Fistful of Fivers

06 June 2005 By db staff writer

“standfirst”>The South African wine industry is setting its sights on the over-£5 sector. Prices are certainly moving in the right direction and, with the generic office about to invest £1m in the UK, it’s looking eminently achievable, says Chris Orr

“We’re not seeing what one would call stratospheric growth,” Sophie Waggett, UK manager of Wines of South Africa, (WOSA), says, “but it’s steady growth, and the key thing is that we’re growing value, which is crucial for us in the off-trade.” The latest AC Nielsen MAT stats to the week ending April 17, suggest Waggett’s summation is pretty accurate. South Africa is continuing to grow its market share of the UK off-trade both in volume and value terms, and while not “stratospheric” it’s still most definitely heading in the right direction.

In volume terms, South Africa went from 9.9% to 10.2% of the market, a rise of just over 3% in total, which is roughly in line with market growth. Crucially though, value tracked volume growth, with South Africa taking 10% of the total value share in the off-trade against 9.7% for the corresponding period in 2004, representing an overall rise of 3.09% in value. The average price paid for a bottle of South African wine moved from £3.67 to £3.72, which compares well with Australia, where average value saw a slight dip over the period, falling from £4.31 to £4.26, despite gaining slightly in terms of value and volume share. The rise compares even better with France which saw volume share plunge over 8%, dropping from 18.9% of the total to 17.2%, and while a similar amount was shaved off its value share which fell from 19.5% to 17.9%.

Waggett says, “We still have a way to go to meet the objectives we set ourselves, which is overall market share of 13.5% and an average price of £4.16, but I think the picture is very positive for us and, with the new campaign launching towards the end of this year, we’re pretty confident that we’ll be close to where we want to be.” Mike Paul, managing director of Western Wines, says, “When you look at South Africa in the retail sector, you still have to see the country as being at the front of the line in terms of development potential. It has 10% of the market now, but it’s over-reliant on the under-£5 sector, much more so than other countries at the top of the market share league table.

“I think it’s changing, which is good but what we have to make sure is that we change the perception of South African wine, so that, in a similar way to Australia, people are prepared to spend more than £5 for a bottle. That’s quite a challenge, but the country has committed significant funds to it and with investment from the brands as well, there’s a real drive to make it work.”

For Paul, part of that drive means ensuring there is more development of premium brands in the over-£5 sector, “in order to really drive growth and get the message over to the consumer that there is a valid premium offering from the country,” he says.

At the moment, South Africa’s brand consciousness lies firmly below £5. Only two South African brands appear in the latest top 20 for the country, Kumala and Namaqua, with Arniston Bay slipping out of the pack since December 2004. But the Nielsen statistics for Dec ’04 compared to Dec ’03 confirm the growth that has continued into the first quarter of this year above the £5 mark. Sales in the £3 or less category for South Africa fell from 20.8% to 16.6% over the full year. The category was the country’s second biggest volume source under £5. Its biggest volume source under the £3.76 to £4 sector, grew from 21.2% to 21.7% share. It’s not over £5, but it shows South Africa moving in the right direction. Likewise, the third biggest volume source under £5, the £4.75 to £5 sector grew from 9.1% to 10.4% share. Over £5, virtually every price band up to £10 saw growth, with the biggest coming in the £5.26 to £5.50 range, up from 1% share to 1.4%, and the £5.76 to £6 range, which shot up by almost 50% from 2.1% share to 3.1% share of South Africa’s total offtrade volume for the year.

 “It’s definitely getting there,” Nick Dymoke-Marr of Orbital Wines says. “But like every category it’s under pressure at the moment. I mean, let’s face it, Australia isn’t exactly hanging around at the moment. The problem is that while South Africa is desperate to promote above £5 it’s not that easy a sector to perform well in, especially for countries that don’t historically have a big presence above the crucial £4.99 cut-off point. It’s difficult persuading punters to part with more than a fiver at the best of times, but the opportunities are definitely there.

