Greg Sherwood: Why the South African Wine Industry Needs a Strong Secondary Wine Market

By , 26 June 2019



Roland Peens of Wine Cellar, Frank Kilbourn of Strauss & Co and sommelier Higgo Jacobs.

If you are a fine wine collector or even just a keen wine drinker, you could not have failed to hear or read about the recent inaugural Strauss & Co fine wine auction held on 8 June in Houghton, Johannesburg. This maiden auction was the long-contemplated brain child of South African wine merchant Roland Peens of Wine Cellar and leading South African sommelier Higgo Jacobs. Both highly experienced wine trade professionals in their own right with broad commercial, tasting and international judging experience, they realised a long time ago that one of the key factors holding back the overall South African fine wine market on multiple levels was not the consumer’s lack of cash or their readiness to spend it, nor was is the dire economic legacy wrought by a decade of damaging “Zumanomics” that has plagued the long term economic prosperity of all South Africans. No, South Africa’s greatest hamstring was the lack of an established fine wine secondary marketable to function independently, effectively and coherently within a structured environment which allows collectors, speculators, investors and normal consumers alike to sell well-provenanced, well-cellared fine wine rarities back into the broader market place on a willing buyer, willing seller basis.

As Strauss & Co now reflect on the conclusion of their maiden auction in Johannesburg which attained an 85% sell-through rate and begin to plan for their follow up auction at the Westin in Cape Town on 14 September, debate has raged amongst the local wine commentators and wine journalists as to how a secondary fine wine market will change the local wine industry landscape should it prove a long-term ‘success’. From my point of view, as someone who has been working in London, the most intricate and nuanced fine wine market in the world, buying and selling the world’s greatest icon wines to private clients for over 20 years, the whole notion that somehow the South African wine industry and broader wine market is better served by not having active secondary fine wine market commerce is absolutely ludicrous. Much of the anti-secondary market sentiment has been derived from a naive, simplistic, nostalgic, sentimental belief that the great wines of the country should only be bought and cellared by the purchaser with the sole intention of deriving pleasure from the contents of the bottle one day when the wine is consumed by them. Indeed the mere thought of individuals actually buying fine wine as an investment or even as a currency/inflation hedge is enough to send a multitude of wine lovers into instant decline.

But enough of the amateur dramatics! Creating a healthy secondary fine wine market is exactly what is currently required to help wine farms, brand owners, wine merchants and collectors improve the pitiful profitability currently experienced in the broader South African wine industry. Quite clearly, the doomsayers have got this one wrong. I for one can remember the good ol’ days when great estates like Alto only used to release their wines with a minimum of six years of bottle age, and when the cellars at the Bergkelder were full of well-aged back vintages of some of South Africa’s great old wineries. But South Africa’s re-emergence into the international wine market dispensed with these large stocks of back vintages gems within a very short period of time, often at ridiculously cheap prices or as the ‘sweetener’ to sign up new international distributors or agents. If only the great minds of the wine industry had seen the merit in developing a proper secondary market to trade these old wines back in the early 90s, we would already have a mature, well structured infrastructure of fine wine commerce established across South Africa.

But the doomsayers need fear not. The secondary fine wine market is not evil and has no victims, only winners. Everyone in the food chain benefits. If producers have the foresight, cash flow and stock to hold back and cellar, top wines in due course, will realise higher prices in the market once current releases are consumed and a natural element of scarcity has been established. Contrary to popular belief, most wine consumers don’t always want to drink young current-release reds such as Kanonkop Paul Sauer, Porseleinberg, Meerlust Rubicon or Sadie Family Columella. Many would prefer to at least have the opportunity to buy a mature bottle with perfect provenance and that has been cellared optimally. Even the massive tranche of high scoring Chenin Blancs and white blends from a broad swathe of South Africa’s top producers are fantastically better and more interesting wines if aged five to eight years or longer. But of course, like California and Australia, South Africa is a very hot country and popping a few cases of top red under the stairs or in a cooler corner at the back of the garage is not going to yield well-aged red wine after 10 to 15 years. Professional, temperature controlled cellarage is one of the key spokes in the secondary market fine wine trading wheel and finally, key players in the industry have re-awoken to this fact and are now offering optimal cellarage opportunities for consumers.

