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South Africa: Growth of Wine Exports On the Rise

Dave Marrs

5 February 2008

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Johannesburg — SA's wine exports have bounced back after taking a severe knock two years ago, writes Dave Marrs

WHILE final figures have not yet been collated by the industry, SA's wine exports appear likely to have exceeded the 300-million litre mark last year, a record volume. Cumulative offshore sales for the first 11 months of the year reflected a 16% increase on the same period in 2006, a significant rebound.

Wines of SA (Wosa) CEO Su Birch is confident of continued growth this year despite the highly competitive nature of the international market. She is projecting an increase in export volumes of at least 6%.

"Although a conservative estimate, all indications are that the temporary setback in sales experienced in 2006, when volumes dropped some 5% on 2005, is now well and truly behind us."

However, she cautions that rapid growth can cause problems of its own. "With exports of red wines growing at nearly three times the rate of whites, we could be experiencing shortages of reds by 2010. As it is, there are currently some shortages of certain white cultivars, notably Sauvignon blanc.

"Although shortages might mean higher prices for grape suppliers, the situation will not be to the advantage of our industry. SA is still a very young exporter in global terms and to be unable to meet market demands could make us vulnerable."

However, the overall export trend is positive for the South African wine industry, Birch says, and the country's global reach has widened, significantly diversifying risk. "Whereas five years ago 72% of our packaged exports went to just the UK and the Netherlands, the net has widened so that the UK, Sweden, Netherlands, Germany and the US account for 70% of total export volumes."

She says with the exception of the Netherlands, where sales are characterised by heavy discounting, all other major markets have shown sound growth in demand for local packaged wines. "In the Netherlands, we are currently addressing the higher-priced segment of the market, where margins are more attractive for producers, and we are advising local wineries to move their focus away from extreme value business. The UK remains our biggest export destination, where we have reversed the negative trend of the past two years. Not only are packaged wines showing a growth of 6% but we are growing ahead of the market's 4%, which means we should begin to increase market share again from next year.

"We are also particularly heartened by the fact that much of this growth is taking place in the more premium segment of the market."

SA has also succeeded in retaining three trademarks on the UK multiple grocers' Top 20 list of bestsellers -- Kumala, FirstCape and Namaqua. Birch says Wosa is continuing to pursue opportunities to grow profitable trading relationships, not only among the multiple grocers but by giving greater attention to the independent retailers and the on- consumption channel.

Sweden has become SA's second biggest market for packaged wine. "We are now number two in Sweden, behind market leader Australia. The entire Scandinavian bloc offers very exciting potential. We have shown double-digit growth not only in Sweden, but also Denmark and Finland, and we haven't even begun to tap Norway," she says.

One of the strongest growth markets has been Germany, where volumes have jumped over 40%. According to Wosa's representative in Germany, Petra Mayer, SA is now the fifth biggest supplier of imported wines to the country, up from ninth position in 2000. While export values have yet to keep pace with volume growth, she says South African wines have succeeded in achieving the biggest retail price increase of all players in the market.

Another star performer is Canada, with Quebec proving a fast-growing market for South African producers, historically most active in Ontario. Volumes to Quebec grew 76% to reach sales of 175 000 cases with a value of C$22m in the 12 months to September. Local wineries not already in this market are being urged to also develop a presence in Quebec, which accounts for 40% of Canada's total wine consumption. All four provinces have upped their purchases of local wines, according to Wosa's representative in Canada, Laurel Keenan, with total volumes for Canada up 11%.

Exports to the US are over 9% higher on last year. Birch believes Russia also offers excellent opportunities. After an initial foray by Wosa earlier this year, sales have risen fourfold on a year ago, albeit off a low base, and there is widespread optimism for further market penetration, she says.

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