There is great competition to get wines listed by restaurants. But the selection process is often tweaked by practices which may be more than dubious. Ingrid Motteux has been investigating

Stranded at Cape Town International one evening, my famished German visitor and I decided to pass the time with dinner at the terminal’s only licensed restaurant, The Dros. Dross, indeed, for winelovers: the entire wine selection consisted of brands from a single liquor producer-wholesaler. With little stomach for any of the high-volume commercial styles on offer, we settled for beer.

Find yourself in any Spur restaurant (unfortunately not entirely avoidable if you have children) and you’ll be offered the same selection. So what’s the problem if macho South Africans love Baronne with their rare flame-grilled rump, and the less carnivorous are content with nothing more exciting than Graça to accompany deep-fried calamari rings? If you’re averse to a bland winelist, then (for goodness sake!) patronise an upmarket restaurant that resists the convenience and/or attractive inducements offered by the liquor giants. Their lists are certain to reflect the Cape’s best, the selection made simply because the wines deserve it.

Or perhaps not.

The pricey, fashionable Newlands and Stellenbosch Wijnhuis restaurants, for example, claim a fine wine selection as a drawcard. But their policy, according to wine buyer Letitia van Waesberghe, is that a wine will only be listed in their restaurants if the wine producer rents ‘advertising space’ in the form of a ‘kiosk’ situated in the Stellenbosch branch. This costs up to R8 400 per year. No money, no talk.

A snip at the price, considering the R20 000 listing fees asked by a trendy street-level Camps Bay restaurant. A few wines find a place on the list sans kickback, because of their status, but the rest have to pay to be there. The restaurateur might argue that these fees are justified as compensation for marketing the wines, given that the well-heeled get to taste your product in their agreeably hip setting throughout the year. It might be more effective publicity than spending more on a once-off ad in a lifestyle magazine.

Another eatery on this popular beachfront stretch claims (with no apparent sense of irony) that they are not as cheeky as this – according to the manager, they only accept inducements in the form of stock! Fridges and furnishings also make suitable sweeteners: in Grape 21, Kim Maxwell wrote of ‘a major player allegedly picking up a R70 000 restaurant refurbishment tab in exchange for occupying 70% of that restaurant’s winelist’.

A less covert but apparently common practice is waiters asking suppliers for incentives to recommend their already listed wines to diners – a sort of per-cork-fee, which makes an unsuspecting dupe of the customer.

This sort of thing is not confined to touristy Cape Town, of course. Winery representatives I spoke to in Johan-nesburg report similar experiences. They are confident, though, that the generally poor service of the big companies, with their high staff turnover, does not rival theirs, and that relationships they have built up over the years will triumph in the long term. ‘Sure’, shrugs one, ‘there are cowboys out there playing that sort of game, but they tend to be short-sighted and consequently short-term.’ Perhaps.

One tale of the biter bit related how a new Joburg steakhouse accepted (lots of) cash for listing certain wines – then turned round three months later, and entirely revamped the list. No comeback, of course, for those who had foolishly coughed up the baksheesh!

Of course, it is far from the rule that restaurants demand listing fees, or are seduced by big companies offering them. The problem is that it happens to the extent that it does.

Cathy Marston of the Nose Wine Bar in Greenpoint’s Cape Quarter sells a lot of wine, and makes her selections solely on how good it tastes. She declares her independence from even the more benign practices by buying her own umbrellas, ice buckets, staff uniforms and aprons. No manipulation of her winelist, no bombarding her customers with advertising. (A member of the Bollinger Society, and devoted Bolly fan, she admits her one concession in the Bollinger-sponsored menu cover.) ‘It was obviously a lot more expensive to establish my business without taking the freebies and other inducements on offer, but it’s the only way of avoiding the obligation to list stuff I’m not happy with.’ She adds: ‘Restaurants taking kickbacks pocket the cash, without passing on any saving to the consumers, who are then also duped into drinking wines that are not necessarily up to standard.’

Greg Cooke, manager of The Codfather in Camps Bay is another who shares Marston’s attitude. ‘I take a lot of trouble sniffing out the best wines for my list, and feel privileged to be able to offer these to my patrons’, he says. ‘If I take cash to list substandard wines, not only am I swindling my customers, but I’m also helping to squeeze out the small guys.’

Greed or bullying?

