News
01 July 2005 by Marian Shinn, Web Words
SA's premium wines require specialised offshore distribution - Alex Dale
Premium South African wines need a specialised, hands-on distribution channel if they are to gain a sustainable share of expanding European markets, says Steve Ludlam, who recently joined Stellenbosch-based The Winery, producers of Radford Dale, Black Rock and Vinum wines.
'Many South African wines producers have vested the greatest proportion of their European wine sales in the hands of the big supermarket groups and retail chains of wine shops such as Oddbins and Thresher. This represents up to 85% of all retail sales in the key markets. Other producers have put their lot in with large national wholesalers.
'The supermarket business usually carries major risks and is always cut-throat. While little effort by supermarkets is ever put into building individual brands, priority goes to developing their own profitability, which is greatly encouraged by the current over-supply dynamic.'
Ludlam adds that considerable volumes of South African exports to Europe, for example, are sold under supermarket own-labels, where suppliers can be replaced at each change of tune.
'To attract the attention of national wholesalers wine producers need either to be able to provide substantial profitability or high volume at low cost, or they will never become a priority. Both these routes to market are generally ill-adapted to premium or smaller producers and are progressively dominated by a handful of large global players.
'We believe it is a better long-term strategy for a premium producer to invest in building personal relationships with selected, specialist outlets whose customers are actually looking out for wines of character, quality and individuality.'
Ludlam believes many South African producers now realise that the supermarket route - despite having about 70% share of the UK retail wine market - is not the best way to create consumer pull for premium brands, let alone profitability.
'It works best for producers sufficiently well keyed-up to produce highly efficiently, on a mass scale and able to invest in the significant advertising and promotional budgets that this necessitates. And the global players are getting forever smarter, sharper and better at it. This brutal price-point-driven end of the market is dominated -if not saturated- by promotions. This leaves the general producer extremely vulnerable if they can't create their own market awareness and can't stomach the necessary spend.
'We believe those ahead of the game proactively seek distribution channels that are most adapted to the market segment they can best compete in. We produce premium wines so we must not only take the harder route of slowly building sales through the corresponding channels, but we must be sure to have the correct individual companies working with us.'
Ludlam says The Winery started building these relationships six years ago and 90% of what it produces goes through specialised premium distribution networks across Europe and North America and, importantly, every bottle of the 500 000 currently produced and sold by The Winery is retailed over £5.99 (and up to $62.50). The Winery's executives are also directly in the marketplace all year round.
In South Africa The Winery has totally avoided supermarkets and label-heavy distributors, choosing to concentrate on quality restaurants, specialised retailers and direct marketing.
'There are other South African quality wine producers who have opted out of the mass distribution route. They're building their own networks through the On-Trade, specialised retailers and various non main-stream channels because this is far more beneficial in building their brands, sustainability and profitability,' Ludlam adds.
'With so many South African producers focusing on supermarkets, we've looked elsewhere. We have identified, and are building, a very good market for our wines in the On-Trade. Thanks to our eclectic range of wines, from different climates and geologies within the Cape, with the varying styles thus offered, we are ideally suited to supply the restaurant sector.'
The Winery has also found that mail order and internet-based direct marketing in Europe is increasingly successful. Last year it sold over 25 000 cases of premium wine into this sector.
'Our export sales strategy is proving to be well-adapted to our objectives as a producer. Our sales value so far this year is up 20% on last year (+15% in volume), which was up 30% on the previous year. We have walked-away from opportunities and temptations to develop greater sales of commercial wines and have instead headed progressively up-market.
'Indeed, we've even had to turn-down potentially substantial sales of our recently launched Black Rock range because we want as wide a distribution base as possible rather than selling all to two or three large accounts. You simply cannot build a solid foundation with one or two bricks.'
Ludlam, who is responsible for managing The Winery's exports, will continue to give focus to Europe while also seeking new markets for The Winery further afield. The US is already The Winery's second-largest market after the UK, while Canada is also growing steadily. Markets in Asia, the Middle East and South Africa are all being developed simultaneously.
Ludlam was previously export director for Europe and Middle East for the Symington Group - one of Europe's oldest, most reputed and successful family-owned wine businesses. Before that he also worked at Domaine Bertagna in Burgundy, France.
Ludlam says he joined The Winery because it's an unusual company. 'It combines idealism-driven quality with market-led pragmatism, The Winery limits itself to making wines it enjoys for a market it knows. The team also believes in enjoying themselves in everything they do, while remaining extremely professional.
'I've had discussions with larger South African wineries, but this was the one I'd set my mind on. The philosophy is spot-on, the business is at a crucial stage of development and I can add value by strongly enhancing overseas distribution. There is a calling internationally for dynamic, genuinely quality-driven Cape producers.
'Given the excellent foundations already in place, we can now build a world-class operation. And, frankly, anything less just wouldn't be a worthy challenge.'
Ludlam's experience with South African wines included working in the UK and Stellenbosch towards the end of the last millennium for Longridge, the then boutique winery subsequently acquired by Winecorp.
He was born in Dar el Salaam, Tanzania, of Danish and English parents.