Despite a drop in sales the UK remains an appreciative market for South African wines. Laura Clark finds that opportunities still exist for producers who put quality ahead of short-term volume gains
Read any article about South African wines and you won't get far without being confronted by the words "struggling", "slump" and "decline". Engage someone in conversation about the state of the Cape wine category, and you'll soon hear Kumala being blamed for last year's double-digit drop in UK sales.
Such finger-pointing is nothing new, and neither is the argument that the country's lack of a clearly defined branded message has resulted in South African wines losing extensive space on retailers' shelves.
And once you've gone down the route of why sales fell by 11 per cent in the UK by volume and value (Nielsen to Dec 31 2006), a discussion about possible ways to revive the UK market will soon follow.
Despite covering such ground as the merits of Wines of South Africa's biodiversity message, whether Cape stalwarts Chenin Blanc and Pinotage can be the grapes that draw UK punters back into the category, or if black economic empowerment is a strong enough hook to capture the UK's attention, such considerations overlook the one question all South African producers must inevitably be asking themselves - has the time come for South Africa to abandon the UK as its main export market?
Winemaker Matthew van Heerden, from Stellenbosch-based Uva Mira, believes America is becoming an increasingly attractive export destination. "If you look at the US market, it's doing wonders there. Consumers like the wines and take us very seriously.
"The UK and the US are two very different beasts, and a lot of people are saying bugger the UK and concentrate on the US," he says.
Traditionally the Cape's major export market has been the UK, followed by Germany and the Netherlands. Globally exports from South Africa fell by 3.5 per cent in 2006, which was attributed to the UK's tumbling sales and, to a lesser degree, a shift towards shipping in bulk.
Compared with the UK, which saw a decrease in exports, Germany, Sweden and Denmark all experienced growth, demonstrating that it's becoming increasingly profitable to sell in these new emerging markets rather than persevere with the UK's tough trading conditions.
Cloof's commercial director Oscar Foulkes warns that other countries are becoming progressively more interested in the Cape's offering. "I think the UK may wake up one day and find that the really interesting South African wines have been snapped up by the US, Canada and various European markets," he says.
UK agent Percy Fox announced last week that it has stopped distributing its Cape brand Two Oceans after seeing South Africa fall further behind Italy and the US - the two countries that were just ahead of it in the off-trade. "We couldn't justify keeping it because of the difficulties in South Africa at the moment," says marketing manager Colin Cameron.
He adds: "South Africa is still struggling as a category. Whil e we're sad to take that decision because of all that time we've put into it, from the business side of things we have to play to the strengths in our portfolio. The category is just too difficult to play in at the moment."
Addressing producers at a WOSA-hosted seminar provocatively entitled Why Bother With the UK? , held in Stellenbosch last March on the eve of the organisation's biennial Cape Wine 2006 exhibition, new Orbital Wines managing director Mike Paul urged South African producers to continue selling in the UK. Speaking in his capacity as chairman of WOSA UK Importers' Committee, he said: "South Africa has gone from nowhere in the UK market to fifth position, selling 10 million cases of wine in the UK every year. Don't throw that away."
One year on is the message still the same, or is it finally time to recognise that emerging markets could be more lucrative options than the UK for South African producers?
"It's tough . We are certainly at the end of any honeymoon period that we may have enjoyed in the past," admits WOSA's market manager Jo Mason.
While acknowledging that trading conditions are challenging in the UK, Mason is positive about South Africa's long-term future. "South Africa continues to have a committed group of producers determined to ensure sales of South African wines are successful in this market," Mason says. "There is a feeling in the retail sector that South Africa can deliver. South Africa can and will rise to the challenge."
The category has been too reliant on a small number of brands in the past, according to Mason. "You only need to look at the success of brands such as First Cape, Pearly Bay, Spier and Beyerskloof to see that there is room in the market for more strong brands, and not just at entry-point price. The South African industry is very vibrant and we will see that coming through in a greater number of brands."
