Michael Fridjhon: Wine industry investment in transformation – is it paying off?

By , 22 January 2025

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Transformation is a much used and much abused word in South Africa. The moment it enters a discussion it acquires a peculiar invulnerability. Simply to interrogate the merit of a proposal promising to yield a transformational outcome is to risk social cancellation. Self-censorship prevents any serious debate about the merits of ongoing investment in transformation. There are very few people willing to state the obvious: three decades after the advent of democracy in South Africa, how is it possible to justify the imposition of any BEE/quota/affirmative action legislation in favour of any individual younger than 40?

We can easily identify the fields where South Africa excels on the global stage and in every case it has been because there have been no hand-outs, no freebies: only the strictest application of meritocratic criteria. The Springboks did not win two world cups on the trot by disregarding the importance of performance.

However – and this is a big however – an open, free and fair society expects that the concept of equal rights should include the concept of equal opportunity. If access to entry – to a club, a sector of the economy, or an institution – is closed to any identifiable segment of the population, there isn’t the essential equality of opportunity we should all be ready to demand and defend.

In this context, how exactly does the wine industry look? Three decades down the line, the right of participation is certainly there. Despite this, the primary production level remains frighteningly untransformed. Black-owned/black-controlled farms or wineries represent a mere 2% of the number of producers, of the tonnage crushed and of revenue raised. This is clearly where implementing change has encountered the greatest obduracy. The national demographic is far better represented in wholesale and distribution; even more so in the retail sector. In other words, there are very few growers/winery owners, plenty of re-distributors/wholesalers and a vast number of liquor store and shebeen owners, sales representatives, retailers and sommeliers.

There are several pretty obvious reasons for the absence of transformation at the primary level. Shortage of capital is one, difficulty in penetrating commercial networks is another. But undoubtedly the most important is that the business model is not attractive to funders. Grape growing and wine production remain marginal enterprises. Those already in the game survive because of discounted costs of entry (through inheritance, but also because they may have been spared the full impact of inflation).

Given the poor prospects in primary production, ego, rather than profit, drives acquisition. Wine estates are only attractive to the well-heeled (for whom it is slightly less destructive of capital than owning a yacht). The formula which made transformation of the resource sector possible post-1994 requires the kind of dividend flow which grape growing and wine production simply cannot deliver.

Despite the fact that this is glaringly obvious to anyone with just one functioning brain cell, we still see vast amounts of money, time, and intellectual effort invested in trying to achieve an ownership profile in the primary segment of the wine industry which more fairly reflects the national demographic. No one seems ready to call a halt to this stupidity and waste of resources because it is dangerous to question anything which is packaged as “transformation.” Instead of recognising that this is not a problem likely to be solved by economic/social engineering, we blunder gamely on.

Cape wine producers pay statutory levies to fund exports and transformation. No one can seriously dispute the importance of investing in growing the former. But given the palpable lack of success in transforming the primary sector, shouldn’t we call an end to at least this portion of the expenditure? If a business/enterprise is expected – in terms of its obligations to its shareholders – to allocate its available money on the basis of optimum outcomes, why is this even allowed to happen with quasi-statutory bodies? The only possible explanations are cosmetic (i.e. it looks good) and fear of raising an objection to anything packaged as “transformation.”

This isn’t where it ends: rumour has it that SA Wine (the new entity which centralises the management of the industry under a single roof in a manner which looks to me ominously like how things used to be in the bad old days of the KWV) is contemplating hijacking money from WoSA to fund wine tourism. No one is disputing the need for that particular investment – but surely the time has come to pillage the transformation budget for projects which promise more productive results?

  • 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.

Comments

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    Emile Louw Joubert | 27 January 2025

    I think the current transformation model led by the formal channels is ineffective as transformation cannot – in the world of wine – lead to a meaningful outcome without integration. Here the black-owned brands category have not been assisted, or helped themselves, to become a true part of the Cape wine offering. The majority of these brands have not created, or been supported in creating, sufficient awareness to elicit attention among or to muster engagement with consumers, the trade and the general avenues of wine promotion. With an exclusive focus on transformation and BEE, the real message that should be going out, namely that of wine quality and brand authenticity, is lacking.
    The lack of this stable of brands’ presence on shelves and wine-lists, as well as scant attention in the media, surely proves that efforts to date have for whatever reason not been successful. If this model – a necessary one – is to play a meaningful role instead of being subsidised by the producers without any or little accountability, urgent addressing of its current machinations is required. Otherwise, it remains a bottomless pit, sucking up funds that could be put to better use in promoting the whole category of Cape wine which is still the major priority. Because here we all still have a long, long way to go.

