SIMON BROWN: Chatting now with Rico Basson, MD at Vinpro, chatting around the wine industry and how it’s coming on. Rico, I appreciate the early morning time. How was 2021? I mean, obviously in 2020 with all the lockdowns you just couldn’t sell alcohol; 2021 was better in many senses. I’m assuming it picked up. Are we back at pre-pandemic levels in terms of sales yet?
RICO BASSON: Good morning. Yes, it has been a rollercoaster ride. I think that’s the best way to describe it, because the sector has lost 200 trading days over the last 20 months. So that’s been massive. Um, 2021 has been better. You remember, we still had an alcohol ban along the way. Um, at the moment we are dealing with massive structural challenges: a shortage of glass, massive court issues still, and a hike in input costs of about 15% at farm level. And then obviously illicit trade. So that’s a long list we can go on [and on] with that. Exports did better than we expected – I think that’s a positive green shoot. We are not yet where we want to be. But I think if I say ‘better’, it grew by 25% off a lower base. But in value, I think that was positive to, see [exports] now up to about R10.2 billion if we talk [about] FOB.
And I think, which was promising, is that that growth took part in five markets: in the UK most certainly. But I think promisingly [in] Africa. We saw Nigeria, Kenya, Tanzania doing far better, the US and then in China where I think we really captured, uh, some of the tariff disputes between Australia and China in terms of wine. So I think that was positive. Domestically, much the same numbers when we talk percentages. But no, I think we are not back to where we were.
I think, it’s best to [say] the sector is in revival and recovery mode.
And it will take some time, I think, before we are back to where we were – three, four years, most certainly, unless one could get the kind of dispensation that we are talking to government about at the moment.
SIMON BROWN: What is the dispensation you’re talking to government around?
RICO BASSON: I think in terms of excise most certainly … in my view, the sector is at a stage where, unless it gets, a master plan intervention around a number of aspects, it’s gonna struggle. So we’ve got a position on excise taxation, what was put forward on things like minimum wage, obviously Eskom. But I think the Cape Town port is one of those massive challenges – we know all about it. And then I think political will. In a number of cases, we’ve got trade agreements with the EU. There is specific quotas attached to that in terms of bulk and package split. And, and we think that we’d like to see that changed, that we could export a lot more of the surplus short term without, uh, losing jobs necessarily.
So there’s an array of interventions …. Then illicit trade Simon, which is just absolutely out of control at the moment. It is all about enforcements.
If you think pre-pandemic one in seven litres were illicit, it’s now one in four. So 22% of all the alcohol is illicit.
So, yes, as I say, a number of, challenges.
But green shoots: a lot of innovation coming through. Your previous interview spoke about retailers. E-commerce just took off and I think structurally [it’s] here to stay. We see a number of mergers and acquisitions, foreign investment coming into the sector, which, goes against, I suppose popular belief. And so I think it’s striking a balance to get the demand side back, be far more competitive on the cost side and then readjusting, repositioning on these business models. But, yes, we [are] just going into the 2022 harvest as we speak.
In the next two, three months we will be harvesting the 2022 crop and [while the] crop is smaller, it looks promising in quality.
So yeah, some positivity, but a long haul, I think, to recovery.
SIMON BROWN: And what is the state of the market? I mean, I’m old school, I’m a wine drinker. But [in] a lot of folks coming through – the younger generation – there’s gin, there’s a lot more competition, I suppose, for that evening alcoholic beverage?
RICO BASSON: Yes. I think if there was one positive thing from Covid trends, then it is home consumption. And I think in terms of home consumption, it’s positive for wine specifically, and for what I would call the ‘white spirits’ category e.g. gin most certainly. So I think on that trend, there is something to build on: that is a reset in consumer trends. The domestic economy is still tough – so trading [is] down. Remember, wine is still a FMCG and that means innovation [needs] to come through to get that. So, yes, we are seeing that wine brands with distribution did 20% better than others. But it is a tough market domestically and it’s probably not going to recover overnight.
Wine tourism, specifically the international tourists that have not recovered [in numbers], does have a big impact – especially the smaller wineries sell up to 40% over the counter to these tourists. So that is a big revenue stream for the smaller wineries. Remember there’s about 530 wineries.
And then as I say, internationally we are up in an extremely competitive environment. We have gained from, I suppose the struggles of the likes of New Zealand who didn’t have a big sauvignon blanc crop, and had drought and frost in other areas.
But I think the repositioning into new markets, Simon, and with that market access support, is the way to go. And I think that’s where the focus is at the moment.
SIMON BROWN: I take [your point] there’s some opportunity there. You mentioned New Zealand, and Australia – I’d forgotten about that. Of course, the Australia and China tiff it meant we could suddenly sell into that market and introduce our wines. In a sense, we’ve got a base in South Africa, we’ve got the wine tourism – it’ll come back in time. The huge growth, is it fair to say, is going to come from that export business?
RICO BASSON: I think we’ll have a sector that will be more export focused, I think more premiumized focus and then strong wine tourism. We, we are dealing with a number of alcohol policy interventions proposed by government. I think that all of that should be negotiated and discussed. I think some of those proposals will lead to massive implications, some unintended consequences. So it depends. I think it’s all about certainty, I suppose and reestablishing that investor confidence. … we tend to forget about our domestic tourists. They have been our saving grace for the last year or two, when we could travel. But [the] global market is very important for us. And then locally, a more conducive and certain policy framework with enforcements [is needed].
SIMON BROWN: With enforcement: 22% illegal is a staggering number. Rico Basson, MD at VinPro, I appreciate the time this morning.