“I also think it is important to put South Africa in perspective. In reality, the ‘modern’ phase of South African wine exports only really started in 1997. If you’d told me or anyone else involved in South African wine eight years ago that it would be able to capture 10% of the market by the beginning of 2005 you’d probably have been told you were verging on the insane. And yet, despite everything, they have done that and there is still a real buzz about the category.”

Sara Brook, wine selector at Asda says, “It’s still got great growth potential as far as we are concerned. It’s certainly one of our ‘drive’ countries; in fact it’s within the top five drive countries that we have.

“When you look at the wines that the country produces, they are definitely offering better value over £5 than someone like Chile does, for example. And I think as more premium wines come on line that has the potential to get even better. They have a strong portfolio as a country, but there still is a lot of work to be done in persuading the consumer to spend over £5 on them. There are certainly fewer branded offerings over £5 than somewhere like Australia and that’s something that could probably be improved.”

Emma Nichols, wine buyer at Oddbins, says, “We’re finding South Africa is doing really well for us. There’s a really strong offering up to £5 but, increasingly, they are producing really good higher priced, value products. We don’t tend to carry the larger brands but target more boutique, small volume producers that can offer us exclusives that we can build more value into.

“But it is important for the South Africans to look at what they are competing against. When you look over £5 and compare some of the offerings with those from the likes of Spain, Italy, Australia, while there are many that stack up well, there are also others that don’t. I think this is especially true of over £8 and £9. I am not sure that they are all getting it right at those price points. That said, when they get it right, they really get it right. Sometimes they lack consistency, but that’s improving. There is a lot of potential left in South Africa.”

Fergal Tynan of Boutinot and Capricorn Wines, which shipped more than 200,000 cases of South African wine into the UK last year, and another 200,000 into Europe, says, “There are some problems still facing South Africa. The strength of the rand continues to cause problems, and that is just as relevant in the over £5 sector as it is in the under £5. A lot of producers are struggling to maintain a £7.99 price point with their premium offerings and work with healthy margins. That has softened a little bit in the past few months, but it does make promoting and offering suitable deals to consumers over £5 as much of a challenge as it continues to be under £5.

“As a result we’re seeing several wines actually stretch their price points. At the London wine trade fair I saw several Sauvignons over £10, some of which were worth it, but others perhaps less so. I think what’s important, though, is that South Africa seemed at one point to be heading down a very commercial route in the style of Australia, but there has been a little bit of a reversal or back-up. The country’s producers are more experimental than they have been in the past, partly because they have the confidence to push their boundaries. So we’re seeing some really interesting medium to small sized offerings that are creating a lot of interest. The challenge, of course, is converting those into actual sales.”

Part of that conversion will be led by WOSA’s £1m promotional campaign. “It’s the most significant spend from South Africa to date,” Waggett says, “and we think it will have a big impact, especially on the over-£5 market.” Taking as its theme the immense variety of flora and fauna found in he country, the campaign will stress the variety and choice that is available from South Africa, and promote a range of specific award-winning wines over £5, with incentives such as money-off coupons aimed at stimulating trackable sales. Combined with the continuing CCT scheme that has seen widespread take up from retailers, 2005/2006 is looking to be a big year for South Africa. Under the CCT (Common Customs Tarfiff) funding strategy, money saved by South Africa’s 10-year exemption from CCT on wine and spirits is used by WOSA to fund the promotion of South African wines.

Chloe Wenban Smith, marketing manager for Maison Marques et Domaines, which has just launched the South African Indaba range in the UK, says, “I think many retailers took up the CCT campaign for very different, not strictly commercial, reasons. But the important point is that they’re continuing with it because they’ve actually gained real value and real sales through it, not to mention putting a mark in their ethical and charitable tickboxes. I think combined with the new WOSA campaign it’s going to be a pretty positive year.”

The only thing to pray for now, it seems, is for the rand to behave itself. “Oh we never stop praying for that,” Waggett says. Amen to that.