The alcohol industry, which employs about a million people, has had the rug pulled from under it after Sunday’s surprise ban on alcohol sales, effective immediately. We asked Rico Basson, MD of Vinpro, which represents the country’s wineries, what happened, after previous co-operation between the industry and the government.
RB: The industry has engaged continuously with the government over the past few weeks. On July 6 we wrote a letter to the presidency to ask for a formal engagement around this, because a social compact needs to be a balanced way forward. The Sunday evening announcement just speaks to that: you are in these deliberations and then, without any heads-up at all, the government comes and makes a blanket ban. That’s why we were shocked.
So what now?
RB: I still believe a social compact is the way to go. Legal action is an option, but at this stage our focus is to urgently continue with deliberations. Our industry is made up of very small players and they do not have the financial means to see another six-to eight-week ban through. For the wine industry, our lack of cash flow is really having a detrimental effect.
How long could you weather a shutdown?
RB: That’s very difficult to say. In the previous lockdown we estimated that we would have closure of 60 to 80 wineries, and I’ve been on record to say we would lose close to 400 producers and 18,000 jobs. We’ll run some scenarios and it all depends on how long this [continues], but it will be material.
What makes wine different is it’s harvested once a year, it’s stored and that means a lot of working capital is tied up — it’s not like beer which you make just in time; in some cases, like red wine, you store it for 24 months. So as soon as you have a scenario like we have, where you’ve got the stock but can’t sell the stock, it creates massive cash flow challenges. And the on-farm preparation for the 2021 harvesting season is starting now. Directly, the industry loses R300m in domestic sales per week; that excludes tourism, where you could probably add a further R100m to that number. Eighty percent of the 530 wineries are smaller than R10m turnover, so they’re really micro.
Do exports have any mitigating effect on the loss of local sales?
RB: On average, for most medium-sized wineries, 50% of produce is exported and 50% is sold domestically. Exports are extremely important [but] the challenge we have is that the Cape Town port is only operating at about 60% of capacity, so that’s just exacerbated the problem.
You talk about a social compact — is there any realistic way around the problem of alcohol abuse? Is it even the industry’s responsibility?
RB: It is a societal problem that we’ve been facing for quite a while. But you need to narrow it down, and there are five main focus areas. One is underage drinking, and a possible solution might be that we request identification documents at every single retail outlet from January next year.
No 2: drinking and driving. There should be zero tolerance and there should be enforcement. As for binge-drinking, two-thirds of SA [adults] abstain from alcohol. But in the remaining third there tends to be problematic pockets. And there are about 500,000 heavy-episode drinkers in SA, who are the challenge.
Remember that 25% of all alcohol in this country is illicit. So, all that happens when you close the regulated channel is that the so-called illicit market goes from strength to strength. It doesn’t help you to disrupt the one and not have an intervention for the other.
Going back to the focus areas, the last is formalisation. We have about 60,000 licensed selling points in SA and more than 100,000 unlicensed points, so there needs to be to a specific focus to get these businesses part of the formal economy.
The themes all require targeted interventions. And the alcohol industry is doing a lot, but it’s not our role to enforce and it’s not our role to pick up the full burden.
Are any of your members getting support from the R200bn loan guarantee scheme, if cash flow is the issue?
RB: About 15%-20% of the industry has taken advantage of that scheme. But it doesn’t allow big enough benefits because it’s a loan and not a grant as such. The big challenge is that Ters [the temporary employer/employee relief scheme] ran out at the end of June. I can see, post the decision, how many companies are retrenching.
Companies went out of their way to keep people employed, but the uncertainty now means a lot of them are letting people go. We estimate 18,000 people will lose their jobs, but I think it can be more.
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