A recent BMi Research report has revealed that despite the poor performance of the economy, the wine industry yielded a positive volume growth relative to the previous year.
The growth in production may be attributed to farmers investing in improved irrigation systems as certain parts of the country have experienced drought for the past three years. Implementation of water quotas caused by the drought led to a spike in the costs of production, possibly hampering further production of wine.
The on-consumption and off-consumption channels both saw a decline in volume. The on-consumption channel experienced the largest drop, and a similar trend can be seen across other alcoholic beverages. Lower disposable income due to the weak economy may be one of the contributing factors to the reduced demand for wine in the on-consumption channel, as consumers may be going out less often than previously.
Exports saw a surge in volume during the base year, making up the majority share of the total volume share for 2017/18, as international demand for wine has increased tremendously over the past few years. The weak Rand exchange rate against other currencies made the export trade more attractive for local producers. It is also believed that certain parts of Europe experienced a bad harvest which led to a rise in imported wine from South Africa.
Locally the wine industry performed below par for 2017, as the volume declined compared to 2016. The only region that recorded a growth in volume for the base year was Gauteng for the base year. The poor performance of the category in other regions may be attributed to cheaper alcoholic beverages that offer greater value for money than wine. Wine has also had to compete with other alcoholic beverages, such as beer, which saw an increase in volume for the same period.
Natural wine remained the mainstay of the wine category for 2017. Natural wine is believed to offer better value for money, as it is priced cheaper compared to other wine types. In times where consumers are looking for products that will stretch their budget, the purchase of more affordable products becomes a more attractive option.
The industry selling price increase in wine far exceeded annual CPI. It is said that the drought was a major driver of the price hike as many vineyards are situated in the areas that were hit the hardest. This had a knock-on effect on production costs.