Business Day 1 July 2020

Even before Covid hit our shores it was clear that the Cape wine industry was sailing into the eye of a storm. Bulk prices, which had been easing their way upwards through the drought years had peaked, and were starting to fall. The domestic market – even pre-Covid – was fragile. Adding the impact of the pandemic to what was always going to be a very tough trading year has left many estates and wineries battling for survival.

The exports lost during the first month of lockdown will never come back: as Cape wines vanished off the shelves in the international markets, they were replaced by lines readily available from other, more commercially adept nations. The compound effect on exports will be vastly greater than the one twelfth of a year’s turnover which evaporated during Level Five.

Lockdown meant that the home market was dead for over two months. While producers and distributors seem happy with June sales, one great four week period cannot make up for nine weeks of no turnover at all. It’s also worth remembering that a high percentage of the country’s fine wine sales go to restaurants – purchased either by tourists (mainly in Cape Town or Mpumalanga), or by domestic consumers primarily in Gauteng. This portion of the business won’t be coming back anytime soon: on the contrary, a high percentage of restaurants may never recover from the enforced closure. This means that much of what was owing to producers at the time of lockdown will be irrecoverable.

What strategy should the trade be pursuing as we turn the corner into the second half of the year? There is a temptation to fall into the trap of imagining that the June boom in sales is a measure of public support, as opposed to a necessary stocking up exercise after a prolonged drought. For producers susceptible to this kind of fantasy there is another delusion lurking in the wings, namely the belief that their wines are under-priced, and deserve to sell for more than they currently do.

Whoever labours under this kind of misapprehension would do well to wander around the shopping malls in even the wealthiest parts of the country. They might be surprised to see how many shops are boarded up, and how few customers are out there looking to throw their ever-diminishing resources at consumables. The shrunken economy will be with us for a lot longer than the next few months, so upping prices as a marketing strategy is more likely than ever to fail – only this time with potentially fatal consequences.

Perhaps they should take note of what happened with this year’s Bordeaux primeurs trade and learn a lesson from the French. Every year – usually in April – the Bordeaux chateaux invite major buyers and critics to visit. They then show them the half-finished and not yet bottled wines from the harvest which took place six months previously. Prices are then announced as a kind of futures sale. The brokers and wholesalers commit to stock on the basis of feedback received through the entire value chain. Despite (or perhaps because of) a succession of very good vintages which has left the pipeline overflowing, interest in primeur trades has been diminishing for some years.

With travel to Bordeaux pretty much out of the question for most of the annual circus this April, it looked as if the 2019 primeur campaign was dead in the water. However, to everyone’s surprise, the Bordelaises played it perfectly. Samples were sent to the critics, who pronounced it an excellent vintage. Then, instead of bumping up the prices in their time-honoured tradition, the producers announced meaningful discounts – between 20% and 30% – compared with the campaign of the year before. The result has been a singular commercial success: the allocations have been sold and Bordeaux is again the darling of the wine world. The Cape’s producers might need to remember the old adage: never stop selling the fantasy, never buy it yourself.

 

Research shows that, taken in moderation, wine is good for your health. RMB WineX supports responsible alcohol consumption. © 2019 WineX Pty Ltd

netoops blog
netoops blog