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SOUTH AFRICA: The Cape wraps its cloak around the world

05 March 2008 By db staff writer

While the UK remains South Africa’s main market, the wine-producing nation is increasingly focusing its efforts on other countries, notably the US. Clinton Cawood reports

Wine exports from the Cape to its most important market, the UK, are still on the rise, and still of significant importance, but a number of factors have prompted an increased focus on other countries. A number of the major players within this category have recently made their intentions for other markets, the US in particular, quite clear.
According to figures from the South African Department of Agriculture, the US remains the seventh most important export market, with growth primarily in white wine (see table on page 34).
For some producers in the Cape, the US market is not new territory, and even those achieving some degree of success are quick to point out the challenges present in this market. One of the most obvious is the labyrinthine three-tier system.
Oscar Foulkes of Cloof, a producer based in Darling, South Africa, says that this market “appears to be fraught with red tape and complexity. It’s almost like dealing with 50 different countries, where each has its own regulations.”
Chris O’Shea, executive director of sales and marketing at The Company of Wine People, confirms: “The US provides enormous opportunities for South Africa, but at the same time the competition is very fierce and it is a notoriously difficult market to break into.” Ross Hobbs, marketing director of Simonsig Wine Estate, believes that in the US, “from a channel perspective, I think South Africa is only scratching the surface. The US is a huge market and currently South African producers only sell in tiny pockets.”

The solution lies with the big players, according to Neville Carew, MD of Spier Wines. “The US market [for South African wines] has treaded water for the last few years – it hasn’t really taken off,” he says. “Somebody’s got to use their key to open the distribution network in the US.” The difficulty, Carew points out, is that in the US “everyone’s prepared to list it, but not to sell it”.
Vergelegen’s MD Don Tooth agrees that this is a hurdle to be overcome in the US: “If you get into a mid-sized distributor, who has 400 brands – over 5,000 wines – on their list, if you don’t have front-end pull it’s difficult.” Foulkes agrees, saying, “Each distributor has a fat portfolio. You need to get their salespeople to pay attention to your wines.”
Distell is one major player that is achieving this, according to international director Don Gallow. “Our company has established ties with a range of distribution partners in the US who afford us access to supermarket, independent and on-consumption channels.” Other brands, such as Excelsior and Fairview’s Goats Do Roam have achieved this.

Domestic market:
The domestic market for South African wines varies greatly in importance to producers, but for many it remains an essential one.
Jordan Wines’ Gary Jordan explains: “South Africa has a very good domestic market. While it hasn’t increased dramatically – there’s been quite a lot exported – there is an increase in top quality wines.” Spier’s Neville Carew adds: “What we’re finding is people trading up. There has been a bit of movement from box to glass packaging, which is good for the local industry. It’s still a huge untapped market, but still tremendously important.”

For Lourensford’s Anton du Toit, however, “Not enough is done to develop its full potential.” For Vergelegen’s Don Tooth, the strategy in this regard was simple. “We wanted to be successful in two markets: the home market and the UK. The domestic market is absolutely critical.” Tooth points out that exchange rate fluctuations play a major role in the priority placed on the domestic market. “The rand has obviously weakened again now, so we may well see people target export markets.”
However, as Chris O’Shea at the Company of Wine People simply puts it: “It’s important to improve brand awareness locally.” Simonsig’s Ross Hobbs elaborates: “It’s your cheapest, least volatile, most controllable of all markets and provides the springboard to penetrate globally. From a marketing perspective, the local market provides economies of scale – almost all our branding material produced for the local market has international utilisation. Enduring and loyal relationships that can sustain a business through tough times are also first built at home.”

Point scoring
Gary Jordan, director of Jordan Wines, points out an important factor to consider in the US, particularly for higher-priced wines. “The US is tough,” he explains. “It’s Parkerised and point-driven. It’s that old cliché: if you get over 90 points it’s a licence to print money, but if you get 89 you can’t give the wine away. We’ve built our brand up, so that when we get 88 or 89, we have followers who don’t necessarily listen to that.”
One of the most obvious and distinguishing features of the US in comparison to the UK is its significant domestic production. This affects imports from the Cape in a number of ways. Carew explains one difficulty: “If we export, say, one million cases, and US consumers purchase 300m cases, you might find that for half of those million cases, they don’t even know that they’ve had a South African wine.”

