Michael Fridjhon: The perils of privileging wine rarity

To mangle and misquote Tolstoy “successful wine markets are all alike; unsuccessful wine markets are all unsuccessful in their own way.”

Humour me while I unpack this in the context of South Africa. We may have a few very successful producers, and we may be riding the crest of a public relations wave, but it would be hard to describe the Cape wine enterprise as good business. The key indicators are grim – a shrinking vineyard area, a declining number of producers, most growers breaking even at best, the local market battling, exports declining, survival dependent on an ever-weakening Rand…all in all, not a pretty picture.

It’s possible to argue that we are no worse off than most other wine-producing nations: Australia’s bulk growers are pretty much done for, the French government is funding a vine-pull scheme in Bordeaux, the German vineyards have been decimated by frost, the Californians by drought and wildfires – it’s tough (but not impossible) to find a poster-boy for a happy wine producing country.

But here’s the thing: most of the other wine producing nations are looking healthier than South Africa if you use metrics relating to shareholder/stakeholder value. Some of our biggest exporters make their living from the misery of growers (hence the attrition in vineyard area and farmer numbers). Most of the fashion brands, the geeky creations of landless winemakers, are the wine world’s equivalent of tuisnywerhede, mom-and-pop businesses so fragile that any one of several factors could wipe them out in a single season. To the extent that we have a strong and sustainable producer sector, it comprises fewer than 80 names, brands which have survived a few recessions and have enough energy and wealth to sit out a few more.

What they generally also have in common – surprisingly – is that their price centre of gravity is low both in local “Big Mac” equivalents and in hard currency terms. They are all pretty good businesses in the South African context – as long as you don’t have to account for the value of assets under management. By this I mean that these “successful” producers are cashflow positive and probably more profitable than they appear to be – as long as the current value of the vineyards (theirs or those they buy from) and the cellar is treated as a sunk cost.

Equally unsurprisingly, this happy position is achieved with an average price per bottle (as received by the winery) probably south of R100, and certainly not much more than R150. Most of our competitors can’t even produce at these costs – largely on account of the basic grape price. Our high-end New World competitors pay multiples of what our more top wineries pay in Rands per ton for grapes. Napa cabernet averages over R150k per ton – more than ten times what growers earn for Stellenbosch fruit. For this we must thank eighty years of state management via the KWV, where volume took precedence over quality, making the grape price the cheapest component in the major commercial brands. The fruit that goes into perfectly respectable wines costs less than R15 per bottle.

The result is a culture where good wine is cheap and readily available, and most of what appears expensive (to us – but is still cheap in international terms) is simply determined by limited supply, made desirable more by “rarity” than by the intrinsics which went into its production. From a consumer perspective this appears to be no bad thing: wine drinkers everywhere would like to have this “problem.” But it drags in its wake the law of unintended consequences.

Several of the geekier, so-called cutting edge wine brands will not be with us forever: they create excitement, and they enable the folk who make them to become proficient and to understand the economics of fine wine production. They provide material for publications like Winemag.co.za, but they don’t shift the needle of the key metrics of industry sustainability by more than a few digits. They are (in general) the icing on the cake, not the cake itself.

Until we have big brands selling high-priced wines in significant volumes, we cannot pretend that we have made a qualitative move upwards from an industry dominated by co-ops forty years ago. The fact that many of our apparently prestigious higher volume brands achieve the bulk of their sales through wines acquired elsewhere in bulk tells you that the smoke-and-mirrors component has got better (as have the margins) but we are a long way from being a fine wine industry.

The test in fact is very simple: almost every one of the more successful mid-size and larger producers have built their businesses on their discount/non-estate labels. The vast proportion of what they sell is not made from their own fruit. The apex of their pyramid is occupied by wines with an apparent claim to a single site within their property. As you move closer to the base the words which appear most often on their labels is “Wine of Western Cape.”

And we as consumers are complicit in this: we allow ourselves to treat rarity as pretty much the only quality criterion – without asking whether or not this actually imbues wine with anything except the message of shortage; once we allow it to dominate the discourse then nothing else has a place in the discussion. Chateau Lafite Rothschild and Chateau d’Yquem are the largest of the top-ranked properties in the 1855 classification. This tells you that you don’t have to sell in infinitesimal quantities for the wine to be great. Penfold’s Grange runs to about 10,000 dozen, Sassicaia to 15,000 and Opus One to 25,000. For what it’s worth, Dom Perignon sells half a million cases.

By making apparent rarity our primary benchmark of judgement we don’t allow our most credible fine wine producers to build critical mass in the premium and ultra-premium segments. We seem to be saying that the mere fact of a wine coming from a bigger-than-boutique cellar precludes it from being taken seriously. When a volume producer does well in a blind judging environment, we doubt the authenticity of the wine or the competence of the tasting panel. When Winemag rated blends in the 2021 Prescient Report, Chateau Libertas 2019 finished in the Top 10 with a score of 92.  Christian Eedes, editor and the chairman of the panel, immediately went to his local supermarket to buy a bottle to check whether he had been given a specially prepared sample (see here).

Until we restore the concept of vinous value to its rightful place, we will have an industry which succeeds by overworking words like “unique,” “old vines” and “single site” while selling its lowest common denominator. We are like the native inhabitants of Manhattan in the 17^th century, happy to exchange what is important to us for a few trinkets and some beads.

• Michael Fridjhon has over thirty-five years’ experience in the liquor industry. He is the founder of Winewizard.co.za and holds various positions including Visiting Professor of Wine Business at the University of Cape Town; founder and director of WineX – the largest consumer wine show in the Southern Hemisphere and chairman of The Trophy Wine Show.