South Africa update

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Countdown to Cape lockdown

South Africa is allowing wine exports to resume. Even if the shipments start straight away, an already nervous industry will be counting the cost of lost business and concerned about long-term prospects in export markets like the UK. Graham Holter reports

 

South African wine exports have been given the green light to resume this week. But there are fears that damage has already been done to an industry which struggles to generate fair returns for many of its people even in normal times.

And with the country still in a state of severe lockdown, questions exist about how many shipments will actually be possible.

On May 1 South Africa is moving from Level 5 lockdown to Level 4, which means that while domestic alcohol sales remain forbidden, exports can probably recommence.

The government has said that “some businesses will be allowed to resume operations under specific conditions”. Wines of South Africa is urging a cautious approach until more specifics are known.

Greg Sherwood MW of London merchant Handford Wines is an expert on the Cape wine industry. He wants the export ban lifted “without delay”.

“Like all businesses, wineries are most productive and profitable when they are operating continuously and keeping their production and sales pipelines full,” he says. “This lockdown, though only temporary, has turned the taps off and stopped all cash flow.

“I have spoken to several smaller winery operations who say they are very close to getting into financial difficulties. The lack of exports cannot even be mitigated with more home market sales.”

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Photo: Wines of South Africa

Cash flow crisis hits the poorest

Anthony Hamilton Russell, of Hamilton Russell Vineyards in Hemel-en-Aarde, is pleased at the prospect of exports resuming. “For those with an export market, revenue can at last be generated – lifeblood can begin flowing again,” he says.

“With the lockdown in place from March 16, wine producers have gone without the means of generating revenue for well over a month. There was period of a few days where wine already at the ports was allowed to be shipped, but this permission was then revoked. We were luckily able to make some key shipments.”

The challenge for producers, he says, is keeping pace with outgoings with no money coming in.

He adds: “This is a significant blow to a wine industry that, even at the best of times, struggles with cash flow and profitability. Some wine producers will be fine – but perhaps more indebted – and some will really suffer.”

Sherwood at Handford Wines agrees. “Wineries are already running on such low profitability, so removing one or two months out of 12 months of revenue stream is massive,” he says.

“Imagine trying to pay all your bills in a calendar year with only 10 pay cheques instead of the usual 12. Those one or two months of trade are often the difference between making a profit or making a loss.”

Sherwood points out that harvest is just finishing in South Africa. “Growers need paying for the 2020 grapes wineries have bought in, and growers in turn need the money to pay their pickers and farm workers,” he says.

“There is a massive supply chain that gets interrupted and at the end of the chain are less well-off rural families that will go hungry directly as a result of the lockdown export ban. The pain is tangible … not just something for accountants to worry about when doing their spreadsheets.”

Anthony and Olive Hamilton Russell
Anthony and Olive Hamilton Russell

UK importer can wait it out

Dreyfus Ashby, the UK agency and import business which owns The Liberator series of South African wines, has been hit hard by the Covid-19 disruption. But owner Richard Kelley MW is confident of riding out the crisis.

“We are the importers for [Stellenbosch producer] Villiera and have a container that has been stuck in Cape Town harbour for three weeks now which includes orders for our other South African suppliers,” he says. “That should have been arriving in Tilbury about now.”

He adds: “I completely respect and understand what the South African government have done. They acted early and they have managed to contain the spread of the virus as a result, even if that does mean that no alcohol can be sold or transported.

“Half our business is with South Africa, although we are not in a campaign mode as yet. We tend to release all the sought-after wines – Alheit, van Loggerenberg, Newton Johnson – in the autumn, so it is not affecting that cycle.

“We are just starting to run short of our more commercial, mostly own-label (£10-£12 retail) wines and if we don’t see our next order until the end of June, which is currently the best-case scenario, we will run out.

“We do have good stocks of all our £12-£20 wines, but sales of these have slowed. It seems that our independents who are operating are mostly selling low-value wines, which is really not our thing. Orders are, however, trickling in.”

For now, Dreyfus Ashby has stripped out virtually all of its costs and “remains profitable”, Kelley says, with its French imports still moving smoothly.

“I’ve also been working on eight new Liberator releases that are planned for the autumn,” he adds. “The labels are all designed – we just need the dry goods companies in South Africa to open up again, so we can go into production.”

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Photo: Wines of South Africa

Supply chain disruption?

South Africa has made huge strides in the UK independent trade and any disruption in its supply chain has the potential to hand an advantage to competitors.

“There is a fair bit of stock in the UK supply chain,” says Sherwood at Handford Wines, “and with UK on-trade clients shut down, much of this stock is being temporarily redirected to off-trade channels.

“But so many businesses try and carry a low burden of stock, preferring to ship more regularly for more of a just-in-time type of supply chain. This export ban is hurting these businesses most. A lot of faster-moving lines are already sold out.”

But Anthony Hamilton Russell remains positive.

“I don’t think a period of over a month of delay in exporting – with perhaps further delays as ports deal with a large shipping backlog with reduced staff – is too material to the presence of South African wine in the UK market,” he says.

Many distributors will already be sitting on substantial stock holdings, he points out. “This stock would have been depleted more slowly than usual given the disruption in on-trade, leaving more for retail.

“The concern is that our government retains the right to return to Level 5 lockdown regulations should the onset of our winter see a dramatic rise in Covid-19 cases and hospital bed requirements.

“A further disruption in our ability to export could see certain retailers switch to wines with a more reliable supply chain.

“I do believe however, that the world understands the situation we face and will take a charitable stance on our current supply difficulties. As long as they don’t go on too long.”

April 27, 2020

Edited on April 30 following confirmation that lockdown moves to Level 4 as planned on May 1