The profitability challenges of the South African wine industry is no secret. Even pre-Covid, margins were small for most while making and selling wine were not profitable for many. Now with excess stock in the cellars and the important avenue of tourism and hospitality still bounded by Covid-regulations, is discounting our wines the best way to sell?
Covid’s effect was expected when it came to tourism, travel, hospitality and therefore also businesses associated with these industries, such as wine. In South Africa, the twice-instated liquor ban added another serious blow to the wine industry, already trying to recover from the rollover effect of the drought. And now, even while we are at Level 1 with most businesses operating as usual, we’re still not allowed to sell alcohol for off-consumption over weekends. The effect on the wine industry in particular, where weekend wine tastings at wine farms drive much of local sales, is significant.
The state of the industry, excess wine in the cellar and a decline in sales volumes are well documented and regularly discussed. A call to help SA wine has been quite successful urging international consumers via social media to support the industry and local retailers such as Checkers introduced initiatives such as Pour it for your country, focusing on the industry’s role in job creation, upliftment and sustainability.
SA wine felt the love and support – in sales and especially in sentiment. What I have been noticing, however, is consumer expectations for wine at discount prices. Of course I understand the consumer’s price sensitivity. Everyone has been hard hit. Some lost their jobs, others took pay cuts and most entrepreneurs and business owners report a definite decline. But let’s not forget that the wine industry is also price sensitive. We have not been making good money for a long time, we’ve been harder hit than most by Covid and at the moment, we are fighting to meet our customers halfway, to keep the very important retail business happy, to support the restaurant scene, to stay competitive, to maintain our online energy, to reserve our international shelf space and to keep paying staff’s salaries. We are trying to stay afloat and to survive the storm and it is no easy feat.
Is wine too expensive for locals? This question is also asked about tourism. Except for the local premium segment, much of holidaying in South Africa has been out of the financial reach of many South Africans. With the absence of international guests, tourism and hospitality have the opportunity to develop something that is attractive and affordable to locals. Sticking to inflated prices might put them out of business. Does the same apply for wine? I think not. Except for a few premium brands, South African wine prices are not inflated. In fact, many might tell you that they are too low.
Much hard work has been done at changing the international perception of South African wine. A weak Rand, however, keeps global entry-level pricing, promotional deals and bulk wine shipments attractive and many wines are still sold at prices that support the image of SA being cheap and cheerful. With our economy under pressure, the local market also demands very competitive pricing. Add Covid to the story and it is easy to understand that South Africans are looking for discount deals. Consumers know that wine is in a hot spot and one understands the expectation for special pricing. There are exceptional deals on South African wine at the moment – in the retail and at the wineries. It’s definitely a buyer’s market. But, while all support is appreciated, I can’t help but worry that when selling at too low prices, we might be selling ourselves into even more trouble.