DGB, which owns the Douglas Green, Bellingham and Boschendal brands, is among the producers that saw the fall in sales as a call to action. To demonstrate its commitment to the UK market, it set up a UK-based office at the end of last year.
Jan van der Merwe, DGB's international manager, describes the decision to strengthen its presence in the UK as a "very bold move" for the company. "At the time a lot of South African offices were closing in the UK. It's expensive to operate in the UK but so far it's been really good for us, securing us new listings with the Co-op and Tesco," he says.
DGB is now launching an eight-strong range of Estate wines for its Bellingham brand, which includes an entry level Chenin Blanc/Viognier 2007 and a Shiraz/Cabernet Sauvignon 2005, retailing at £5.99. Its mid-tier range will sell at £7.99 and includes Sauvignon Blanc With a Dash of Semillon 2007 , Chardonnay With a Splash of Viognier 2006, Pinotage With a Dash of Petit Verdot 2005, Shiraz With a Dash of Viognier 2005, Merlot With a Dash of Malbec 2005 and Cabernet Sauvignon With a Splash of Cabernet Franc 2005.
The winemaking team at the Flagstone winery in Somerset West are also among the Cape producers who have recognised that the UK still offers worthwhile opportunities, provided wineries research the market and the needs of the UK customer. "The UK market is the most mature wine market in the world and one of the most sophisticated," says winemaker Bruce Jack. Earlier this year Flagstone opened up a UK office, run by ex-Western Wines employees Suzanne Strain and Ed Adams.
For Ross Hobbs, Simonsig marketing director, the UK is also an important investment market for South African producers because of consumer s' knowledge of different wine styles and varietals. "The UK wine consumer is knowledgeable and has a high interest in wine; we must always look at the UK market as being a benchmark for us. The market in the UK is Simonsig's biggest overseas market strategically," Hobbs says.
A wake-up call
The reality of South Africa losing more than a million cases in the UK last year has been a wake up call for many producers and has helped cement the ambitions of those with a serious and long-term commitment to the UK.
Foulkes stresses that it is possible to export profitably, provided producers come to market with a well-conceived proposition.
"South African producers generally are still trying to get beyond that early-90s mentality of selling at a low price and hoping that the devaluation of the rand will lead to a price increase. The above-a-fiver category remains the holy grail," he says.
Cloof's latest proposition is a trio of wines targeted specifically at the off-trade. The Dark Side 2006 is a Cabernet/Shiraz blend, which is joined by Pinotage-based Cloof Inkspot Vin Noir 2005 and The Very Sexy Shiraz 2005.
"It's hard not to take the UK seriously when it's a market that is already so appreciative of South African wines . You have to fish where the fish are," Foulkes adds.
Van Heerden warns that producers should not be hasty in withdrawing from the UK: "It's important to carry on in each market . People make the mistake of pulling out completely. The UK is still the wine mecca of the world and an important market to be in."
He adds that South African brands are being hyped up in the emerging US market, but says: "The tie with the UK has been around for a long time and you've got to continue that."
But what about the brand that has become a scapegoat for South Africa's slump in sales - is Kumala still committed to the UK market despite seeing its sales plummet by more than 26 per cent by volume last year?
"We want to get back in the driving seat and drive the category again," says James Reid, Constellation's operations director. To ensure regeneration of sales in the UK, Constellation (which took on Kumala last year during its acquisition of Western Wines) has announced a £5 million marketing push for the brand.
Running with the strapline Let the Adventure Begin, it is aimed at young professionals and includes the introduction of new wines and revamped packaging, a 12-month sponsorship of London radio station Heart 106.2's Club Classics, press advertising and branded taxis. The consumer campaign is expected to reach 2 million people in and around London over the next year.
"We're trying to identify a part of what is unique about this country and how we are going to differentiate South Africa from, say, Australia. The more brands that are spearheading the category the better," Reid adds.
Australia's 2007 harvest could have a positive effect on Cape wines sales in the UK, according to Reid. "We want to be selling more wines off promotion, maybe the Australia situation will change the dynamic," he says.
