Grape of Good Hope: South Africa’s Winemakers are on the Way Up
For a country known for its love of beer, South Africa’s wine industry is giving everyone a run for their money.
The country is now the world’s seventh largest producer of wine, accounting for 4% of global production. Collectors are developing a taste for what this nation’s vineyards has to offer.
Total exports went up by 5% in 2015, and overseas demand shows no signs of slowing. Moreover, this year is shaping up to be even better than the last, as South African wines continue to win new fans in different places. The country’s wine industry currently employs around 300,000 people, making it the biggest job provider in the agricultural sector.
Even with this success, though, the wines still aren’t popular back home. South Africans drink ten times more beer than wine, so demand is minimal. Local profit margins are small as well, at a mere 2%. This is an industry that thrives almost exclusively on exports, as it attempts to carve a niche for itself in the world market.
Grape of Good Hope
Why has South African wine earned the fascination of enthusiasts from around the world? The country has been growing wine since 1659, as we discussed in a previous post, but saw a strong rise in both quality and numbers only at the start of the 21st century. Over the last decade, the industry was able to build its reputation as an excellent producer of delicious vino.
Perhaps most notably, its wines are very diverse and come in many styles. The sheer breadth is exciting to wine lovers, as there is always something new for them to discover and add to their collection. This variety has its disadvantages too, however; there aren’t any wines that truly stand out as being the country’s signature product. Nevertheless, the selection is impressive.
Franschhoek in the Western Cape Province produces excellent Syrah, while Stellenbosch is known for superb Bordeaux-style blends. The Méthode Cap Classique is an excellent sparkling wine made in the traditional Champagne style, and is the country’s most common fizz.
With such a line-up to choose from, there is little wonder South African wine is winning praise from critics. The next several years could see more of the nation’s delicious, unique wines coming to distant shores.
South Africa’s Biggest Customers
Among the international markets enamoured with South African wine, the US and UK are two of the biggest. Several winemakers have even managed to enter California, the centre of the US wine world, while others try their luck in states like Texas or New York. The rest of Africa also imports a fair bit, making South Africa the continent’s leading producer.
China is possibly the most important market, as South African exports rose by 40% in the previous year alone. Asia’s biggest country has a growing middle class, with a lot of people who are interested in wines but aren’t quite willing to pay premium yet.
As such, South African products have built a strong niche, providing comparable quality to European blends at a lower price. Winemakers can look forward to high sales volumes here, but may face tough competition and lower profit margins.
Future Challenges and Uncertainty
While South African winemakers have demonstrated that they have what it takes to be globally competitive, they do have some concerns.
In particular, the nation’s slumping economy could hurt their bottom line, and even put some vineyards out of business. A thriving global demand for the country’s wine doesn’t mean much in the face of a weakening Rand, which Wines of South Africa CEO Siobhan Thompson warns could significantly increase production costs.
Low purchasing power makes acquiring essentials like equipment, corks, and barrels (items that are often imported) at a reasonable price very difficult for winemakers. The barrier to entry for new vineyards is high and a significant investment is required, especially since there is almost no domestic customer base to gradually build upon.
High inflation also cuts deep into their profit margins. Labour costs rise, and the wines themselves end up appearing cheap on the world market. The latter might be helpful right now for high volume, non-premium sellers, but it will have severe long term effects on how customers perceive the value of South African wines. If this continues, high end producers will struggle to build a luxury brand.
Marketing is another area that is sorely affected by the weak local currency. Winemakers either have to cut back on their efforts, or spend far more to achieve the same results. In an industry where recognition is everything, this could prove disastrous.
South African wine certainly has potential, but it remains to be seen how much of an impact its struggling economy will have on actual production. In the meantime, collectors are advised to give its blends a try to see what all of the fuss is about. Have you sampled a bottle of South Africa’s finest yet?