This significant domestic market has another, perhaps more positive, impact on the way the US is being targeted by the Cape as far as price point is concerned. As Elaine Dickie, category manager for New World at WaverleyTBS puts it: “If we were taking anything to the US, I’d be looking at entering above US$10.” And as Wines of South Africa’s CEO Su Birch says: “We couldn’t do a Yellowtail, but we wouldn’t want to do a Yellowtail.”
Another factor encouraging greater attention for this market over the UK’s is the lower level of reliance on promotional activity in the US. As Foulkes says: “It strikes me as a market where there appears to be less pressure to sell at discounted, sub-economic prices.”
Birch agrees that one of the most significant differences between the US and UK markets is one of price. “Premium brands have shown really good growth – and are starting to get really nice listings, particularly on the East Coast. There’s such a fundamental difference there to the way we entered the UK market, when we entered with cheap and cheerful because that’s all we had. It’s always harder to move from entry-level to more premium. We still invest much more money in the UK – we invest relatively nothing into the US.”
O’Shea agrees about the importance of a “focus on East Coast states. The on-trade is key, as are brands.”
E&J Gallo is all too aware of the importance of brands, as its introduction of Sebeka into the US last year attests to. The wines are sourced from the Sebeka Winegrower’s Alliance, led by Swartland Winery, providing Gallo with a range of wines in the volumes it requires, and giving these producers access to Gallo’s formidable distribution structure in the US. Susan Jenkins, international public relations, E&J Gallo, confirms: “We see that many American consumers are looking for something different and exciting in the world of wine.”

By and large, the Cape does not struggle to provide adequate volumes of wine at these low to mid price points. Higher up the price scale, however, supply becomes a far more significant issue. As DGB’s chief executive, Tim Hutchinson says: “There aren’t many operators that can give you decent volume. We’re one of them.” Like many others, he is focusing on higher price points in the US. “While the Gallos and Constellations have entry level offerings, the challenge is going to be getting higher-priced premium wines. When people say that South Africa’s got the value-for-money tag – that’s the last thing we want to hear.”

Fairtrade:
The concept of Fairtrade products, and specifically wines, is gaining traction in the UK, where consumers are increasingly aware of the concept. It’s an accreditation that is particularly well suited to Cape producers, but the Fairtrade brand is perhaps not as well recognised in other markets.
This is well illustrated in the case of Transfair USA – “the only third-party certifier of Fairtrade products in the United States”. The organisation’s director of public relations and external communications, Anthony Marek confirms: “We do not certify wine in the US. Any Fairtrade certified wine could be coming in under another labelling initiative, as we do not label wine in the US.”

In the UK, however, there is undoubtedly increasing activity within Fairtrade wine. It is significant that Origin’s Bernard Fontannaz, when speaking about his Faitrade brand, Fairhills, says: “We wanted to create something not to be niche, but to be mainstream.” This requires markets that understand the concept. For Fontannaz, Fairtrade is about the realisation that “we can do good, and do good business. If we can do that, why shouldn’t we?”
For a number of producers, there are other routes to be taken in this respect. As Distell’s Don Gallow puts it, Fairtrade “is not the only route open to South African wine producers. Many local wineries are communicating directly with consumers about their own specific trading initiatives that make them socially responsible players.”
Lourensford’s Anton du Toit is less convinced, saying that Fairtrade “is very difficult to communicate and sometimes people don’t understand the concept because it’s too complicated. Personally, I think it is something that will wear out and in future consumers won’t see it as a point of differentiation anymore.”
Simonsig’s Ross Hobbs believes that “Fairtrade had a place which was usurped before you could blink an eye by environmentally friendly and responsible production practices.” He goes on to say: “We have a lot of international interest in our social responsibility initiatives which we happily and proudly communicate to customers. Personally I think the majority of consumers are ambivalent about which ‘green sticker’ you’ve got on your bottle, but having one does help. At Simonsig we have opted for a balanced, responsible approach covering social welfare, environmentally integrated production practices, and being carbon neutral.”

>Flavour profile
Gallo’s Jenkins believes that: “South African wine presents a flavour profile that is distinct from other wine-growing regions.”
The issue of flavour profile is of particular interest when comparing the UK and US as export markets, where assumptions about transatlantic differences in palate seem to be largely accurate, and can directly influence winemaking, particularly for bigger brands. The issue here is undoubtedly one of residual sugar.
A number of operators within this market, Jordan included, make reference to the US as a “Coca-Cola market”, meaning that the typical US consumer is after a sweeter wine than a UK counterpart. Dickie confirms: “If [a wine] was for the US market, you’d immediately chuck in more residual sugar.”
Lindsay Talas, buying director for Thierry’s, confirms that for Golden Kaan, its increasingly successful South African offering produced together with German producer Racke, there is a significant difference between its UK and US incarnations. “When we look at the style we’ve produced for these two markets, the difference is residual sugar.” Jordan adds, however: “The styles that do well there are not necessarily sweeter, but certainly the ones that are more generous, with ripe fruit and higher alcohol.”

Other markets
But the US is not the only market getting more attention from the Cape. Birch, along with a number of producers, is optimistic about India, saying: “South Africa has a positive image in that market – it’s poised to do well there. There have been interesting changes in the market there. And they’re keen to push wine there, for health reasons and to support the local wine industry.”
DGB’s Hutchinson says: “We’ve tied up an interesting cooperation in India, and got a foot in Russia… there’s a philosophy that says ‘focus on a few key markets’. We’ve got the other philosophy – to be in every market.” He confirms that DGB exports to markets as diverse as Mexico and Kenya.

