"In my mind, there’s no doubt that Nkosazana Dlamini Zuma took aim at the wine industry," says Francois Rossouw, the head of the Southern African Agri Initiative, a nonprofit that took the government to court over the ban on alcohol sales.
In all, 120 of SA’s wine farms, including Boschendal, Koos Bekker’s Babylonstoren, Backsberg, Bouchard Finlayson, Meerlust and Fairview, lined up behind the court action to have the ban scrapped.
As Whitey Basson, the former CEO of Shoprite and the owner of wine farm Klein DasBosch, put it, the ban would lead to the "irrevocable demise of the majority of wine farms and licensed restaurants".
Legal papers filed alongside Basson’s sketched a bleak picture for an industry that is made up of 2,873 grape producers and 542 cellars, contributing R40bn to SA’s GDP and employing 300,000 people.
Every week the ban dragged on, R300m was lost, and more and more workers were told they’d need to make another plan to provide for their families.
Finally last week — two days before the court date — President Cyril Ramaphosa lifted the ban. Rossouw says it’s clear the pressure from the wine farmers played a role in the decision.
"Dlamini Zuma was clearly determined to avoid the court cases, because she deleted level 3 in its entirety, rather than just shift between levels as they’d done before. It flew in the face of the government’s policy to use the levels as a ladder, depending on how Covid-19 is spreading," he says.
It may sound like an implausible conspiracy theory in which Dlamini Zuma is the central villain in a sabotage plot — but if it does, that’s her own fault, says Western Cape premier Alan Winde.
"The fact is, trust has been badly destroyed," Winde tells the FM.
"[Dlamini Zuma] refused to explain the ban properly, refused to meet with us to discuss it, and there was no reason to initially block exports the second time around. The poor communication and inexplicable decisions feed into the conspiracy that she wanted to destroy the industry."
A couple of curious incidents don’t help this perception.
For example, during the peak of the lockdown, Dlamini Zuma triumphantly described it as "an opportunity for SA to accelerate the implementation of some long agreed upon structural changes to enable reconstruction and growth".
Winde says many wine farmers believed this meant she wanted to break down the existing historical family-owned wine farms to boost transformation. "If so, this backfired. Who has taken the pain? It’s been the new emerging black-owned brands and the new black owners, who’re now battling to finance their debt," he says.
Dlamini Zuma’s gratuitous insults to Basson, who’d asked for the ban to be lifted first in the "cool green spots" where the virus had receded, didn’t help.
The minister hit back at Basson: "The burden of Covid-19 is shared among affluent and less affluent areas. Planning by government is not done as it was under apartheid."
Basson described it as "outrageous and uncalled-for" to suggest he wanted the government to conduct its planning "as it was under apartheid".
"I never supported the apartheid government, and was never a member of the National Party or a supporter of the apartheid regime. My whole family and I loathed apartheid," he says.
It was a sideshow in the wider battle, but it was a revealing microcosm of the ill-feeling from both sides. It illustrated how ruinous the alcohol ban has been for trust between the government and the industry.
No jobs, but a lake of wine
As the industry picks up the pieces, it’s clear that jobs will be among the major casualties.
Fairview Investments, which runs two wineries and operates a number of restaurants on wine farms in Paarl and Stellenbosch, had to let go of nearly half of its 254 staff as wine sales fell 70%.
In an affidavit for the court case, Fairview MD Charles Back said talk of a "jobs massacre" in the wine industry was entirely accurate.
"I personally have been involved on a day-to-day basis in the wine farming business and in the restaurants operated by us on our wine farms for the past 42 years … [The government] appears to labour under a serious lack of understanding of, and appreciation of [the industry]," he said.
Jean Engelbrecht, MD of the Stellenbosch-based farm Rust en Vrede, said he was "not in a position to provide employment to 108" of its 174 workers any more.
And in his affidavit, Schalk Burger, MD of Welbedacht wines, which sells most of its white wine to restaurants and hotels, said he’s had to retrench four of his 28 workers, and has lost at least R7m.
"It is unlikely that restaurant owners will be able to turn any profits, or pay off huge debts accumulated over the past few months, given the lockdown restrictions," he said.
The ban may now be over, but the damage — economic and psychological — will linger for years.
