Power Player

Johann Rupert, a long-term dealer in luxury, tells Charlotte Hey why the South African wine industry must focus on super-premium wines and help to deliver real empowerment to black South Africans if it is to survive

JOHANN RUPERT is nothing if not frank.  "Up until 10 years ago we were living in cloud cuckooland," says the chairman and chief executive of Richemont, one of the world’s leading luxury goods focused groups, and CEO of his family company, Historic Wines of the Cape.

He is talking about the situation in his native South Africa – and in particular about the state of the wine industry at that time.  "We had KWV to clear up all of the surplus that we produced.

 When the KWV was abolished the rand started to plummet and everyone ran to the export markets.  Now stability has returned we are having to deal with the double whammy of surplus production and the strong rand forcing producers to dump wine on the domestic market.

And this is happening at a crucial time when we haven’t established real brands or real brand equity in export.  "The strength of the rand is our first big challenge to the wine industry at the moment, plus the fact that our interest rates are too high – and I believe the power of the rand will hurt the industry tremendously.

What it will mean is that we will have to start to produce superpremium quality in order to survive.  The people who build that target into their business plans will, in my opinion, be the ones that survive."

If anyone should know about the top end of the market, it’s Rupert. Swissbased Richemont operates and controls some of the world’s most prestigious luxury names.  Van Cleef and Arples, Cartier, IWC and Hackett to name but a few.

Plus, it had sales of €3.3 billion in the year to March 2004, with an operating profit of €296m, up 14% on the previous year.  Rupert has been chief executive since the formation of the group in 1988 and executive chairman since 2002.

A former graduate of Stellenbosch University where he studied Economics and Company Law he’s had a pretty extensive career in international business and finance – and he doesn’tpull his punches.

"The wine industry is fundamentally a bit like the Eurostar," says Rupert. "A fantastic product, but you shouldn’t invest in it.  I mean, how many times have we heard profit warnings on that thing [Eurostar]?

Having said that, I am prepared to take an economic risk on wine.  There’s no great return on capital investment in farming anyway.  I tell my friends only to get involved in wine for fun – it’s not a real way of making money.

Wine is more a way of life." If it is to become a way of making money, however, Rupert reiterates his stance that premium is the only way to go.  "In reality, of course, it’s up to the wine lovers of the world to tell us whether we can really produce top-end wines.

In the last 14 years we have come on incredibly.  The South African wine industry now works on a completely different process, we have new winemakers, we’ve really turned it around, but it’s going to take time and dedication, and some luck, to get it to the top.

I can’t see why it cannot happen.  We at least have the right people and the enthusiasm to do it, but there’s always a certain element of luck involved.  "What will certainly help South Africa to produce premium product is a strong rand and the time it will take for producers to realise the potential to produce super-premium wines.

But there is still a certain mindset that we have to change to learn to produce quality and not quantity."  Despite his scepticism about investing in the wine industry, Rupert is inextricably linked through the family business.

The Rupert family owns the Historic Wines of the Cape, comprising the L’Ormarins, La Motte and Fredericksberg properties, incorporating the Leopard’s Leap brand.  Following the premature death of Johann’s brother, Anthonij, Rupert took over the direction of the company and has found himself involved in a new and not completely unwelcome industry.

"Basically we’re investing in the properties," explains Rupert. "New vineyards, proper vine husbandry, new wineries. It’s nothing more than my late brother would have done, and if it hadn’t been for his death I would probably never have come into the wine business.

But my short experience so far shows me that you cannot sell wine unless you make the best you can produce for the price.  If you are not doing everything in your power to make the best wine that you can then you are not going to be successful.

"We’re taking our total hectarage of vines at L’Ormarins down from 280ha to 110ha – which is a reduction of about two-thirds of the total.  We’re getting rid of the wrong varieties and old vines and using heat-soil analysis to match the right varieties with the right vineyards.

