Vinpro Information Day: High Prices Bite Wine Industry Where it Hurts

As has been the case for the past three years, price was again the overriding theme at this year’s Vinpro Information Day, the annual gathering where South Africa’s wine producers are subjected to insights, views and forecasts from various knowledgeable speakers. But where the Vinpro Information Day of 2020 differed from previous years’ focus on the need for increased wine and grape prices, was in that the current slide in sales can directly be related back to the higher wine prices producers commanded in 2019.

As reported recently, 2019 wine exports slumped by 100m litres to 320m litres, 23% down on 2018. In the same period, local wine sales plummeted 20.8m litres to 319.9m litres. Forced with these realities, it was difficult for the Vinpro speakers at the Information Day to do anything else but accept that the industry’ spurring-on of producers to raise their wine prices – which in 2019 happened by up to 35% – backfired in monstrous proportions.

As noble as the cause for ensuring producer sustainability through the higher pricing for South African wine may be, the stark reality is that the market will only pay what they think your offering is worth.

Hence Vinpro Chairman Anton Smuts’s candid admission that the eager calls of the past to demand higher prices for wines from local and international buyers did, well, not work out.

“We must adapt to be globally competitive and profitable, to learn continuously to fit into the competition landscape,” said Smuts. “We still make too many uninformed decisions, because we are not aware of tendencies which could be positive for us.”

Interpret this as you like, but the smart money says that the meaning is: As far as calling for higher prices, perhaps we jumped too quickly. And in the wrong direction.

With over 25m litres of wine imported into South Africa during 2019, another result of local wines being too expensive for big producers who could ship-in cheaper product from Latin America and Spain, the local market is turning into a dog-show. Only more vicious and with less prancing. Therefore Rico Basson, Vinpro CEO, used his slot at the Information Day to accentuate the need for a greater emphasis on export markets – the same ones that tanked so unceremoniously over the past year.

In Basson’s view, the local wine industry should aim to be an export-orientated one and, in his view, this can be done if everyone works together. “We have to balance the price expectation with the value offering, though. The price cannot just go up and up,” he cautioned, joining his Chairman in admitting that the past few years’ pleas for price increases had proven to be a shot in the dark which ricocheted back.

Basson did, however, go for broke by challenging his body to ensure exports for 2020 climb 100m litres – right back to where they were in 2018, but I suppose it is the thought that counts.

In all this, generic exports body Wines of South Africa (Wosa) appears to be either missing in action or residing on a different planet than the one Smuts and Basson walked on to face the industry. An extremely convoluted media release issued prior to the Information Day did not make a single mention of the effect the wanton raising of prices had on the slump in exports, preferring to do a summertime boogie on the fact that in some markets the value of South African wines had increased. Fact is, the value of South Africa’s 2019 wine exports were down R500m on 2018 and one would have expected some sort of clarity as to the reasons behind the dive, as well as a few insights as to how the ship could be turned around.

Basson’s acknowledgement that a relook is needed into the constitution of the South African vineyard was one of the day’s highlights. With only 4% of world wine production, is there really a role to play for innocuous white varieties that end-up as dry white wine and are exported in bulk for R6 to R7 a litre, or less than 50 euro cents? Surely a greater emphasis on higher-value varietals for which the world has an appetite – think Chardonnay and Sauvignon Blanc – is the way to go. (Bulk prices for these two are R12 and R10 a litre respectively.)

If the (rightful) obsession with value is to continue, a substantial set of radical changes are going to be required to begin to unlock the total potential of the industry as a whole. That is why the current reflection on the dismal performance of 2019 needs to be confronted and analysed. Cages need rattling.

 

 

 

 

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