The visceral reminder of this is a 300Ml lake of excess wine, worth billions, that’s washing around the Cape winelands. According to Rossouw, it may simply have to be dumped.
"We’re going to have a bloodbath," Rossouw tells the FM. "I’ve been meeting farmers this week, and they’ve been picking up the pieces after the ban. The industry is in turmoil, and it’s not clear how many farms are going to survive."
The immediate problem is that the vines are now budding, and the 2021 harvest arrives in about four months.
Where does that leave estates, co-ops and contract growers?
One option is green-harvesting — cutting fruit off the vine before it ripens, to reduce the crop. But it has disadvantages, mainly that it will mean a smaller harvest — and income — for hundreds of grape-growers supplying large wineries and co-operative cellars.
This threatens the sustainability of vineyards across the Cape. As it is, Vinpro — a nonprofit representing 2,500 wine producers, cellars and industry players, — forecasts that more than 10,000ha of the current 92,000ha of vineyard will be uprooted over the next five years.
Another option is slashing prices to move stock. But many are loath to discount, as this is often a one-way street to bankruptcy.
"We’ve seen this movie many times before," says Roland Peens, MD of Wine Cellar Fine Wine Merchants, which punts itself as "SA’s finest online wine merchant".
"A winery thinks discounting one vintage will get them out of a tough space.
"But in the next vintage the customer expects the same price and it’s hard to get back to where you were."
The other problem is that overseas markets have their own lake of wine to worry about. "Historically, when SA moved into a surplus of wine the international market was an option," says Phillip Retief, CEO of the family-owned Van Loveren vineyards. "But Covid-19 has affected international markets too, and they are also sitting with a glut of wine."
SA may be sitting with a 300Ml lake of wine, but the European wine lake is estimated at 1-billion litres.
European countries are now discussing how to subsidise the distillation of surplus wine into industrial ethanol.
Vinpro is considering a similar option in SA. But that would take government support. And, psychologically, the lack of trust created by Dlamini Zuma’s court bid has left a bad taste. Which makes any real collaboration to rescue the industry seem unlikely.
"The huge stock build-up situation domestically, as well as internationally, is a concern for all," says Pieter Cronje, marketing director at uniWines.
"Even though the stock pressure might vary from cellar to cellar, the overall picture affects everyone indirectly."
Still, if the wine industry has shown anything as it banded together to fight the ban, it’s that it knows how to collaborate to deal with a problem.
But will this be enough, in the battle to revive cash flows?
Already on its knees
The fact is, the prohibition on sales was just the latest in a string of gut-punches the industry could ill afford.
First, a prolonged drought in the Western Cape drove harvests down and prices up. Then, just as the dams finally filled, demand for wine plunged in the weakened local economy. Finally the pandemic hit — and all bets were off.
Figures from the SA Wine Industry Information & Systems shows that in the three months from April to June, domestic sales fell 56.8% — more than 48Ml — compared with 2019. Exports dived 27%.
"If you’re in the domestic market, you’ve lost a quarter of your trading year," says Rico Basson, MD of Vinpro. "Fourteen weeks gone and we sit with a huge stock surplus. But this is a long game, and we now need to restore competitiveness."
Over the past week, the FM has spoken to a number of wine farms about their prospects for recovery. And while many of them aren’t short of ideas, there’s no hiding the fact that it’s a steep uphill battle.
Van Loveren, one of the best-known family-owned wine farms, has been making wine in the Robertson Valley since 1937.
"We sell 70% in the local market, so to be shut down for 3½ months out of a 12-month cycle, it immediately means a drop of 30% in annual turnover," says Retief. "Where historically you think about profitability and margins and growing your business, right now cash-flow management becomes the number-one focus."
It’s the same story down the road at the Robertson Winery, which buys grapes from farmers in the Breede Valley area, and has been operating since 1941 from the disused stone chapel in the town.
André Engelbrecht, the CEO of Robertson Winery, tells the FM: "Though our peak period for sales is in October, November and December, we lost at least one-third of our projected annual turnover."
Vinpro’s Basson says that thanks to the ban, "we’ve just stripped R7bn out of the system".
It is lost revenue that cascades down the entire value chain: from the label makers, to the bottle manufacturers, to the companies that transport the wine.
Those who sell mainly in the SA market have been hurt the worst; those with premium brands, able to export their wine, have handled it best.
