South African bulk wine takes a tumble as exporters play up premium

By Jo Gilbert

Published: 24 February, 2017

New data shows that bulk wine diminishing in volume and value dogged the success of South African wine in the UK in 2016.

For the 12 months to December 31, value growth to the UK rose by 1% to R1,704m, but this picture of positive sales growth was marred by sales of bulk wine in the UK, which took an 8% tumble by volume and 14% by value.

Overall volume of South African wine to the UK fell by 7% as did packaged volume (-6%), but packaged value grew by 8%.

This was helped in part by a favourable rand/sterling exchange rate which helped the total rand per litre price for exports to the UK rise by 9%.

Last year marks the first year that Wines of South Africa (WOSA) have extracted value data for exports.

A glance at volume data shows progressive decline over the past two years, falling 2% in 2015 and 7% in 2016.

Jo Wehring, WOSA's UK market manager, said the data is in keeping with the industry strategy to grow value, especially in established European markets.

"Against a drop in volume, we're seeing overall value growth and more so in packaged exports," said Wehring.

"We want bulk wine sales to increase, but wouldn't expect South African bulk wine to grow at the same rate as packaged. South Africa isn't a big volume producer. The industry needs profitability, which is true across all export markets.

"The rand price per litre rising by 9% overall and 15% for packaged shows increased value growth in the mid-to-premium end."

Sales in the UK on-trade were more positive in the UK last year compared to the off-trade.

According to Nielsen, South Africa declined by 7% in both value and volume in 2016 in the off-trade.

Conversely, volume rose by 4% and value by 8% in the on-trade (CGA Strategy).

The fall in off-trade sales could reflect the dip in bulk wine as well as range reductions undertaken by supermarkets like Tesco and Morrisons.

The same disparity between volume and value continued internationally for South Africa in 2016.

Global value exports rose 9.8% to R9 billion, while volume exports increased 2% to 428.5 million litres.

Garreth Anderson, managing director of DBG which imports only packaged wine, said he had seen growth at the premium end.

"This trend is continuing so far in 2017 but there are challenges ahead. Profitability and the sustainability of growers is an industry challenge, and a supply / demand imbalance of key varietals needs to be managed," he said.

In terms of global popularity, white wine still leads South Africa in value growth with Chenin Blanc at the top, closely followed by Sauvignon Blanc and Chardonnay. Shiraz leads red wine volume exports, but Pinotage showed the highest value growth in the reds, up 20%.

Bulk wine sales to the UK have slowed, but investment has continued.

Earlier this month, the family-run team behind the now defunct Western Wines recently resurrected their Cape Wine Exporters (CWE) concept to begin shipping bulk South African wine to the UK.

Led by Rollo Gabb, the project will produce, blend and procure bulk in South Africa for sale in both the domestic and international market.

CWE will focus primarily on the UK during its launch phase thanks to a favourable exchange rate, helped by the weakening of sterling in mid-to-late 2016 and the effect of currency fluctuations opening up opportunities for exporters outside of Europe.

"Broadly speaking, there is an opportunity for South Africa at the moment," said Wehring.

"In 2016, the rand stayed more stable against sterling compared to competitor countries. So, South Africa is increasingly looking towards the UK."

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