We’re also not planting any more than 110ha until we have properly dealt with the leaf roll issue.  At the moment it’s the winery here at L’Ormarins which is the biggest project.

"We are constructing the whole building on a purely gravitational basis. Personally, I can’t taste the difference between a wine that has been pumped five feet or not – but if the perceived wisdom tells me that’s the best way to make wine then I am going to do it.

The fulcrum of the cellar is based on the balancing wheel – a process developed by the Hugenots – and the principal mechanism is used in watch and clock making, which really excites a watch freak like myself.

The architect came up with the idea and I conceded in a moment of weakness. I don’t believe it has ever been done in a winery before.  "I sometimes ask myself ‘Why am I doing this?’ because, thank God, I don’t have to rely on wine for a living. But whatever happens, it’s gonna be fun.

"The problem with the wine business," continues Rupert, "is that you are never in control. You can do your best but year on year the quality isn’t consistent. You will only continue if you are prepared to realise that you are going to have bad years.

The fun is in building up your own business and not just buying it.  As I have said, I am only finishing what my brother started.   Although, having said that, I don’t think he would have been as stupid as me to put in a balancing wheel.

"If there’s one thing I’ve learnt from the luxury business it is that you will never succeed unless you’re the best, or at least perceived as the best. Middle of the road products always get into trouble when there is an economic downturn – quite simply put, you’ll get clobbered!  If you can appeal to those with disposable income in the superpremium bracket there will always be more demand than supply – demand is created not decided upon.

The consumer will always relate to a product that is very special.  There’s always a market for those kinds of products but those aren’t created by money – they are created with love and passion."

You’ve probably worked out by now that Rupert is outspoken to say the least, but he is particularly so about one of the most crucial issues affecting the South African wine industry – and for that matter all other industries in that country – at the moment. Namely, the question of black empowerment.

Rupert is keen to stress that empowerment – real empowerment – has no real commercial connection, either in the wine trade or industry in general.

"When it comes to black empowerment, in my opinion, you shouldn’t set up black empowerment schemes just because someone is telling you to do so," says a somewhat frustrated Rupert.

"The consumer is not going to buy more of your product just because your operation is more empowered or not.  You have to empower because it is the right thing to do. A) black empowerment is right, and B) it is the only option we have for selfsurvival as a nation.

"Unless there is fair and equitable distribution of wealth and opportunity in the future we will have tremendous problems.  Those who are not spurred on by the redressing of the balance of past history are blind.

Empowerment won’t mean we will sell more wine or products and we shouldn’t tell our farmers and workers that we are going to sell more because of it.

"Back in 1979, I was talking to a black American friend of mine about the fact that there was not a single black hairdressing salon in Johannesburg.  We helped to open the first one in the Carlton Centre.

Then we went on to open a training academy and a small development corporation that provided capital to help urban blacks set up business, giving them the premises to work in white areas.

Overall, we as a company have created about 500,000 permanent jobs for blacks – they are our business partners.  To me, when you’re talking about true empowerment it is about creating the opportunities for people to empower themselves socially and economically.

"At the moment we are working on an agri-village, as part of which our workers will be able to own their own homes.  All in all we have about 20 to 30 things going on simultaneously. What we are about is empowerment that enables people to decide their own lives which, in turn, will allow them to give their children better lives and educate themselves.

It’s about economic empowerment which enables people to build an asset base that will provide them with the prospect of a future for their family – that is part of the real cost of being involved in the South African wine industry today."

Talking to Rupert, one gets the impression of a man passionate about the wine, passionate about it’s role in social readjustment in South Africa, but keenly aware that as a business there are areas in which it is still sorely lacking – profit being one of them.

Does he think then that the wine industry is parochial? "I think," says Rupert, choosing his words slowly for the first time, "I think that it’s better for the consumer than for the investor.  Do I think it’s parochial? I don’t know the wine industry well enough yet.

But even if I did think that, I wouldn’t tell anyone!"