"For a long time our focus has been the export market, with 80% of our product going overseas, says Johnathan Grieve, proprietor of Avondale Wine outside Paarl. "That has really carried us through, and limited the carnage of the alcohol bans."
Yet Avondale, like many wineries, has had to cut staff numbers and trim salaries. "We have needed to make adjustments in our business and had to retrench one or two of our senior staff members. We’re a small team and a small business, so to make those decisions is never easy," says Grieve.
Sittin’ on the dock of the bay …
But if exports eased the pain, it was no wholesale salve. For one thing, exports were banned for five weeks. Even when the ban was lifted, there were lengthy delays at the port of Cape Town.
Winde says it was inexplicable. "It was taking 22 days to get a ship to turn around. Now, as things are recovering, it’s taking between three and 10 hours. But it shows you the extent of the bottleneck, which was choking businesses."
At the time, he wrote to Dlamini Zuma to ask for her help in fixing this. Even though he is a premier of one of SA’s provinces, she bluntly ignored him.
"She’s never responded to me — and that’s unusual in the government. Even if I call President Ramaphosa, if he can’t take my call immediately, he’ll call me back within a few hours. But Dlamini Zuma doesn’t bother," he says.
The upshot of the government’s disregard was not only wine sitting in the port for days waiting for a ship out, but materials such as bottles, corks and paper for wine labels weren’t arriving either.
Finally, when space did become available "fresh produce exports were given preference", says Maryna Calow of the industry-funded export promotion agency Wines of SA. "We know of shipments that sat in the harbour for over a month."
It meant that some wine farms, which had worked hard to win a coveted listing among overseas retailers, and the state-run monopolies that hold sway in lucrative Scandinavian markets, risked losing it all.
The industry is only now picking up the pieces, and counting the cost.
Kleine Zalze, a family-owned cellar just outside Stellenbosch that has landed a number of top international awards in recent years, produces 400,000 cases every year and sells about 70% of this overseas.
"We don’t understand the full impact of the export ban yet," says Carina Gous, Kleine Zalze’s executive manager for marketing and sales. "We’ve been out of stock in some countries, like Sweden. This could, down the line, lead to us losing the listing."
Calow says this illustrates how competitive a market it is out there, with SA a comparative minnow against developed European countries including France and Spain, and emerging markets such as Argentina.
"It can take years to get a listing, and you need to service that listing," she says. "If that retailer or importer finds it difficult to do business with you, there are hundreds queuing up for that listing."
Winde says many estates spent years building up relationships overseas, which have now been badly damaged. "We’ve been working hard to lift the price point, and take SA wine off the bottom shelf of overseas outlets. The ban set that back, so we have to hope those relationships hold," he says.
Revamping business models
Faced with their markets being suffocated, some winemakers poured their energy into selling directly to drinkers — harnessing the cachet of a personal connection between winemaker and wine drinker.
Trizanne Barnard makes her signature wines in a Cape Peninsula cellar, using grapes from vineyards in the southern Overberg and Swartland. Though 65% is exported, the remainder is largely sold through the "on-trade" of restaurants and wine bars.
Covid-19 changed her business. "My direct-to-consumer sales were very small before, but that has completely changed," says Barnard. "My strategy now is realising the power of communicating with the end-consumer. When people feel they are making direct contact with the winemaker, it changes the relationship."
Ntsiki Biyela, SA’s first black female winemaker, says the pandemic led to a 20% drop in volumes, but also brought her an opportunity to rethink her business.
Biyela’s story is inspiring. Having grown up in rural KwaZulu-Natal, she spent a year as a domestic worker before landing a scholarship to study wine-making in 1999.
In 2003, she graduated with a BSc in viticulture and oenology from Stellenbosch University. From there, she’s collaborated with a Californian winemaker and consulted in France.
Today, her label, Aslina Wines, is largely exported, with primary markets in the US, Japan and Germany. But she used the lockdown to build up direct online sales to South Africans.
If there was one watershed realisation for her, it was that virtual tasting events can work. "It’s really opened our eyes that we don’t have to be everywhere all the time," says Biyela. "We realised that we can have a presence anywhere in the world using Zoom tastings, and at very little cost."
If wineries realised pretty quickly they needed to go directly to the consumer, so did other companies down the supply chain.
