Coronavirus and SA wine: Mike Ratcliffe of Vilafonté
By Christian Eedes, 11 May 2020
The current conversation around Coronavirus and its effect on the South African wine industry is perhaps inevitably very emotionally charged.
We put the same set of questions to a variety of industry stakeholders with a view to obtaining a better understanding of what’s happening on the ground and also plotting a way forward. Here is how Mike Ratcliffe of Vilafonté replied:
How badly has Coronavirus crisis impacted your business?
The current engineered industry situation has caused an outrageous dichotomy of significantly increased demand for high-quality wines, within an environment of perfectly restricted supply. In a perfect Keynesian economy elevated demand would ultimately cause upward pricing pressure – except for the fact that government has regulated the farcical closure of the wine market. Six weeks without being able to generate revenue will always be a tough situation. We have used the time productively to fine-tune our business model, communicate with our clients, replace our website and implement new e-commerce and wine club software. We would like to think that we will be stronger and more focused when the market reopens.
How many wineries do you foresee closing as a result of the pandemic?
Winery closures will be preceded by brand fire-sales and layoffs. Banks will assist where possible as their collateral carries little value without buyers in the market. Robust brands and intelligent business models will survive and potentially even gain market share. The common-held belief that there are too many wine brands in the world of wine will prove to be correct – the new market reality will play a significant role in rebalancing the status quo. Brands overly reliant on tourist footfall will have to rethink their model. Some brands facing closure will react and reposition themselves, others won’t. Brands that were distressed pre-Covid-19 will struggle for survival – without radical change.
What plans do you have in place to get going again once restrictions are eased? How will doing business be different?
Exports are already an option, despite the congestion in the ports and the extended payment terms. Getting wine into the market is most important, irrespective of whether it remains on your balance sheet or not. Existing long-standing relationships and route to market are key – there will be very limited opportunity to break into new markets. We have predominantly had a very strong membership base in our wine club and these are amongst our most loyal customers. They will also be the first people to support our brand when the restaurant and retail channels open up.
What will the South African wine landscape look like after the pandemic? Will the industry recover quickly or will it be changed forever?
Every great shock produces change – especially when change is required. Change is painful. Weaker businesses will look to merge and new groupings will form to achieve economies of scale. Strong wineries will see an opportunity for acquisition. New well-funded entrants will appear. Marginal businesses will not survive. Fragmented product offerings will lose their charm. Specialisation will thrive. Individually successful wines will become more important than unwieldy umbrella brands. Focused marketing investment and positioning will be the way forward. Economies of scale achieved through these actions will drive margin, and margin will be the new secret sauce. A significantly smaller number of bigger volume, hand-crafted wines will serve the South African wine industry well.