The outlook for SA wine sector is strong but the right skills are key
to continued successful competition in global wine industry
An industry outlook 2010 – 2012
By Michael Morgan
The South African wine industry entered 2010 in a buoyant mood, thanks in part to the news
that sales of South African wines overtook French for the first time in the UK wine market in
terms of volume in the year to January 23, 2010. The prospect of the FIFA World Cup in
June was also lifting the profile of South Africa in the global marketplace.
A large part of this buoyancy has to do with the fact that, in recent years, the industry has
been polishing up its marketing and business acumen. Courses like the Postgraduate
Diploma and Masters in Wine Business Management offered by the UCT Graduate School
of Business – the first of their kind for the sector – have played a crucial role in readying the
sector to take advantage of global opportunities.
The Wine Business Management Programme, run by the UCT GSB’s Corporate Learning
division, is designed to develop managers who are able to manage for value creation and
the complexity that accompanies this in the South African wine industry and international
marketplace.
According to Tom Ryan, Director of the Wine Business Management Programme at the UCT
GSB, the Programme takes a unique approach which facilitates holistic learning not only at a
theoretical level, but also through experience and at peer-to-peer level.
“Students are given the tools to move from an operational mindset into a strategic one –
giving them the skills to analyse the whole value chain, and create value in the long-term,”
says Ryan.
The pedagogical model used on the programme embodies systems thinking and action
learning.
“Systems thinking enables people to see systems from a broad perspective that includes
seeing overall structures, patterns and cycles in systems, rather than seeing only specific
events in the system. This broad view can help one to quickly identify the real causes of
issues in organisations and know just where to work to address them. Action learning allows
students to continue to work while they study and make a direct impact in their workplaces.
The synthesis of these two elements is what we call SYSTAL,” explains Ryan.
The Postgraduate Diploma curriculum consists of four modules, each consisting of a short
residential period followed by an inter-modular project period back in the workplace. The
programme is delivered over a 24-month period, making allowance for the harvest period. Its
Academic Director is Chris du Toit, Financial and Business Manager at Rustenberg Wines,
himself a graduate of the Postgraduate Diploma and the Masters degree at the GSB.
Michael Fridjhon, a visiting professor at the UCT GSB and South Africa’s leading wine
industry expert, says there are opportunities for South African wine producers to further grow
in the global marketplace, but taking these requires a comprehensive understanding of both
the technical side of production as well as the business side and marketing – this, he says, is
what the GSB programme has been designed to achieve.
“I’ve been involved with the UCT GSB programme from the very beginning, when, as
Chairman of the South African Wine Industry Trust I put the respective parties in touch with
each other. There was a real gap at the time, with no wine industry specific programmes of
this nature. Generalist management programmes were not adequately preparing managers
for the specific intricacies of the wine industry. It was then that the GSB, through consultation
with the industry and in partnership with the University of Adelaide, developed this valuable
programme.”
Fridjhon adds that having input from the University of Adelaide, a leading wine industry
education provider in the southern hemisphere, to help design the programme was
invaluable.
Simon Barlow, Owner of Rustenberg Wines and also part of the team that conceptualised
the GSB programme, concurs with Fridjhon that the GSB programme is making a
tremendous contribution. “There is a huge need and hunger for a programme of this nature
in the industry,” he says.
“We were seeing guys come in from outside the industry to manage and felt that we needed
to nurture people from the inside. The wine industry has unique complexities. Those coming
in from the outside have little idea of these, and take a long time to get to grips with it.”
He adds that the GSB programme is excellent in opening up the eyes of people in the local
industry to the global market. It’s amazing to have the international element on the
programme – if we want to improve our position in export markets we have to fully
understand what other players are doing and the complexities of the export markets. The
GSB programme puts all the complex facets of the industry together to create a holistic point
of view. Those that emerge from the programme are thus hugely employable. It’s only with
the right expertise and skills that we’ll get above the competition,” says Barlow.
Today, Fridjhon says opportunities in the global marketplace for South Africa have opened
up partly due to the Australian industry experiencing troubles with drought and oversupply.
“Five years ago the industry was in fulltime boom – there was worldwide growth. Australia
had produced its 2025 strategic plan and by 2005 had achieved many of its goals. But
drought and recession over the past few years have led to dramatic problems. Australia now
has 100 million cases in oversupply – or 1 billion litres. Its surplus is bigger than SA’s wine
production, just to put it in perspective,” says Fridjhon.