Before Covid-19, Cape Town-based distributor Under The Influence supplied wine and beverages to hotels and lodges in 22 African countries. But with tourism on lockdown, it shifted online to sell wine, spirits and local fresh produce in SA, Kenya and Zambia.
The Ex Animo Wine Company, which made its name distributing quality wine from boutique sellers, made a similar pivot, says co-founder David Clarke.
"Our customer base going in was heavily geared towards top-end restaurants and retail," he says. "We lost 95% of our customers in four days. At that point the status quo no longer applied."
So Clarke bought a wine shop — which had gone under thanks to the lockdown. It gave him the liquor licence he needed to launch an e-commerce portal. Registering as an exporter has also allowed the company to sell to international clients.
"Previously we had a few hundred customers. Now we’re selling to anyone," says Clarke. "You have to adapt, and as circumstances change you have to change with them."
Another excellent bellwether of the ongoing healthy demand for premium wines is the boom in sales at Wine Cellar Fine Wine Merchants, where Peens says monthly sales tripled during the lockdown.
"Our allocations of our premium wines are selling out as quickly as they ever have," he says. "Top-end wines are not going to struggle, but in the middle and bottom tier of the market there’s definitely going to be discounting. And if you don’t, the estate next door certainly will."
Bust to boom
Even as the odds stack up against them, some winemakers are prevailing.
Tinashe Nyamudoka, owner of the small Kumusha Wines, says the months of lockdown were a blessing in disguise.
"The lockdown gave me more time to rebrand Kumusha, and also to open a direct channel to consumers. Business just boomed," he says.
Nyamudoka’s story is remarkable. Born in Zimbabwe, he arrived in Cape Town in 2008 with no knowledge of wine.
After stints at several of SA’s best restaurants (including the Roundhouse, Nobu, The Test Kitchen and the Oyster Box Hotel) he became one of SA’s top sommeliers.
In 2016 he launched Kumusha. He says that during the lockdown, his profile rocketed and international distributors came knocking — something he attributes, partly, to the ascendancy of the Black Lives Matter movement.
"My brand was visible and I had stock available. I was getting distribution calls left, right and centre and I sold out almost immediately," says Nyamudoka.
"Next year I think we’ll triple production. The US has already placed orders, and so have my clients in KwaZulu-Natal and Zimbabwe. I’m also looking to get into the UK, which is another big market."
Another boutique cellar that has been doing well is Testalonga.
With clients in 33 countries, "we are 95% an export business", says winemaker Craig Hawkins, who owns Testalonga with his wife Carla.
"We release our wines locally in November, and most of that is sold in the first few months. So locally we were pretty much unaffected [by the alcohol ban] because we simply didn’t have stock to sell."
These may be the minority reports, but it illustrates what is possible, even if it’s only in some areas.
It also underscores how there’s something distinctive about the spirit of entrepreneurship in SA’s wine industry.
Maybe it’s just useful to not know when you’re beaten.
Or maybe it’s just, as Tokara owner and FirstRand founder GT Ferreira often says, that it’s all driven by a different standard of RoE — return-on-ego.
Either way, it’s an obduracy that will have to epitomise the industry if it wants to recover from one of the most bitter years experienced by vineyards dating back hundreds of years.
The damage caused by the ban will linger for years, and has broken trust between the government and the industry
— What it means:
Half your bill back
More than two-thirds of Stellenbosch wineries have a hospitality component, so to fire up the winelands tourism industry Stellenbosch Wine Routes will on September 1 launch a plan to help them recover, in partnership with payment provider SnapScan.
Diners at specific Stellenbosch restaurants will receive 50% off their bill — up to a maximum of R400 — refunded as SnapScan vouchers. Vouchers are valid for two weeks, and can be redeemed at participating restaurants and wineries across Stellenbosch.
“We’re trying to inject vigour back into the local wine and restaurant industry,” says Mike Ratcliffe, chair of the organisation that represents more than 200 wine and grape producers in the Stellenbosch wine of origin zone. “We’ve all got too used to Netflix and sitting at home.”
Refunds are paid out of a R1.5m fund seeded by Visit Stellenbosch, Wesgro, Stellenbosch University, the local municipality and corporate donations. While the initiative is limited to Stellenbosch, “the concept and technology platform are open for use by any other region, as long as they can raise the funding required”, says Ratcliffe.
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