For the man in the street, nothing will change. They can still buy their everyday drinking reds or whites and carry on with their lives untouched because fine wine is and always will be a very niche market. It has already been proven that Millennials are looking for a different kind of engagement with fine wine and they certainly seem to be drinking less but better. Having a broader selection of already mature wines regularly available to buy, whether directly at auction or from secondary retail, can only be a good thing. When one looks at the broader fine dining industry, the massive luxury hotel industry serving wealthy tourists, the top five star game lodges and of course plain and simple fine wine drinkers, the opportunities for the secondary trade in fine wine makes sound common sense from which ever angle you approach it. Needless to say, the trickle down, halo benefits will offer indirect rewards for most layers of the South African wine industry.

  • Greg Sherwood was born in Pretoria, South Africa, and as the son of a career diplomat, spent his first 21 years travelling the globe with his parents. With a Business Management and Marketing degree from Webster University, St. Louis, Missouri, USA, Sherwood began his working career as a commodity trader. In 2000, he decided to make more of a long-held interest in wine taking a position at Handford Wines in South Kensington, London and is today Senior Wine Buyer. He became a Master of Wine in 2007.


9 comment(s)

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    AB | 28 June 2019

    The ambitions of both sides of the arguement are not mutually exclusive. Fine wine prices can rise, with good wine still being affordable whilst everyone in the value chain benefits. It just requires conscientious industry leaders to look after their employees.

    Hennie Taljaard | 28 June 2019

    the negativity so typical. I think Wine Cellar et al are doing ground breaking work with the auction and the initiative cannot do harm. there will always be good wine at reseanoble prices and I cannot see how a strong secondary market can change that. Lets support the initiative because it gives the industry another attractive dimension.

    Len | 27 June 2019

    I love beer😂

    Melvyn Minnaar | 26 June 2019

    For someone who, perhaps also naively, simplistically, nostalgically and sentimentally, believe in deriving pleasure from the contents of a bottle of wine (what else was it made for?), the foolish, outdated, Thatcher-era “trickle-down” arguments about high prices are but another sign of commodification.
    We’ve seen this in the art world, where the rich have too much money they don’t know what else to spend it on. Hence the masterpiece on the yacht wall and the demise of institutional expertise. (Needless to say this has been a boost for the art auction industry. So make the current connection …)
    The danger of commodification lies in the old capitalist ‘supply-and-demand’ construct: supplying what the rich patron requires. Which may be the same his rich neighbour wants (due to bright marketing and PR).
    Which may not necessarily inspire invention/adventure/creativity in the art studio or the wine cellar. (Why would it if the bottle isn’t even going to be drunk for pleasure?)

