SOUTH AFRICA INVESTMENT – Cashing In

Massive long-term investment has transformed the South African winelands into a major business proposition, with foreign investors competing with locals for trade. And the industry’s boom is likely to continue, writes Linda Stafford

The arrival in Franschhoek, the most picturesque of Cape winelands towns, of UK philanthropist Richard Astor has brought a British touch to the South African (SA) wine industry. More importantly, with friend and neighbour Mark Solms, he is blazing a trail of non-paternalistic empowerment wine farming.

Astor is the son of legendary Observer editor David Astor and grandson of American-born Nancy Astor, the first female MP in the UK to take a seat in Parliament. David was famous for putting the British government back in its place over the Suez affair of the 1950s, which he described as “19th century imperialism of the crudest kind”, and added “nations are said to have the governments they deserve. Let us show that we deserve better”. Nancy famously locked horns with Winston Churchill, saying: “If I was your wife, I’d put poison in your coffee.” To which Churchill replied: “And madam, if I was your husband, I’d drink it.”

Richard Astor’s friend and now partner in wine, SA-born Solms, is an eminent neuropsychologist who returned from the UK to SA in 2001 to make some of the most exciting wine in Franschhoek at his Solms-Delta farm. He urged Astor to buy the farm next door, Lübeck, and the two are producing a Solms-Astor range focusing on traditional SA grapes and Cape blends. Solms also established the cultural Museum van de Caab.

But what’s really significant in the post-apartheid environment is what Solms and Astor have done for black economic empowerment – or BEE. (BEE initiatives are aimed at increasing the participation of people of colour in all areas of the economy.) In essence, they have ensured workers on three Franschhoek wine farms will eventually own one of the farms.

Transfer of land ownership
To this end, Solms and Astor raised finance, partly by mortgaging their owns farms, to buy a third adjoining farm, Deltameer, which, with Solms-Delta and Lübeck, forms a 76-hectare estate. The farms are home to more than 200 people. Deltameer is being transferred into a trust owned by the farm workers and being sustained by a profit share in Solms-Delta.

At the time of the deal, Solms said his excitement at coming back was “tempered by a sense of discomfort in becoming a white farmer.

“The social realities of the farm labourers were hard, stuck in a semi-feudal system that left them with little or no choices in life. Few wineland transformation projects involved the transfer of viable land ownership, based on the argument that the properties were too expensive”.

He believes the transfer of land ownership is necessary to transform the industry (see article on page 94).

Solms’ return and Astor’s appearance offer additional proof that the winelands have become a veritable United Nations in the 12 years since the country’s first democratic elections – and with the development of a robust export market for its wines. Everyone from African information technology tycoons, Italians with dubious connections, German bankers and the big names in French wine, have piled in. And that’s not to mention local investors, information technology, mining and banking bigwigs who want to blow loot on something that will make them part of an elite community even after they are gone.

Since in the past many SA wineries were little more than industrial barns, huge investments have also been made in the upgrading of existing operations. This is a sign that SA wine producers are calculating their expenses in international terms for the long term.

And in the past few years, interest from abroad – and from people at the top of the wine-producing tree – has intensified.

Big deals
The biggest deal so far occurred earlier this year, when Swartland Winery of Malmesbury signed an agreement with the vast E&J Gallo Winery – the second largest such group in the US after Constellation – to produce a series of wines under Gallo’s brand-new Sebeka label.

Gallo has launched Sebeka as a typical SA range in its “international portfolio” of wines, which includes Red Bicyclette from France, Bella Serra and Da Vinci from Italy, McWilliams Hanwood and Black Swan from Australia and Whitehaven from New Zealand.

Sebeka may become what Kumala is in the UK – the leading SA brand. Constellation, which now owns Kumala, does not seem to have been particularly aggressive – or perhaps just not particularly successful – in the US so far.

Close on four years ago, French grande dame May-Eliane de Lencquesaing of Bordeaux’s Château Pichon-Lalande,Comtesse de Lalande, bought the farm Glenelly in the prime Simonsberg area outside Stellenbosch, “capital” of the  winelands. She recently launched Glenelly Hill, a wonderful Bordeaux blend. Unfortunately, because it hasn’t yet developed a brand profile and is costly by SA standards, it’s not exactly being snapped up by shoppers.

In early 2005, another two of the big names of Bordeaux, Bruno Prats, who put Château Cos-d’Estournel (the leading Médoc second growth) on the radar screens of wine lovers, and Hubert de Boüard of Château Angélus (a St-Emilion first-growth) arrived on the scene. They formed a joint venture with Lowell Jooste, co-owner of the highly regarded Klein Constantia Estate in the Constantia Valley outside Cape Town, to make red wine on the Helderberg outside Stellenbosch. Named after the farm on which it’s made, Anwilka, the first vintage, a blend of Cabernet Sauvignon, Merlot and Shiraz, was released last year. It is being sold through the Bordeaux trade and in SA through Klein Constantia.

Then there is Switzerland’s Donald Hess, the New World wine producer and art collector who owns the Hess Collection Winery in Napa, California. After having been in partnership for a few years with the Finlayson family who own Glen Carlou in Paarl, Hess bought it in 2003. He has established an art gallery on the farm, which showcases works of contemporary artists from all over the world.

Recently, too, Chablis icon Michel Laroche bought Stellenbosch’s L’Avenir from Marc Wiehe. The Laroche name has been synonymous with top-quality wines from Chablis for more than 150 years, from the South of France for the past 20 years and from Chile since 2001. Laroche intends extending the range to include top-quality SA wines.

