Letter to the editor: Why have SA wines not succeeded more in the US market?

By , 4 December 2019

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The following received via email from Simon Shear, who is a writer, editor and “recovering entrepreneur” based in Johannesburg:

As the authors of an interesting new study point out, there are a handful of local brands that manage to crack the US market, and those select few do well.

But it’s a relatively small number. Consumers can expect to see the same few familiar SA labels on their shelves, at liquor stores and boutiques across America.

Local producers who have failed to crack America may be asking themselves what they’ve been doing wrong.

Is it a question of quality? That seems unlikely, given the volume of exports to other countries. Surely British and German consumers, who have exhibited a taste for the Cape’s finest, are at least as discerning as their US counterparts.

Perhaps it’s simply a matter of stylistic preference – the cliché of the American palate attuned to Big Macs and sweet merlot.

That notion is belied by the fact that many of the brands that have successfully entered the US market – the authors mention Secateurs, Chocolate Block, Goats do Roam and the wines of Mulderbosch – are exactly the kinds of wines one would have expected to do well in an advanced consumer market: fairly sophisticated yet accessible, offering an excellent QPR and made in sufficiently large volumes.

So why these wines and not others?

In fact, the authors suggest, the success or failure of South African wines on the US market has less to do with the inherent characteristics of local winemaking and almost everything to do with the structure of the US liquor industry.

Writing in Contexts, a US magazine spotlighting current sociological research, William Finlay and Kavi Pandian argue that the success or failure of SA producers is all about being lucky enough to secure the right importer.

In accordance with the US “three-tier system”, which regulates the sale of alcohol, producers or importers can’t sell directly to retailers. Instead, they must sell to distributors, which in turn sell to retailers.

This has produced a decentralised market, with a proliferation of standalone stores, rather than a concentration of wine sales to large supermarkets with massive buying power, as in Europe.

That may sound like a recipe for the independent producers to flourish, but it also means that top distributors have significant leverage in terms of which wines to push to retailers. That can be a problem for importers trying to get their new brands on shelves, as the distributors’ reps, who earn on volume, often have little incentive to push new unknown wines to their retail contacts.

Indeed, as the authors note:

“Importers often make the mistake of assuming that a distribution agreement with a major distributor will ensure that their wines reach a broad array of retailers. As one unsuccessful importer noted, these ties can be the “kiss of death” for SA wines, because there is little incentive for reps to push them.”

In an ironic twist, not only does choosing an importer with a deep passion for South African wine not guarantee a successful US presence, doing so is negatively correlated with success.

That’s because South African specialist importers may hope that quality, price and passion will be enough to differentiate their portfolio in a crowded market. In fact, given the structural realities of the market, a wine will only feature on store shelves if the importer has sufficient leverage over distributors to compel them to in turn push those products to retailers.

Larger importers with prestigious portfolios and an effective staff component have more leverage over distributors to push the SA wines in their portfolio. As one importer colourfully describes the very successful Vineyard Brands: “Because of that big portfolio and some of the great brands that they carry, they have a very big stick to beat the distributors and the retailers into picking up … some of these brands.”

In more sociological terms, “it turns out that expertise and knowledge are far less important than organisational capital.”

The upshot is that the most successful South African wines in the US market are the ones made by producers who were lucky enough to sign up with the right importer.

Interestingly, the article notes that importers with successful South African portfolios are wary of adding new producers because of opposition from the existing SA winemakers in their portfolio, who, not unreasonably, see the US market as a winner-takes-all scenario.

What is to be done? The authors point out that the influence of big money in US state politics means the three-tier system is unlikely to change any time soon. It’s just another weird artifact of our globalised economy: a well-heeled lobbyist in Montgomery, Alabama can affect the livelihood of an independent winemaker in Stellenbosch.

Comments

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  • Doug Downard14 January 2020

    “This has produced a decentralised market, with a proliferation of standalone stores, rather than a concentration of wine sales to large supermarkets with massive buying power, as in Europe.” Wrong! Another excuse. Costco, Trader Joe’s, Total Wine, and now Aldi’s have a huge national wine retail presence.
    Quality, Volume and Price. The consumer will recognize consistent value.

  • Doug Downard14 January 2020

    Three-tier system and poor choice of distributor are excuses for failure, not reasons. Chile, New Zealand and Argentina are enjoying huge success in the US. I have followed South African wine as a consumer first in Thailand and now in America for more than a decade as Christian may recall. I try to like SA wine but it is really difficult. It is my opinion that SA wines are so poorly represented in the US because there is no pizzaz. SA wines are boring. Sorry. You want to have booming sales here then you will have to work for it starting at home in the western Cape not here in the US.
    You need Quality, Volume and Price.
    Chenin Blanc is said to be the signature wine of South Africa. Show me. Try as I may, I have not bought and drunk one bottle of SA CB below $20 that shouts out “Wow”. Meanwhile, I have a broad selection of Loire Valley CBs to chose from with prices starting at $7 that are awesome, simply delicious. And, don’t forget the Sauvignon Blancs from New Zealand. They deliver consistently excellent taste and value and are now the go to white wine across America. You need to be prepared for a brawl to win even a small piece of that market share.
    Where’s your signature SA red wine? Pinotage? Syrah? Forget it. Chile broke into the market with Cabernet Sauvignon with consistent quality and entry level prices. Argentina broke the bank with Malbec.
    Start planting Cabernet Franc now.
    SA needs only 1 white and 1 red that shouts out South Africa is wine!

  • GillesP4 December 2019

    Why are South African wines not been successful in France?

  • Robert Bradshaw4 December 2019

    Hi, I think your readers deserve better than this. The Finlay and Pandian article in “Contexts” is flawed in more way than can be recounted in this space. Excelsior wines from Robertson is a great example. It’s not even referenced, but is by far (along with Jam Jar, which is referenced) the largest South African wine brand in the USA. It’s distribution figures (stores stocking Excelsior) triple what is referenced by Finlay and Pandian as what represents the entire category. Is selling South Africa a lot of work: sure is! Are great importers selling the category well, building great brands via education, passion and expertise: they sure are! While the three tier system has it’s flaws, it has not precluded Argentina, Portugal and New Zealand from massive growth from a once small base. Based on our 27 year experience, a major elephant in the room that needs to be discussed is the significant disadvantage the South African wine industry faces by having effectively zero government support to help exports grow. That, not the three tier system or educated importers has been the greatest reason why the wines have been slow to scale in America -Robert Bradshaw, President & COO Cape Classics

    • Christian Eedes9 December 2019

      From William Finlay, Meigs professor in the department of sociology at the University of Georgia via email: “As lead author of the study, I appreciate your thoughtful feedback. One point of clarification about our data: we did not overlook Excelsior, which was number 2 on our list and was found in more the 40% of the stores in the study. The wineries we mentioned by name were for purposes of illustration only.”

  • Angela Lloyd4 December 2019

    What I’ve learnt from people such as Ken Forrester, Francois Haasbroek and Simon Back (there must be others) is success in the US doesn’t come without wearing out a lot of shoe leather visiting retailers with their importer. Not just once a year, but two or three times. Their success is hard-won and well-deserved.

    • Christian Eedes4 December 2019

      Hi Angela, Again via Simon: “The point is not that hard work, determination and talent aren’t necessary for success – they may well be – but that they aren’t sufficient. The authors’ claim is that importers who find themselves effectively locked in an agreement with a distributor that can’t be compelled to spotlight the importers’ products are in a much less competitive position, given the way the industry is structured.”

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