    Higgo Jacobs | 26 June 2019

    Hi Tim (et al)
    I think you’re looking at this initiative too academically, and I’d like to discuss more practical elements surrounding what we are doing.
    Similarly, while we were (and still are) looking to improve the sommelier profession when we started SASA folks were criticising (for example) the problems surrounding lack of black female representation in our contests while we were busy throwing everything at it just to be be able to stage contests and to get sommelier education going in SA. Don’t get me wrong, I’m not denying the importance of representation, I’m just denying its usefulness while one is busy plugging holes at a much more elementary level.
    Firstly, if the industry is clueless about the real value of our older wines and the international fine wine market, who love to drink wines with bottle age, are ignorant towards the age-able treasures of wines from the Cape (no doubt also due to pre ’94 political reasons) then no-one in the industry benefits. Can you tell with confidence what the different vintages of Alto or Meerlust Cabernet from the ’80s in your cellar are worth, or how they are drinking? Our lack of documenting tasting notes, price archives, critic notes etc, have lead to the collapse of great brands like Chateau Libertas. Of course other (no doubt short sighted) commercial drivers were at play, but you can’t argue that if the industry was better equipped to appreciate and value our best wines it wouldn’t be allowed. As a side note, I’m not denying the great work of the Nederburg Auction and the Bergkelder Vinoteque, but the fact remains that CL current vintage sells for R56 at Makro.
    Wine Cellar has for a while now been active with the archive of information (scores, notes, technical specs etc) of back vintages of fine SA wine. The fact is that such an initiative is not sustainable on a philanthropic level. It has to have a commercial driver (i.e. an auction) where the market decides value and current, relative quality.
    Secondly, I agree with you with regards to access to fine wine, as contrary to what you may think I am very much in your camp when it comes to what I can afford in fine wines. But surely you can’t oppose the natural forces of supply and demand? When I’m curious about the merit of some of the blue chip international wines I team up with a group of guys, save up and buy and drink it, or I’m happy with a “spoonful” (Kwispedoor) at a special tasting and be done with it.
    The fact is there always remain some wonderful wines, not quite yet discovered, offering the same drinking pleasure. Sometimes guys like you (and I hopefully) would discover them and they may be elevated, deservedly, to stardom and then naturally their prices would rise and perhaps become too expensive for us to afford. Would that stop you looking for them?
    We certainly do NOT argue that all SA wine should be more expensive. We argue that an immature marketplace allows for wines to be under- and over- priced, and that our initiative (among others of course) is a vehicle to help pan that out.
    I am convinced, along with Greg (and clearly many others) that if the opportunity is there for fine SA wines to be showcased and valued on a secondary market platform, more producers would be inspired to compete with the best.
    Thirdly, we do continuous fine wine education in the form of fine wine workshops, tastings, dinners etc. Literally, at every event, there are more than one person telling me afterwards that they didn’t like older wine before (probably because they’ve been fed chalk disguised as cheese) and is now intrigued, or someone learns how to properly cellar their wines etc etc. We are all still building a local fine wine market. Surely it’s not good for anyone if the bulk of what’s served up in our high level restaurants are current trade listed vintages too young to show well…
    Finally, the producers whose wines sold on our first Strauss auction earlier this month are profitable because they built fine brands with wines to back them, not because they sold a handful of bottles on our auction.
    Ps. I have a vested interest as I’m a partner in this auction, but I’m not a retailer, nor a producer.

    Kwispedoor | 26 June 2019

    “For the man in the street, nothing will change.” Well, if you’re in the street and consume (often ON the street) from the vast lake at below R40 per bottle, perhaps. But if you’re in the street and you like good wine, everything will change.

    Not so long ago, people who are not really rich could still afford to save up and splurge on a First Growth (and its ilk). But wine’s tremendous strides as an investment tool (along with the emerging consumer patterns in the East) have resulted in mostly alienating stuff like Penfolds Grange, top Burgundy, etc. from wine lovers that are not utterly loaded. Resignation to merely reading about the top stuff and tasting the odd spoonful at a special tasting has become the norm for the man in the street who loves wine. How long until the upper bracket of SA wines will also be unaffordable to most wine lovers? Well, it already is, but how long until the widening of the bracket starts including the non-spoofy/non-speculative wines?

    I can absolutely understand that people who sell wine get excited about higher prices. The same goes for anyone who benefits along the chain, right back to the producer, of course. And let’s face it, some people along this chain are being hard done by as things stand. The benefits to the industry of sustainably higher prices and a robust secondary market are patently clear. But don’t think for a second that sensible consumers are sharing in the excitement around booming prices. For us, it’s depressing…

    Tim James | 26 June 2019

    As one of the “naive, simplistic, nostalgic, sentimental” people who regret the extreme commodification of the international fine wine market, and the resulting increasing inability of non-rich winelovers to afford the stuff, I can say that it’s less a question of opposing the tsunami than asking for a bit more honesty. The articles on this website welcoming the establishment of a secondary market in SA, and arguing for higher prices have come from those with a vested interest in it – producer, market, retailer.

    Yet they all present the prospect of their own gain as a major advantage for the industry as a whole. Greg here says that the establishment of a secondary market will “improve the pitiful profitability currently experienced in the broader South African wine industry”, without explaining how. (There is, of course, no lack of profitability amongst, I’m pretty sure, all the producers whose wines featured on the first Strauss auction. Quite the opposite.)

    Later Greg is a little more cautious, and introduces the words “indirect” and “most” when he claims that “Needless to say, the trickle down, halo benefits will offer indirect rewards for most layers of the South African wine industry. ” But again there is no account of how this will happen. I might be totally wrong in doubting it will happen – though as I pointed out before as an example, the ludicrous prices paid for top Bordeaux don’t mean that the large majority of Bordeaux producers aren’t still doing pretty badly. But a little less self-righteousness and self-congratulation and a little more explanation would be welcome.

