BY NICK HEDLEY, FINANCIAL MAIL, MARCH 05 2015, 08:23
Now the world’s biggest consumer of red wine, China was one of SA’s wine export success stories of 2014. SA exports of packaged wines to the planet’s most populous country leapt 63% to 6m litres (M l ) last year — though that number still pales in comparison to our biggest market for packaged wines, the UK, with 41M l.
Wines of SA (Wosa), the nonprofit industry body responsible for promoting exports, formally set up its Hong Kong representative office in October last year.
Wosa CEO Siobhan Thompson says China is coming off a low base, but it’s a "high potential" market and one of three key regions where Wosa is trying to ignite demand.
The industry body, which is funded by levies on all wine exports and a R1m annual grant from the department of trade & industry, wants SA wine to keep and grow its strong position in the UK and Europe, while its target regions are China, the US and the rest of Africa.
In the US, which has a well-established wine consumer base, SA brands have only a tiny share of the market. "There’s potential to come in and capture not only a share from other competitors but also new consumers. But it is a tough market because it operates as 50 different markets," Thompson says.
The main target African countries are Kenya, Tanzania, Nigeria, Ghana, Angola and Uganda, which are starting to consume more wine off a low base, similar to China.
"It’s all about educating and getting people into the category. A lot of that is focused on growing volume, but you want to grow image and value at the same time," Thompson says.
Distell CEO Richard Rushton says his company expects to at least double its African business within five years. He says Distell could invest between R500m and R1bn in capital programmes in Africa in the next five years.
Meanwhile, Thompson says in the UK and Europe, where SA has already established itself as a recognised producer of good brands, "the main objective is to grow value — you want to move SA out of being known as that good value, medium priced everyday consumption wine, to that higher level".
In China, SA wine is still heavily underrepresented, but some progress is now being made and the Asian giant is now SA’s 11th-biggest overall market, with bulk and packaged volumes having grown to 9Ml.
Wine and spirits association Vinexpo said last year China had overtaken France and Italy to become the largest consumer of red wines, though the accolade is a result of the country’s huge population of 1,3bn. Per capita consumption is still very low in China, at only 1,5l in 2013 versus 51,9l in France and 6,5l in SA.
But Thompson says the country is "a market that is starting to develop a palate for wine", and in doing so is becoming a large producer itself.
"The cultural differences and nuances in China are vast," she says, adding that SA exporters looking east need to educate themselves about the market.
The trade promoter runs seminars and tasting events, and exposes wine opinion leaders to SA brands through events and shows like the Hong Kong International Wine & Spirits Fair.
An important focus is to bring Chinese wine opinion leaders to SA and its estates.
"That’s a strong drive for us this year, particularly with Cape wines. We’ve got quite a few guests who will be brought over by Wosa, with our funding and also supported by the department of trade & industry."
Thompson attributes some of the industry’s recent success in China to "sustainability and integrity seals" on wines, a label unique to SA which allows consumers to trace exactly where the wine was sourced and produced.
This is a sought-after reassurance in China, where copied wines are a problem.
Wine producers’ body VinPro wants China to account for 7% of exports by 2025, from 2% currently. It also wants to raise exports to the US from 3% of the total to 10%, and Africa from 5% to 7%.
VinPro hopes to see a shift away from exports of commodity-like bulk wines to higher-value packaged wines. VinPro wants the 60:40 ratio of bulk to packaged reversed by 2025.
Thompson says Wosa’s main objective is "building and promoting brand SA, and upholding our image".
"We’ve been very strongly volume orientated which I think is important, but if you look at markets like Europe, you get to a point where volume stagnation sets in, and you really need to grow value."
The UK remains SA’s biggest market for both packaged and bulk wines, and has shown a slight recovery over the past two years.
"The UK is a tough market, but we’ve managed to hold our own. In fact we’ve gone from being the sixth-level category to being the fifth in the UK," she says, referring to SA’s climbing to be the fifth-largest-selling wine country in the UK.
One area where the local wine industry believes it is at a disadvantage to its competitors is free trade agreements. SA has only two of these deals in place, compared with around 25 held by some competing exporters.
But the industry should benefit from a revised trade agreement with the EU, expected to come into effect next year. The agreement will raise the EU’s duty-free quota for SA wines from about 50Ml to 110Ml a year.
Thompson says while SA’s wine industry is trying to work out how to lobby for more trade agreements, "I do respect that they need to be done in a manner that benefits the whole country".