Brand vs rand

South Africa is set for another year of growth in the UK, but can the category handle a stronger rand when consumers are hungry for discounts, asks Robyn Lewis?

You’ll see in this month’s Trends Focus (see pages 68 to 75) that many of those in the know who were questioned by us, mention South Africa as a hot tip for next year.  Recent Nielsen statistics too, paint a similarly positive picture.

South Africa has moved up a position in the wine charts to number four by volume in the UK and MAT share of the market has reached 9.9% (ACNielsen June 2003).

Previous anathemas that the South African industry has suffered (such as lack of brands as well as price and quality issues) appear to be diminishing as more brands begin to emerge at the expense of own label (see table opposite), replantings come into production and the average bottle price in the UK market has increased for the first time in years (see table, page 26).

"I think that we are beginning to reap the rewards of a lot of hard work that has been done over the past years," says Wines of South Africa’s marketing manager for Europe, Dalene Steyn.

"We have managed to bring supply and demand into a better balance and, bearing in mind that, due to all the replanting, South African vines are in general very young – 33% of our red wine is under four years old – and quality has already increased, we clearly have a lot to look forward to as well."

WOSA have been praised for their work in the UK, building trade and consumer confidence and it is clearly paying off – South Africa is once more the fastest growing category in the UK.  For the few already established South African brands, all the generic effort is now beginning to reap rewards.

The Vinfruco brand Arniston Bay, has been one of the most successful of the South African labels to date and there is a real feeling of confidence in the team.  "The fact we are already a successful label, can only help us as the category grows," says winemaker Anton du Toit.

"We have always taken a long term view with the brand, grown it slowly so that we could not only ensure decent volumes but also really good quality and now it is all beginning to come together.

The wine is beginning to win awards (their Chenin Chardonnay 2003 won a gold at this year’s Veritas) and we are upping our consumer activity at this time to really capitalise on the developing confidence in our brand and on the new confidence in the category."

At Raisin Social confidence in the market and in their brand, Namaqua, is such that the step has been taken to develop the range with a new single varietal bag-in-box, as Richard Thorburn explains.

"The decision was taken to take the brand up a level at this time because we have a loyal customer base for the brand and we felt we needed to build on that. Recent statistics and research has shown that there aren’t that many new customers coming to the wine market but the consumers that are there are buying more.

That, coupled with the general confidence in the country has meant that a more premium bag-in-box from South Africa was a good proposition." 

Not only that but Thorburn thinks that the time has come where other countries can start to look at South Africa to see how wine branding should be done, rather than the other way around.

"It has always been the case that South Africa has looked to Australia and California but now, certainly with Namaqua, we seem to be hitting something in the market that they are not. I think that now might be the time where those brands might turn around and look at us and what we are doing."

Such confidence is gratifying but the real excitement of the category is the plethora of new brands that are coming through.  At the recent WOSA tasting in London the tables were awash with new names.

Thierry’s have brought out Cape Grace, a brand they hope will be successful at the £4-£6 price band.  "We felt that now was a good time to bring out a South African brand because, while there are many of them out there, there is growing interest from consumers in the category and there remains room for a differentiated proposition, such as Cape Grace," says Thierry’s Lynne Whittaker.

"We set out to deliver a brand which was authoritative and reassuring, which represented all that was best about South Africa both in terms of its wines and its imagery. We didn’t want anything gimmicky or contrived because we are appealing to the relatively knowledgeable, adventurous, wine interested consumer – which is where it differs from some more commercial offerings, though obviously there is a place for both."

At the Ehrmanns table there was the new Riverstone range from the Beede River Valley. Marketing director Keith Lay said it was the first new South African brand for the company in several years.

"It’s a new venture for us but with South Africa continuing to hold on to the fastest growing country in wine sales title, we saw opportunity there," he said.  For many of these new brands the attraction of South Africa was this opportunity to fill a gap.

Halewood International’s marketing manager for wine puts it distinctly when talking about their new South African brand, Orange Street: "The big attraction is that it is a popular category that isn’t already saturated with brands, it’s not like Australia or California where there are already iconic names," he said.

"When we did consumer research with the 22-30 year-old target-market we were looking at, we asked them from which countries they bought their wine.  First came Australia but second was South Africa and when we asked them how important country of origin was they said it was the most important factor, followed by what it looks like, followed by varietal.

So not only is there room there for new brands, there’s also huge potential." As if to illustrate the confidence that the trade has in the category, two of the new brands shown at the tasting were from stables with international reach.