Reflecting on the state of the global market, he adds that the EU has also made a shift in
strategy regarding relatively cheap table wine. Other EU countries have been getting
planting permits at the expense of the French. Spain has been a big winner, with the La
Mancha region near Madrid adding significant volumes to Spain's export capacity.
However, the European market – outside the highly discounted supermarket sector – is also
becoming keener on boutique or artisanal wines and that places South Africa in a better
position, explains Fridjhon.
“Over the last few years in SA, we have improved our act – we have healthy vineyards and
better quality. But while we have upped our export profile, we are not in an oversupply
position like Australia. What we have in South Africa is an industry healthier than ever – we
are in a position undreamed of five years ago.”
Fridjhon adds that there are, however, challenges. These include (at present) a strong Rand
– often leading to losses on fixed price point exports, a recessionary consumer market in
the UK and US (making it difficult to push up these price points), and a flat local market.
Barlow adds that South African producers are better off because they were slightly more
cautious.
He shares Fridjhon’s assessment that South African producers are well positioned at the
moment, but also shares the concern that the margins are very tight in the UK market.
“I think the quality of wine has been stepped up greatly, but there is resistance to price
increases. People want really good quality wine at a good price. I think we can deliver that,
but it will take the right expertise and strategies to raise our brands so that margins improve.”
CEO of KWV, Thys Loubser, also an advocate of the GSB programme who has sent staff on
the Postgraduate Diploma, agrees, saying that despite SA overtaking France as a UK
supplier, we are still at the low end of the market in terms of pricing.
“The UK market has always been important. We are doing well on volumes but margins are
low – I agree that we need to work hard at raising our brands.”
But the UK market is not the only export market of potential for South Africa. The industry
leaders point to other key regions as key for the local industry.
Barlow says that ‘Brand SA’ has struggled in the US market in the past, but that the FIFA
World Cup has done the wine industry a favour.
“I think there is a lot more awareness. It’s a massive market we haven’t scratched yet. China
is a massive market as well and other countries have stolen a march on us. We can’t afford
not to be there,’ says Barlow.
There is potential in the Far East, confirms Fridjhon. “I do work in Hong Kong and we don’t
yet have a great profile there. Chile is the low cost supplier to that market and SA wines are
priced in the middle range. But we have friends and allies there and we could profitably work
that market. We can also use it as a springboard to mainland China, where we can certainly
move more volume,” he says.
Loubser points to the success achieved by KWV brands beyond the UK market as examples
of the possibilities, citing the rest of Europe, including Scandinavia and Eastern Europe,
Canada, Japan, and the rest of Africa – which he says has good growth potential – as areas
in which his brands are doing well. He adds that it is also important to actually go to foreign
markets and spend time experiencing the culture and get to know the people.
Despite these possibilities for South African wine producers, there are other challenges to
overcome.
One of the biggest challenges is the explosion of producers globally and locally. So it has
become harder locally and internationally to achieve brand differentiation.
Fridjhon points to challenges in the value chain such as the price of prestige property; an
inefficient relationship with labour – labour is a potential asset in South Africa which we still
don’t value as we should; the slow response to meet the expectations of the market (such as
for organic wines); inefficient packaging suppliers; and a persistent divide amongst the
industry’s older generation between viticulture, regarded as blue-collar work, and winemaking, regarded as white collar work.
Paul Cluver, Managing Director of Paul Cluver Wines, agrees that the value chain is an
important area that needs to be managed well, saying that this will determine the success or
failure of many wineries.
He adds that skills are also a key element. “The challenge that the wine business has is not
dissimilar to other industries when it comes to talent – it is critical to retain and develop talent
to grow. If we don’t we will fall behind in a competitive global market.”
Addressing these challenges and opportunities will not be easy, but the industry leaders are
confident that education will play a vital part in the South African industry’s growth. This is
supported by those who have emerged as graduates from the GSB programme.
JC Bekker, chief winemaker of DGB – South Africa's largest independent wine and spirit
producer and distributor – says that, as a technically trained person in viticulture and
winemaking, the Postgraduate Diploma shook his perceptions of what the wine business
was all about.
“As a viticulturist I believed it was all about the grape, but turning winemaker I learned that
it’s not just about the grape or the wine quality, but a multitude of other factors which you
need to take into consideration. The Diploma gave me a great understanding of these
business skills, value chain factors and market facets. Those students that came from
business backgrounds gained a great understanding of the technical aspects and what it
takes to produce a great product,” says Bekker.
Ends
Media interested in an interview or more information can contact Jane Notten or
Michael Morgan on 021 448 9465 or email info@rothko.co.za.