      Neil Tabraham | 1 July 2019

      Tim, just to help out the author somewhat, may I try to explain how a secondary market will improve the profitability of wine in South Africa.

      Firstly, let’s be honest about the need to improve profit in the industry. Several months ago, a report came out suggesting that only 14% of wine producers were actually profitable. To be sustainable and benefit employment opportunities for all South Africans, this important industry needs to sell for more. There are few producers able to improve profitability by reducing overheads. In another recent article on this site, it was stated that an average producer in Bordeaux would expect around 4.40 Euros per litre(?) of wine- or around 70 ZAR. I can assure you that figure is in the realms of unicorns for many producers here. The reason for this, in part, is a strong secondary market in Bordeaux but it is also a mature market, with centuries of knowledge and understanding.

      The understand why a secondary market helps wine prices, it increases the initial purchase price, as investors look to get their hands on the early releases of the best wines from the greatest chateau. This is basic supply and demand, pure and simple, and completely free of any other economic ideology. As you have pointed out, not everyone has deep enough pockets to be able to afford the top wines so other equally credible, but less well known, chateau reap the rewards as those less well off seek to join the party. Of course, many of these wines will be consumed or remain part of private collections, but some will be sold on for profit. As the first auction at Strauss & Co demonstrated, it was the top wineries that featured and these wines clearly do have a secondary market. As this idea takes root, so will individuals wanting to invest which will increase the potential portfolio of the fine wine category. Many other wineries will benefit encouraging producers to make age worthy wines of note to attract buyers looking for long term investments, whether that’s to drink for heightened pleasure or to make some extra money.

      Let’s get back to Bordeaux. The industry and market here in South Africa is very immature, despite several turbulent centuries of wine production. In Bordeaux, the structural mechanics of the wine trade have developed over millennia and include much more than a secondary market. Much other work has been done to increase the value of their wines, mostly making great wines that will age. As Higgo pointed out, historical vintages play an enormous part in attracting attention to scarce wines at auctions but it began before that. Both Bordeaux and Burgundy have created an en-primeur market (sold at a reduced price before the wine is released) that has allowed broader entry into investment for re-sellers and investors alike. The role of negociants in assisting the market must also not be down played.

      As the trade evolves once again in South Africa, many of these support acts are starting to happen. The rise of brands like Blank Bottle, Thorne & Daughters or The Blacksmith (which are essentially grape buying negociants) are making waves and selling at a very respectable price. They sell because they are good and will eventually reach the secondary market through auctions, but they will also have become scarce. A secondary market will exist for these wines because there will always be consumers who wish to try an old vintage, or investors will want to cash in on their savvy purchases.

      The role too of sommeliers supporting South African wine should not be underestimated. The work that Higgo and I are both doing with Sommeliers Academy to train and develop skilled sommeliers will be invaluable when it comes to buying age worthy wines to be cellared and sold at a later date. It is only with knowledge and skill that the secondary market can grow and the current shortage of suitably qualified participants needs to be addressed. The industry, however, must be careful not to appear to be feathering its own nest by holding back wines to control the secondary market. Producers would be wise, therefore, to invest in more education to increase the pool of knowledge that will benefit them long term.

      The last piece of the puzzle is en primeur. While a handful of top Bordeaux chateau are destabilising the en primeur market (mostly because they want the extra profit), this will come when the secondary market has matured. For it to mature, it needs more interest in older vintages to ensure a return on investment, it needs more knowledgeable investors and, lastly, interested buyers.

      I tend to agree that it could appear that those with vested interest are driving this but I don’t believe the average wine drinker will lose out. Most wine consumers at the commoditised end of the market will only see moderate change, and those buyers rarely, if ever, venture into the realms of wine above 100 Rand. It is the wines above this price point that will benefit to varying degrees. Improved quality, better knowledge, appropriate cellaring and a budgeoning secondary market will benefit an important industry that must become sustainable. We’re clearly not there yet, as some of the results of this first auction demonstrate, but I’m confident it will happen.

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