Can poorer wine countries make it big?

Are there any really successful wine countries which do not have a more-or-less rich and interested domestic market? This in one of the things I’ve been pondering in response to winery-owner Dana Buys’s comment on my recent blog about some industry matters, including the miserable local price for grapes, so I’m going to make some risky flights with the idea.

Dana pointed out the vastly higher price for cabernet grapes in California’s top cab appellation, Napa (and the also high price in slightly less fashionable Sonoma). He puts the difference, fairly enough, on demand being so much higher for those grapes, but then does something which seems problematical to me – he blames the lack of demand on the pittance that South Africa spends on marketing (“generating more demand”).

Firstly, I’d have to say that Napa has an almost unmatched reputation outside Bordeaux for producing excellent cabernets (leave aside whether one likes the dominant style or not). I would venture that the Cape produces a handful of cabs and Bordeaux-style blends that could happily compete with the top end of California. But I’d also venture that Napa demonstrably produces very many more excellent wines. That’s the sort of performance that helps generate high prices for a region – not marketing.

We could take the results of the Six Nations wine competition to reinforce the point: at the top end, South Africa is great, but for now lacks comparative depth. Of the countries involved in that competition, it is only Australia (with New Zealand up to a point) that gets anything approaching the sort of wine prices (and hence grape prices) that California can. Why? It’s partly because of a longer-established reputation, but it’s also notable that Australia is the other rich country in the competition (though nowhere nearer as rich as the USA, and the number of wines with high prices is correspondingly lower). Chile, Argentina and South Africa are the poorer countries, struggling to build their international reputations, but with comparatively few expensive wines.

There are some objective factors, of course – for one thing, viticulture in California, based on well-trained Mexican gast-arbeiders, is at a much higher level than it (shamefully) is here.

But what I’m suggesting (and a whole lot more facts and figures would have to be computed arguing one way or another) is that Napa gets those high wine/grape prices not so much because of marketing, and not only that it is good wine-terroir, but at least partly because it finds itself in a country with a large number of immensely rich, not to mention patriotic, wine-drinkers. This establishes and builds the momentum.

The richness goes further than that. Think of the few bankers and IT moguls who’ve invested in the Cape winelands. When it comes to Napa, especially, multiply their disposable incomes by quite a lot, and multiply their numbers by even more. You could probably multiply their desire for showy, conspicuous consumption by quite a bit too. The result is an incomparably huge amount of investment in wineries and vineyards in Napa. There is also a lot of well-backed competition for the best grapes, which pushes up the price too.

So that the price thing goes in circles, up to a point. Spending more money improves standards, and leads to higher prices, which leads to more money available for investment. You could observe the same thing in Bordeaux, of course, where the lower end producers are always going to find it hard to catch up with the top end, at least partly because the top end is getting the big prices per bottle and is able to spend on improving quality.

OK, mention of Bordeaux would allow Dana to get in again and point to the importance of image. And I don’t deny the point, or deny that Cape wine would benefit from WOSA having a great deal more to spend on polishing the local image. But remember that most of WOSA’s income comes from the 80% of South African wine that is not competing with top-end Napa, but rather with lower-end wines from anywhere in the world. Politics sadly requires, therefore, that WOSA is constricted in how it spends its money – and of course, it is vitally important for the average grape price here that the lower-end wine is also successful.

But then it becomes clear that we should remember, I’d suggest to Dana, that Napa is not comparable to the Cape as a whole. Possibly it would be comparable, on a different scale, to, say, Constantia or the Hemel-en-Aarde, or just possibly Stellenbosch. There’s no question than 80% of Napa (or Sonoma) wine is produced by co-ops and big merchants. There’s no comparison.

Given the internationalism of the wine trade, the local market (and historically I’d include England for Bordeaux, Port, Sherry, etc) is no longer be as important as it was. But I reckon it remains vital. Another example – Spain (as a whole, Rioja and Sherry and the occasional winery apart) was nowhere till it hit boom times after joining the EU; Italy much the same. Portugal, a poor country by West European standards, mostly remains undeservedly marginal.

Basically, perhaps, there’s an international solidarity of the rich. Rich people like buying wine from rich countries – their own, or foreign.