Flagstone chief winemaker Bruce Jack agrees that South Africa “might be missing a trick with India. There are a lot of cultural similarities with India – we have a huge Indian population, and a lot of cultural and business links. We’re also seeing opportunity in places like Korea… any countries where the Aussies have got in before us and established a name for quality that isn’t necessarily French. Anywhere that Australia’s done well, there’s a place for us.”
Carew comments: “Places like India are tiny [for exports]. Japan is a big market for us, in relative terms. There’s also the Eastern Bloc – Poland and the Czech Republic, where there seems to be interest in South African products.
Hutchinson is also realistic about these markets. “One can’t get too excited about markets like India and China.” The latter is, after all, ranked 19th in the country’s export markets (although growing rapidly), while India fails to make the top 25 at all.
Of far more significance in volume terms are the Cape’s traditional markets – Germany and Scandinavia, for example. Though one of its primary export markets, The Netherlands, has experienced significant declines in recent times.

UK performance
The Cape’s biggest export market, the UK, may have seemed bleak in recent times, particularly in the past year, but this began to turn around towards the end of 2007. And even Constellation’s Kumala, the well-documented primary cause of the category’s decline in the UK, seems set to have a far better year ahead. As part of Constellation’s recent acquisition of Cape Town-based Flagstone, Jack has taken over responsibility for the massive brand’s quality.

Jack has significant plans for the brand. “Kumala has suffered in the past from a quality perspective,” he says. This, therefore, is where the primary focus will be. The quality-improvement phase will be followed by “ensuring that growers operate in the most eco-friendly way”.
Although Constellation may wield considerable influence in a number of markets, the UK will apparently remain the primary market for Kumala. As Jack says: “The style’s created with the UK in mind – it’s the most important market for the brand. The UK market leads the brand’s intrinsics, such as its style. It’s a market-responsive brand, which is not a bad thing at all.” Jack now plans to “give Kumala its authenticity back – to take it back to the vineyards, to make a winemaker-driven brand.”
For Jack’s brand, Flagstone, the acquisition will have a “revolutionary effect”. He says: “We don’t have the same money, resources and time. Time’s the thing that kills you. I don’t need to worry about those channels, I can just make sure that the wine we craft remains true – and innovative and charismatic.”
Jack has had some success with the Canadian market, something he attributes to the fact that this market is “more receptive to New World wines, and they understand the concept that if you pay more you get a better product”.
A greater focus on other markets is not necessarily detrimental to the UK market. Speaking about Simonsig, for which Chalie Richards has the agency in the UK, managing director Bob Rishworth explains: “The globalisation of the brand tends to help with awareness in the UK.” In general, he believes that the UK will continue to be an important market for the Cape. “South African producers do adopt a certain amount of pride exporting to the UK market – it really is a showcase for the wines.”

For Andrew Walker, sales director at Crush Wines, “the Cape should look to other markets while not ignoring the UK market. This would encourage greater economic competitive thinking behind their wines and energise and motivate the category. Both our suppliers, Villiera and Simonsvlei, export to other markets, which is a necessity to … ensure large scale economics apply to the winery to allow them to be competitive for the UK marketplace.”
Brand Phoenix’s Greg Wilkins believes that “South Africa should not be looking to de-invest in the UK market – rather to seize the opportunity that presents itself with current shortfalls in Australian exports. All producers should be encouraged to invest in getting to know the consumers, what drives them, and interpret these findings into their brands, as other categories do.”
A brand that has consistently experienced success in various markets is Foster’s Lindemans, which recently introduced South African wines into its portfolio. Lindemans South Africa was well received in the US, and has since been launched in the UK.
The wines are sourced by Stellenbosch-based Origin Wines, who once were responsible for the sourcing and bottling of Kumala, and recently acquired Orbital Wines’ brands, including South African brand Stormhoek. Origin’s MD Bernard Fontannaz explains that the company will “work in close collaboration with Lindemans winemakers and consultant Angela Mount to ensure the wines are the right quality and style for the UK market”.
As far as Stormhoek is concerned, Fontannaz confirms that, while “a lot of groundwork has been done in the US, and the brand is good for the US, it’s unavoidable that the UK is the main market, and will stay that way.”
For Myliko Wines’ managing director Hemant Kotecha, a decrease in availability of Australian wines is the greatest opportunity for the Cape at the moment. “There’s a stability in price compared to Australia, and availability is good as well. There’s a tremendous shortage of white wines, and if South Africa can fill that slot, there’s great potential. The good thing is that there’s quality at the top end.”
The top end of the Cape’s wines are still not extensively available in the UK (either as a result of lack of distribution, or low levels of supply), although this has improved in recent years. London restaurant Vivat Bacchus sells a significant amount of top-end South African wines, championing fine wines from the country. As co-owner Neleen Strauss puts it: “Four or five years ago people wouldn’t spend that kind of money on South African wine. It’s easier now.”
It seems inevitable that further-flung destinations will be increasingly exposed to Cape wines in the future, if this increased attention continues.