So is it the big guys, the producers of the big brands, who are driving the practice? Or are they just obliged to respond to avaricious restaurateurs? The opinion of many reps and others in the trade to whom I spoke is that the whole set of dubious practices was sparked by the efforts of a company with an extensive portfolio to block out the other players as far as it can. The strategy is to get to know winelists, targeting certain wines in appropriate price and style categories, and then to offer incentives to the restaurateur to replace the wines currently in these ‘slots’ with their own brands. This scenario came to seem like a great idea to the greedier restaurant owners: it’s largely a buyer’s market out there, and they started expecting backhanders from other producers wishing to have their wines featured.

Either way, it’s the small player (often with the most ambitious and interesting wines) who cannot afford to compete, while the big producers increase their market share. The non-listed wine can lead too easily to a non-listed winery.  Many countries can see some of the real problems inherent in the practices described here. Liquor laws in countries like Canada and the US, for example, carefully monitor the relationship between suppliers and licensees. Their laws are explicit about the need to do away with exclusion (of a rival product from the marketplace), collusion (between the supplier and restaurant or retailer), and commercial bribery.

Regulations about anti-competitive practices in the liquor industry in these countries demand the explicit recording of allowed (but capped) inducements such as promotional activities, wine samples, ‘educational’ events, and hospitality allow-ances. Some inducements (of the kind fuelling the problem in South Africa) are prohibited entirely: producers are not allowed to provide any item necessary for the operation of the establishment: money, excess credit, fridges etc. There can be no backhanders, because ‘one competitor gains advantage over another by reason of secret and corrupt dealings’.

Government regulation is certainly not always welcomed. But the attempt must be made to protect consumer interests and the long-term vitality of the industry while keeping regulatory burdens to a minimum. Unless they are  well hidden (and unused), it seems that South African suppliers and licensees are without the sort of regulations described above. One local wine producer comments: ‘South Africa could do with guidelines, given the fact that certain producers are misusing their power to squash the smaller ones, whose very pursuit of quality (particularly pertinent in the case of wine) counts against them.’

Who pays the price for these dubious practices? The consumer, of course.

Firstly, there is less choice on winelists and between different winelists. Choice has already been made to include wines listed on grounds other than merit. And the displaced wines are often precisely those of the smaller, quality producers who are already disadvantaged in the market place compared to the big companies (less money for advertising, fewer economies of scale, etc). All they have to offer is greater quality and/or interest. Then along comes the practice of buying and selling wine-lists....

Competitive markets are seen as the driving force of capitalist economies, breeding efficiency. South Africa has a sophisticated set of internationally based competition laws, extensively revamped in 1998 to address a  legacy of excessive concentration of ownership and control. Under these laws, when a company is deemed too big and can too easily manipulate the market, it is regarded as a ‘dominant firm’. It is conclusively dominant if it has at least a 45 per cent market share; but even at much lower percentages it can be dominant, depending on its market power. The category is important: the Competition Act states that a dominant firm cannot require or induce a supplier or customer to not deal with a competitor.

The main thrust of the Act is to ‘ensure the consumer has product choice, and that small and medium enterprises have equitable opportunity to participate in the economy’. When a company buys market share, especially in an oversupply situation as currently exists for wine, not only is consumer choice being limited, but a barrier to entry to the market is being created.

For wine, the obvious candidate for dominance is South Africa’s biggest producer-wholesaler, Distell.  AC Nielson figures for June/July 2004 indicate that the company has an annual value market share of bottled, corked, still wine (the sort found on restaurant tables) of 42 per cent, making it by far the largest player in this market. Other larger companies such as DGB and Vinimark remain below ten per cent. Distell’s website claims that it markets ‘approximately 15 million cases of wine, over 40% of all spirits, and over 50% of the flavoured alcoholic beverages sold in Southern Africa’. It boasts an annual turnover well in excess of $US700 million.

It seems that if Distell were to manipulate the market in the way outlined in this article, there would be a good argument for finding that, in terms of the regulations noted here, it would be acting illegally.

Prompted by Grape’s investigation, some of the smaller wine producers plan to convene at Nelson Estate in Paarl in November [THIS MEETING HAS SUBSEQUENTLY BEEN POSTPONED] to discuss the issue with Competition Commissioner Advocate Menzi Simelane and competition law specialists Advocate Joe van Dorsten and Alan Nelson. Should they decide to submit a complaint to the Competition Commission against alleged perpetrators of these anticompetitive on-consumption tactics, and the defendants are found guilty of abuse of dominance, they could face a fine of up to ten per cent of their annual turnover. Now that’s a lot of money!