There are many rich wine-buyers in South Africa, if not as many as there are rich whisky-buyers. I reckon a lot of the fancy wine buyers (including many wine-producers!) still suffer from cultural cringe and do very little local buying. Even where they should, if quality is what they’re after, which really mostly means the best Cape white wine.

All in all, given the way the world works right now, especially as economies falter, I think it’s a difficult path for South African wine. If I was a grape farmer, I wouldn’t be holding out a great deal of short-to-medium-term hope for grape prices.

5 thoughts on “Can poorer wine countries make it big?

  1. Two points unrelated to each other. Re the six nations, I tend to disagree with your comment about lack of depth. The problem lies with reluctance of many top producers to participate; we would do even better if they did. Also, Napa cabs nothwithstanding, I haven’t seen the US do so well on that show either – maybe for the same reason that better producers don’t play ball.
    With regard to grape prices; you can’t make a silk purse from a sow’s tail. Many vineyards are in a parlous state and need to be replanted, but when does this absolute basis of quality wine receive priority? That is where any extra income should be directed first.
    But, sadly, I agree that 80% of South African wine doesn’t set the tone to improve the top end image and higher prices.

    • Both good points Angela. Often a well established producer has nothing to gain from entering a comp like the Tri( Six) Nations. And the extraneous costs if you do well ( like providing more wine for tastings in various parts of the world)are also significant.

      On vineyards in SA- the virus discussion seems to have gone quiet at the moment but it is a cloud hanging over the long term prospects for South African wine, no question. And the cost of correcting this imbalance given both grape and wine prices is very much a bridge too far for most.

  2. Well said Tim! I fully agree with your arguments.
    With regards to Dana’s remark on Napa Cabernet Sauvignon selling at USD 5900/ton (R72000!), we should also take note that they ‘only’ got USD 4450/ton in 2010. And then the Rand was 7.10 to the USD – at R31600 per ton. With Napa producing only 4% of the total California production, it all boils down to supply and demand AND location…or is that arguably terroir. Or perceptions that we are part of Africa.
    I always wondered what the Yanks would be prepared to pay for their fancy BMW 3 series motor vehicles had they known same to be manufactured in South Africa.

  3. Tim, I agree with your point re a large, wealthy market being a huge advantage for a wine producing country. It also represents a huge opportunity for others to target, provided you have the budget to educate the market re your products and of course the right products!

    The WOSA budget of $3 million per year for worldwide marketing IS a pittance against our better funded competitors from Europe, Australia & NZ. Hard to take on cruise missiles with a pea shooter!

    Eg the 2014-2018 EU budget for promoting wine exports is €1.16 billion or about R 15 billion, this is over and above producer, regional and national marketing initiatives. And apart from producer subsidies. How much of that do you think gets spent in that wealthy, big US market?

    I recently spent time in Las Vegas attending a conference and was fortunate enough to have dinner at a few of its top restaurants. How many SA wines on those wine lists? Not one!

    Ask the sommerliers why not and the answer is always “no demand” from their customers. Expensive wines are a high risk purchase and without knowledge and exposure to such wines, people simply don’t order them. The South Africa category does not effectively exist there yet.

    How do we get out of this position, with zero goverment support? As local industry we have to raise more money, painful as that may be in the near term. If you can get the grape producers to buy into the medium to long term benefit of greater demand, one could raise say R10 per ton produced from them. That would add R15m to the budget. Then raise say 10c per litre from the wines produced – that is another R110m, to take our total WOSA budget to over R160m.

    That is still not a lot in $’s, but with right focus and strategy it will help develop selected markets, creating demand and in time higher prices for both wines and grapes. That will lead to that virtuous cycle of vineyard improvement and production improvement.

    One could even take 20% of that and invest in domestic wine marketing. R2.5m per month can get a LOT done at home!

    I dont think there is a shortcut available.

  4. Hi Tim — small point of order, but any Hispanic vineyard manager or viticulturalist in California (and there are many) is likely to be a citizen or at the very least a green card holder. The pickers and field workers typically are migrants.

    Also to Johann, I imagine Americans will always pay the going rate for anything with the BMW badge on it, regardless of place of manufacture. The brand implies high-integrity quality controls. Similar to why we buy our Calvin Klein clothes made in Vietnam and our iPads made in China.

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