Raake and KWV have teamed up and brought out Golden Kaan while Stellenbosch and Constellation Wines are to release Shamwari.  "That a company as big as Constellation is showing interest in the South African category is a real endorsement of the industry,"  says Stellenbosch MD, Hermann Bohmer.

"It wasn’t as if we as a South African company had gone to a big player and said, ‘wouldn’t this be a good idea?’ It originated from their side and we can take comfort out of that and, as far as the South Africa is concerned, we can put the strengths of both players together and make it work.

The other aspect that shows real confidence in the category is that when we were first approached by Constellation, or BRL Hardy as it was, was that one of the biggest caveats they gave us was that we weren’t to produce an Australian wine from South Africa but a good South African wine that appeals to the consumer."

The resulting brand is a range of three, a Chardonnay, a Shiraz and a Merlot/Cabernet around the £4.49 to £4.99 price mark that it is hoped will become globally successful.

The other big new offering, Golden Kaan, has similarly lofty pretensions of cracking the global market but at the over £5 price point – a brave move, some think.

"At this moment the plus £5 market for South African wine in the UK is tiny," says Raake marketing manager, Marco Lustenberger. 

"It is going to be a challenge for us to break that cost barrier in the UK but we feel that there is definite market potential there.  Our customer research has shown that the work we have done on the packaging is really paying off and they do see it as a wine they would spend over £5 on."

The Golden Kaan team have done a lot of work to create a brand that is both perceived as high quality and as South African. "The images that Golden Kaan stimulates are ones of luxury and adventure," explains Lustenberger.

 "Take the name for example, golden stands for five star treatment, of something precious and special. Kaan is a wild place, no one knows what it means but it is definitely of Africa, it’s Afri-kaan."

This move into more premium territory is more wide-spread than this one new brand. The strengthening Rand has meant that margins, especially at the lower end of the price scale will be more and more squeezed.

Peter Hafner, global marketing manager for wines at Distell, has cautioned that the industry should be careful not to erode margins in the current economic climate.

"Many South African producers discounted on the back of a weakening rand but now we must take care to defend our margins and develop long-term business strategies with well articulated and clearly positioned brands," he said.

"Given the balance of our portfolio, we are able to service the entry level end of the market but we are putting our weight behind the premium sector," he continued.

With this strategy in mind Distell have recently re-structured its wine and marketing sales division to create a boutique department separate from the broader premium arm of the business, with the hope that this will help to consolidate this end of the business. Generally it seems that the South African industry are embracing this advice. 

"The £4 to £5 category is seen as the strongest sector for new world wines but increasingly it seems consumers will pay more than that for South African wine but obviously that needs to be worked on," says Chris Seale, head of marketing wines at Pernod Ricard, whose South African brand, Long Mountain, is the fifth biggest South African brand. In order for the brand to continue to perform well, Long Mountain, has just received a packaging re-vamp to "modernise it and keep it fresh," says Seale.

Indeed, the image re-vamp bug seems to be sweeping the South African sector at the moment, as more and more brands try to lift their game to fight for that more premium market.

At Free Run Wines their Baarsma SA brand, Lyngrove Reserve range, has just received some attention.

"We have just put the range in bottles with the brand name and logo etched in gold directly onto the glass.  The idea is to give it shelf appeal that surpasses the £6.99 price tag," says MD Chris Rabie.

Even brands that have enjoyed astounding prosperity at the lower end of the price spectrum have had to get classy, it seems, as Kumala, one of the most successful of the South African brands has had to re-position itself.

"All the indications are that consumers are now willing to buy at a higher price and whilst we already had a premium range in place at £8.99, it was a big leap to that from £3.49 so we felt that we needed to fill that," explains Western Wines’ Catherine Higgins.

 "What we then did was to reposition the brand so that there was a clear ladder from bottom to top and it has been a great success.  The WOSA campaign has also come at the right time for us and we hope that Kumala’s success in this sector will pave the way for the rest of the South African industry."

Sophie Wagget, UK marketing manager for WOSA is hoping for similar results as the brands and generic body strive for the same goal – showing a new synergy in the South African industry that can only bring results.

"In five years time I’d like to see us with a market share higher than volume," she says. "We will have hopefully further developed our brands on a strategy of quality and diversity rather than price and discounting."

There is little doubt that the potential is there but it is likely to prove an uphill struggle. The rest of the world will no doubt be watching to see if the mighty South Africans can persuade the Brits to give up their daily dose of discounts and promotions for higher prices.