert‘s Protea brand is another developing success story. Rupert’s fine wines and its very distinct vineyard specific Cape of Good Hope brand are necessarily smaller production propositions. So having Protea with its ever-so-memorable bottle (Sue, who is a fiber artist, really loves the designs)  and wide distribution to lead the way is a plus.

Excelsior Wine Estate is currently the best-selling South African brand in the U.S. market and so they already have that useful volume that the M-A-N and Protea wines are growing into, but that doesn’t mean that they are standing pat. Sue and I recently saw Excelsior Hands Cabernet Sauvignon at a local Total Wine store. It is part of Total Wines’ “WineryDirect”  portfolio of directly sourced wines, which seems to now be a key element of that retailer’s business model.

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South African winemakers are trying many different approaches to breaking through the wine distribution bottleneck. Not all will be equally successful and some will surely fail, but I think the net result will be very positive, both for South African producers and for U.S. consumers, too. I plan to revisit this topic in the future to see what lessons can be learned.