QUALITY, IMAGE..... AND PRICE

Andy Zimmerman has some radical thoughts on pricing Cape wines – thoughts which might not please local buyers.

Setting prices has a lot to do with where you want to establish your brand and sell your products in the long run. It is not easy for a producer to set prices in such as way as to suit both the local guy and the export markets. An initial difficulty is the distance from those export markets, making it an expensive exercise for producers to see and compare first hand the international products competing with their own.

Must South Africa charge higher prices? I often read that a better average price per bottle must be achieved in markets like the UK, etc. At the same time, there are demands to step up quality – offering better value at the same price. In fact, this improvement in quality is primary, rather than trying to get more pounds or dollars for the same quality. In the long run, it is easier to climb the price ladder armed with better quality than with an inflated price – especially if you want to stay up there.

So what pricing is appropriate? The first important distinction is between middle-of-the-range and top wines. Not long ago, the fanciest Cape wine cost only about three times as much as a medium quality one. Now a five- or six-fold difference is approaching – but there is still room for expansion. In other countries you easily pay ten times as much for a top wine compared with an OK sort of bottle. In South Africa’s case that would mean top prices around R250 to R300.

I can hear the horrified groans from local consumers. But let's be frank: at this level, quantities are limited and demand often outstrips supply. Many international wines (French, Italian, Spanish, Californian, even Australian and Chilean) have gone that route – of course dismaying their old clientele; but: you want it, you pay for it! For South Africa's top end, this is the way to go, despite local frowns.

Cheapness, image, levels

The buying frenzy many of the wine farms experienced over the holiday season filled their tills nicely. But do the happy producers realise that the overseas visitors only bought so freely because the wines were particularly cheap? When South Africa's most prestigious wines cost the same as a middle-range wine from Australia or Chile, the Cape’s image suffers, whatever the short-term profits. In the long run, such an image will harm rather than help sales (at all levels). The Vergelegens and Hamilton Russells might seem expensive to most locals – but knock off the VAT, translate into tourist pounds or dollars, and realise we are sending out the wrong message. Rather than hearing a triumphant buyer comment: ‘Look at that great wine and that ridiculous price I paid....’ I would much rather hear: ‘Yes, it was quite pricey – but I was really lucky to get the last case at £18 a bottle.’ However, it is not a good idea to subsidise local prices with higher prices for export markets: this would be short-sighted, given that competition overseas is much more intense than it is locally and especially considering where South Africa's growth lies.

Prices must be more easily affordable to the local customer for entry-level and mid-range wines – although in line with rising input costs for things like barrels, chemicals, machinery and cellar equipment.

Coming to the bulk side of wine production, even here the rule must be: quality, quality, quality – without it, we will not be able to export, even at cheaper prices, such is the nature of increased international competition. In fact, the proportion of bottled SA exports (compared with bulk) is rising, which shows that people are prepared to pay for quality – quality which will become more readily available, thanks to increased red wine plantings coming into production. Bulk prices are under attack: international markets over the last year have seen a downward trend for all exporting countries – not only for the likes of cinsault and chenin, but (local producers should be warned) also for chardonnay and cabernet.

Going for exports

Don’t get me wrong. I am not simply trying to push up some prices, or keep others down. And, yes, every producer’s set-up is different: what is right for one might be wrong for another. There is no universal recipe. I just want to see successful brands and a better image for South African wines abroad, in order to be able to sell even more – something which, quite frankly, we will soon have to do, given new plantings and ever-higher production (which also goes for most competing wine-producing countries).

The local market remains problematic. As everywhere, people do not drink much more wine, they only drink different wine. If you want to cater to a stagnant market, then stay local, where every year competition grows stiffer as new producers come into play! Competition might be even stiffer in the export markets, but it is a much bigger playing field and you might find your niche there more easily. The most important thing to remember is always  to look after your customers, whether they are in London or Johannesburg.

*Andy Zimmerman, with a base in the Cape, is a Swiss wine importer of many leading Cape labels.

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