Friday, November 18, 2011

Can Family Wineries survive??

A question that some might frown and wonder why I even ask, because all the wine farms are owned by families is it not?? The sad reality is that it’s not! My classification for a Family Owned Winery is at least two Generations had to be on the Estate, or 25 years or more under ownership and that their main business must be Wine. Does this change the picture a bit??
Looking at the amount of wineries being liquidated or sold to companies or wealthy foreigners is alarming. I have always said that the Robertson Wine Valley must be one of the most unique in the world being almost 100% Family Owned. Some of the Families have been on the property for Six Generations and more i.e Rietvallei Estate, Zandvliet Estate, Excelsior Estate, Wonderfontein etc. from the 1860 – 1870’s.  Although the area is not as old as Constantia, Stellenbosch or Franschhoek it has some of the oldest farms still under Family Ownership. But this is not a blog to promote Robertson. It is about the position that the Wine Industry finds itself in and whether this will get worst.

The consumer struggles to understand the difference between a Wine Estate and a normal brand and therefore it really makes this argument so much more important. Why are so many wine farms up for sale? Why do some of the oldest Wineries around the Cape have foreign faces running it? Corporate Companies and Wealthy Businessmen from all over the world purchase wineries to grow their portfolio and revamp the wineries into holiday destinations. The family wineries cannot compete with the larger companies buying bulk wine or grapes from all over the Cape. In the same way as the local Grocer in town cannot compete with PnP or Checkers, the small winery struggles to compete on price with the larger brands. This is a general trend in all industries around the world, but it has had a huge impact on the SA Wine Industry in recent years.

Everyone has become price conscious during the recession and people spend less on wine although they don’t necessarily drink less. The difference in sales volume per brand at R29.99 and R31.99 is huge. Not only is it the psychological barrier spending over R30 rather than R29.99, but it is also the R2 that you can save. At these price points it is all about economies of scale and sales volume. Can you imagine what difference that R2 makes on 60000 bottles sold? This is not even the cheapest segment of the market. There are brands selling under R20 on promotion and this is prices that smaller brands just cannot reach unless they lose money with every bottle sold.

If up to 80% of Wines are sold under R60 in retail then I will be very surprised if 10% of those brands are owned by a family winery! Not only is it because of the price point, but also the lack of accessibility to the market place. Most Supermarkets only stock brands with enough money or financial support to advertise and promote the wines. There isn’t really a place for a smaller, lesser known brand on the shelf. It is a sad reality that exists in our industry and it is a category owned by the larger companies. The problem isn’t always producing a brand to retail at R29.99 but it is mostly the fact that these brands cannot give more discount to be able to promote the wine at a lower price. Something that the big brands can do and they can do it often and at very low prices. Therefore taking a huge market share and cutting out any chance of a family brand to be sold. Can the Supermarkets and Retailers play a role in support of the Family Wineries? I believe they can and that they can actually turn this around for many struggling wineries. This includes restaurants listing wines that they really like other than what they think their diners might like or what is popular on retail shelves.

The limitations where smaller brands can sell force them to be more innovative, find ways and other channels to reach the consumer. Most of all they need to make their cellar door the gateway to their brand!!

So will we still see the Van Velden, Burger, Krone and Malan Families on their properties in 30 years? I certainly hope so and I hope that it will be something that becomes unique to the SA Wine Industry. This is also happening in other wine countries, but as the oldest New World producing country I think we owe it to ourselves to pay attention to this. We have to find ways to support and distinguish these wineries and educate our consumers of the specialty of their wines. Family Wineries are under pressure to become extinct, something our kids might not even talk or know about when they get to a drinking age J. How will they stay competitive? I guess that’s a discussion for a new blog!   


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