The premiumisation of SA wine has been the focus of Wines of South Africa for a while. Getting away from our cheap and cheerful image and selling wine at sustainable prices. But what happens when economic factors force consumers to spend less?
Someone asked me what the rising inflation rate means for the wine industry. Unexpected high inflation is a challenge – for the consumer, the primary producer and the whole supply chain. With local wine industry margins already under pressure, I think there are but two ways of dealing with an unexpected rise in inflation: 1. increase the selling price and/or 2. increase production.
South African consumers are under pressure with inflation, interest rates as well as fuel prices on the rise, affecting the cost of basic goods such as food, travel and housing. They will probably not be surprised when wine prices rise too, but how will this affect their wine purchasing behaviour? I reckon they might probably buy less regularly, opt for a more affordable bottle or decide to go for more economic packaging like bag in box. According to winemag.co.za box wine already accounts for more than 50% of local sales. The same article states, however, that average price increases for wine are expected to remain below the consumer price index of 5% as we are still dealing with surpluses from the Covid-induced alcohol bans.
While the premiumisation strategy of SA wine might have been less focused on local consumers and more on the international market, it is important to remember that the global economy is under pressure. Consumers worldwide might be reconsidering their purchasing behaviour and perhaps settle for the cheap and cheerful rather than the premium product. According to worldbank.org: “Compounding the damage from the COVID-19 pandemic, the Russian invasion of Ukraine has magnified the slowdown in the global economy, which is entering what could become a protracted period of feeble growth and elevated inflation, according to the World Bank’s latest Global Economic Prospects report. This raises the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike.”
For SA wine to flourish, we need to get away from our bargain image and there is no denying that we have what it takes to do that. We have interesting styles and blends, we have wines of exceptional quality and wines with stories. We have intriguing characters and a beautiful and diverse backdrop. There’s work to do, but we have the building blocks. To stay selling at prices that puts us under pressure isn’t wise, but in a world of surplus and a pressured consumer, convincing wine drinkers to spend more on what many still consider to be a luxury item, might be a real challenge.
It is good news that the 2022 vintage is of exceptional quality. If we want to focus on premium, perhaps it is also not all bad that volumes are slightly down. (Read the 2022 Harvest Report) But if bigger yields are required to make wine production more cost effective and if consumers can’t afford to pay for quality, has our premium focus become a problem in the short run?
I don’t believe we should alter the direction or focus for SA wine. Perhaps, again, we might just have to find a way to survive the current challenges. And you never know, perhaps, when we have the 2022 wines beautifully matured and ready to sell, the world will look a bit better. Matters of economy and finance are dynamic and ever-changing regardless of pandemics and wars, but we really would’ve been better off with a less aggressive Putin!