Alternative investors

Not all foreign investors in the Cape Winelands come with such lofty wine-producing pedigrees. But they are an interesting bunch, one of the most recent including youthful, party-loving American entrepreneur Preston Haskell, who lives in Moscow and whose property-related business interests are in Russia. He recently launched the Haskell Vineyards, formerly the Dombeya farm in Stellenbosch, which he bought in 2002. Along with Australian export partner Grant Dodd, a professional golfer who has a second career in wine, Haskell intends carving out a market for his SA wine in Russia.

Another newcomer is Anthony Ward, a British former motorcycle dispatch rider turned commodity trader, who, he says, “had a couple of lucky breaks”. With his partner Richard Gower, he runs Armajaro Holdings from London, with offices and agricultural investments all over the world.

Holiday trips to South Africa became business ones when Armajaro bought a wine farm, Vondeling, in 2001 in the recently proclaimed Voor Paardeberg appellation. A cellar was built last year and the Cape Dutch manor house restored. Says Ward: “SA is a bit like Tuscany — the infrastructure is OK, the time zone and travel connections are suitable and compared with the rest of the continent, it’s heaven.”

On the money
Ward’s view is that SA is not a New World producer like Australia or California but that SA wines are closer to Italian and Spanish ones. “The British bought more wine from SA in the 19th century than they did from France.” It’s a state of affairs he’d like to see reinstated.

The first step was getting a listing for his Sauvignon Blanc 2006 on Virgin Upper Class. China and India also feature on his radar screen. “The world of wine has been turned on its head by New World producers,” he says, “and there is now plenty of reasonable wine available at reasonable prices. You need the right raw material and the right staff.”

Ward will soon release a wooded blend of Chenin Blanc and Viognier.

Certainly in terms of style trends, Ward is right on the money. Sauvignon Blanc is the most popular white wine grape in SA. Indeed, the search for cooler sites for the varietal has seen a shift in the settling patterns of investors in the winelands. By far the most popular “new” area is Elgin, where previously the biggest crops were apples and pears.

According to Financial Mail wine writer Neil Pendock: “Sauvignon Blanc is the only cultivar for which the price of grapes has held steady in the face of widespread collapse due to oversupply: Pinotage down from R3,800 (£276) a ton to R2,200 (£160), Cabernet from R6,600 (£480) to R4,500 (£327) and Shiraz in a meltdown from R6,400 (£465) to R3,400 (£247).”

Diemersdal winemaker Thys Louw reports achieving Sauvignon bulk wine prices of R1,650 (£120) a litre while Cabernet languishes at R450 (£33).

There has also been a huge resurgence in fashion – and therefore planting – of Chenin Blanc, with or without the peachy note of Viognier.

The deals in the winelands have invariably been private and are thus impossible to quantify, but close on R2 billion (£150m) must have been invested by newcomers in wine farms.

Before the 1980s, when epicurean interest in wine began to take root, the winelands were home to simple farmers and grand families who had inherited their gabled piles from Dutch and French Huguenot families. Those who grew grapes sold them largely for the production of brandy, then, along with beer, the national tipple. They did so according to a quota system laid down by KWV, whose protectionist powers were so wide-ranging it even stipulated what varietals farmers could and could not grow.

Fashionable farming
But in the 1980s, a new breed of wine farmer began to make its presence felt. The former chairman of advertising agency J. Walter Thompson, Tim Hamilton Russell, created a stir in the early ‘80s when he bought a farm in the cooler, southerly Walker Bay region – most wine farms were closer inland, in the warmer Stellenbosch region. He created even more of a stir when he planted noble and notoriously difficult Pinot Noir.

Hamilton Russell was among the trendsetters who made it fashionable to own a wine farm. And it wasn’t long before the winelands became as much the playgrounds of plutocrats as the scene of salt-of-the-earth labour; the fixed-asset equivalents of high-maintenance trophy wives for many a businessman not quite ready to retire.

Paul Bouchard of Burgundy’s Bouchard Aîné et Fils was, perhaps, the first of the the French wine “aristocrats” to touch down in SA. In the early 1990s, he went into partnership with winemaker Peter Finlayson to form Bouchard Finlayson in the Walker Bay region.

But it was only after sanctions against SA were lifted and Nelson Mandela’s new democracy was born that other foreigners followed. What started as a foray has grown into a major investment force.

Indeed, in the 1990s the biggest investments in the SA winelands were made by foreigners. Among them, Italy’s Count Riccardo Agusta, who bought Franschhoek’s Haute Provence; Anne Cointreau-Huchon, from France’s Cognac family, who bought Stellenbosch’s Morgenhof; Italy’s Giulio Bertrand, who bought Somerset West’s Morgenster and, having planted not only vines but Italian olive trees, started the olive oil trend in SA; and Germany’s Markus Rahmann, who bought Stellenbosch’s Verdun and turned it into Asara.

Even a quoted UK company, Linton Park Plc, bought a farm near Wellington called Slang Rivier and now makes Linton Park wines.

Then, in the 2000s, there was another spate of investment from SA businessmen. They include information technology king Jeremy Ord, who established Waterford Estate (Stellenbosch); and banking bigwig GT Ferreira, who built Tokara (Stellenbosch), which comes close to being likened to Robert Mondavi’s Opus One in Napa Valley, California.

Could the competition – between local and foreign investors – get any hotter? All the signs are there that it will.

© db June 2007