With figures predicting that the Australian harvest could be down by as much as 45 per cent, South African wines will certainly benefit from the soaring Aussie prices and, as retailers find themselves unable to have promotional activity around Australia, consumers will no doubt look to other countries such as South Africa.
Far from seeing the signs that emerging markets such as Germany, the Netherlands and the USA could be more lucrative options than the UK for South African producers, it's apparent that there are opportunities in the UK market for growth of solid brands in the £5-£10 price bracket. "All of us want to be in the UK even though it's the market where there's the smallest margins. To expose the brand and get it recognised internationally it's very important to be in the UK," says Vergelegen managing director Gerrie Wagener.
Despite an increasing squeeze on producers' margins from the big retail chains, it's clear there is no let-up in the enthusiasm in the South African wine industry and that producers are committed to sticking to the UK. And, provided producers focus on quality, avoid short-term volume gains and aren't reactionary to price, South Africa can sit at the cutting edge of the world's most exciting wines.
What's new? A round-up of this year's South African wine news
Winecorp has sold its Longridge range and winery to focus on the Spier brand. The new owner is Aldo van der Laan, who owns Zwanenberg Food Group in the Netherlands. Spier has also revamped its Inspire range and launched a range called Colours.
Stormhoek has launched Couture rosé 2007, a Pinotage/Shiraz/Cabernet Sauvignon blend developed by winemaker Graham Know to be served over ice. A new premium wine range called Stormhoek Estate Vineyards made up of Mountainside Chenin Blanc, Middlehead Viognier, Sixteen Barrels Semillon, Fireflies Cabernet Sauvignon and Guava Pinotage has been rolled out. It has also launched a six-strong range called Jack & Knox, created by winemakers Bruce Jack and Graham Knox, which includes The Outsider Shiraz 2004 and Frontline Riesling.
Bottle Green has added African Dawn to its portfolio. Endorsed by the World Wildlife Fund, it's the first wine to hit the UK with a Forest Stewardship Council approved natural cork and label paper.
Stellenbosch-based Beau Joubert has launched an entry-level Oak Lane Chenin Blanc/Sauvignon Blanc and a premium range made up of a Sauvignon Blanc 2007, Chardonnay 2006, Merlot 2004, Cabernet Sauvignon 2004, Merlot/Cabernet Sauvignon 2005 and a Pinot Noir rosé 2006. A Shiraz will join the line-up later this year.
Stratford's has acquired the De Grendel winery, which has one of the coolest climates in the Western Cape. Winifred Semillon/Chardonnay/Viognier and a Pinotage rosé have been launched.
For every bottle of No House wine sold by UK distributor Roger Harris Wines, 17p goes towards providing new homes for AIDS orphans in South Africa. Making its debut at the LIWSF, the range consists of a Pinotage rosé, Cabernet Merlot and Chenin Blanc.
As part of a push towards what it calls grab-and-go convenience, the Company of Wine People introduced a six-pack and a ready-for-retail tray of its 25cl Arniston Bay bottles.
Thierry's has rolled out redesigned packaging and a new rosé bag-in-box for its Cape Grace range.
Hayman Barwell Jones has launched Rozier's Pioneer 2004, a Merlot/Cabernet Sauvignon/Shiraz blend (£9.99) and its first sparkling rosé from the Eikendal Winery.
Brand Phoenix's joint venture brand First Cape has thrown its weight behind lower-alcohol wine with the launch of Café Collection. Rolling out in the autumn, it will retail at £4.79 and includes a Chenin Blanc and a Semillon (9 per cent abv), and a Sousao (10 per cent). First Cape has also added a Pinot Grigio to its Limited Release range and added screwcaps to its mid-tier range. A premium range called Millstone, featuring dual-varietal blends including a Pinot Grigio/Semillon, a Chardonnay/Viognier, a Shiraz/Grenache and a Shiraz/Sangiovese, will be launched in the UK market September, according to the company.