Wine industry inching back to pre-Covid levels

Despite high stock levels resulting in price pressures.
Wine producers’ profitability is subdued due to a sharp increase in input costs, and low wine prices and consumer spending. Image: Noriko Hayashi/Bloomberg

Major representative of local wine producers Vinpro anticipates the sector will contribute R5.7 billion towards the country’s gross domestic product (GDP) by the end of 2022.

The organisation says the sector will take between two and three years to recover to pre-Covid levels, following two years of disruptions which included domestic alcohol sale bans and global trade barriers.

Read: The devastating effect of lockdowns on SA’s wine industry

It reports that the wine tourism industry, which contributed R7.2 billion to GDP in 2019, only contributed R2.7 billion in 2020 and R4.1 billion in 2021.

It says the wine tourism sector lost 70% of its value during the Covid-19 pandemic, resulting in unsold excess stock of an estimated 200 million litres.

Yvette van der Merwe, executive manager at the South African Wine Industry Information and Systems (Sawis), says the industry has resorted to reallocating excess products to non-alcoholic segments in a bid to reduce the surplus through alternative usage including in cocktails, vinegar and food.

Moreover, Vinpro noted in a statement that wine producers’ profitability remains significantly low due to a sharp increase in input costs, while wine prices and consumer spending remains low.

Sawis anticipates that wine prices will only start stabilising towards 2024.

“Grape producers’ input costs have over the past decade increased on average by 7% per year, while a 14% increase is expected in 2022 at farm level due to the global exponential rise in energy, chemical and fertiliser prices,” says Vinpro MD Rico Basson.

He says shipping and packaging costs have also soared due to local and global infrastructure and shipping constraints.

Basson indicated to Moneyweb that the industry also saw illicit wine sales, including counterfeiting, smuggling, tax evasion and illegal homebrewing, grow from 17% before Covid-19 to around 22% over the course of the pandemic.

“This translates to about R11 billion lost in taxes during the period due to illicit sales.”

Despite financial pressures hampering reinvestments, he says winemakers are prioritising renewed capital expenditure and foreign direct investment.

“There is a continued interest globally in South African Sauvignon Blanc, Chardonnay and red blends,” adds Siobhan Thompson, chief executive officer at Wines of South Africa (WoSA).

“It’s positive to see export recovery and growth, especially in focus markets such as the US, Canada, Africa and China, notwithstanding severe disruptions at the Cape Town Port Terminal and global shipping constraints.”

Vinpro reported that South Africa’s total wine export volume grew by 22% to 388 million litres in 2021, with the export value increasing by 12% to R10.2 billion.

“We’re inching our way back from complete loss of the international tourism market during Covid-19, which comprises a third of our visitors and revenue,” says Vinpro wine tourism manager Marisah Nieuwoudt.

Read: Wine industry: Ban lifted a little too late

Nieuwoudt says although international visitor numbers remain low, especially for mid-week travel, wine tourism destinations are seeing new hirings, product launches and events.

SMEs tough it out

Kamogelo Lesabe, CEO of local wine brand Stained Wines, says the company, which started in 2016, has reached its pre-Covid revenue sales due to the low-cost business and distribution model. “We were back to pre-Covid operations in under six months after the ban was lifted.

“One of the advantages of being a small and growing business is the ability to be agile in the midst of challenges, and we acted swiftly to ensure minimal to almost no impact. A key thing it [the pandemic] afforded us was the vacuum we needed to introduce the rebranded version of Stained Wines, in line with our 10-year growth plan in the local and export market.”

Read: Alcohol bans force SA wineries to rethink trade plans

Gin and hot beverage company Vuttomi Liquids started operating towards the end of 2019. Co-founder and owner Nonhlanhla Dipshego says despite Covid-related disruptions, she did not have significant expectations for revenue sales.

“It is about getting exposure, especially because we’re still in the first four years of operations. I’m expecting the brand to grow as the industry recovers naturally.

“But I know for a fact that it is going to be a difficult recovery because a lot of brands are fighting for shelf space.”

Proudly South African CEO Eustace Mashimbye says there are many mechanisms of support the industry needs to aid its recovery. “Less popular brands continue to struggle, and it is not a Covid problem, but an issue of accessing the market.”

Basson says the industry’s 2025 revised Wine Industry Strategic Exercise (Wise) plan will facilitate a more conducive production and trading environment for wine within the broader agricultural sector, if implemented.

Nondumiso Lehutso is a Moneyweb intern.

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