    PK | 27 January 2025

    Hi All,

    May I ask a question, is the transformation topic usually the next thing on the list of things to write about annually, straight after the price increases and or after the SA annual export and growth has been discussed??? I am not trying to be funny, or an @£%*& here, but if we really think the issue is the cream at the top in terms of ownership of wine farms and/or brands, then we are missing the picture completely.

    Does it not start off at grassroots level in terms of cellar assistants being trained up to become assistant winemakers, assistant winemakers being trained up to become winemakers, vineyard workers trained to become vineyard managers and vineyard managers to become viticulturists… not to mention the broader industry, tasting room assistants being trained up to become brand managers, waiters to be trained to become sommeliers, sommeliers to become brand ambassadors, office admin trained to become export managers or head of sales and distribution, etc etc. Actually, with the word ‘trained’, should also be ‘given an opportunity’.

    Please see the bigger picture and stop ticking boxes by pointing at the most obvious things in the industry. There are so much more that can be done that will actually have an impact on the workforce and on people’s lives than running the annual write-up about how there are no black ownership or brand owners. Fixing the structures at grassroots level and putting programs of training in place, where everyday people can aspire to become something bigger and better, will eventually fix the problem at the top.

    Again, not trying to bad mouth anyone or anyones work for that matter, just see the bigger picture and stop this impact-less bickering about things that doesn’t actually have an impact on transformation in the industry and definitely not on the peoples lives who matter most, the people who do all the hard work in the wine industry on a daily basis, the workers.

    Rico Basson | 26 January 2025

    Michael, it is a pity that you did not approach SA Wine to obtain comprehensive input about the Black Farmer or black brand support program, skills/people or socio economic development. I am sure that you know that the statutory levies mentioned in you article is implemented in a 4 year cycle under the governance of the National Agricultural Marketing Council with a requirement that 20% of all levies should be spend on transformation and inclusive growth. They furthermore require that the 20% should be invested in the ratio of:65% on enterprise development (production and marketing), 18% on skills, 12% ownership and 5% socio economic development. We are busy compiling the 2024 review document and will send you a copy when it is done – I am sure you will see that progress is not a one dimensional measure of area under vines

    Tim James | 26 January 2025

    Your logic is clear, Michael, and hard to disagree with. But you don’t actually explain how “vast amounts of money, time, and intellectual effort” are being invested (and wasted) in this project of transforming the ownership profile. I’m not asserting that it doesn’t happen; I’d just be grateful for your indicating where and how all that money etc is being expended/wasted. Incidentally, of course, however much it wants to, no body could begin to act anything like the old KWV without the statutory powers over the industry granted the KWV, which won’t happen again.

      Michael Fridjhon | 26 January 2025

      Tim
      I thought the article made it clear: “Three decades down the line… the primary production level remains frighteningly untransformed. Black-owned/black-controlled farms or wineries represent a mere 2% of the number of producers, of the tonnage crushed and of revenue raised.” Obviously investment in transformation extends across multiple levels including brand support and skills development. So given the poor risk-to-reward ratio of any investment in primary production and the relative failure to produce viable, internationally respected black owned brands (and the moment there is a genuine black-owned brand like Black Oystercatcher it cannot get the SA Wine subsidy for Cape Wine 2025 because it doesn’t want to join the SA Wine black owned brand stand – who would?) I don’t think it’s out of line to suggest a re-think is required.

        Tim James | 26 January 2025

        Michael, you did indeed make the lack of transformation clear. But you didn’t make clear how money and time are being spent (wasted) on failed transformation at the OWNERSHIP level. You want to “call an end to at least this portion of the expenditure”. Who is now spending time and money on this portion? Exactly where is that expenditure portion going? How is the wasted money being spent? Sorry if I’m missing the point. But you want to save the expenditure – I just don’t know what that expenditure is; what concretely would such a saving entail?

          Michael Fridjhon | 26 January 2025

          Tim, the numbers work like this: 20% of all of the statutory levies have to spent on transformation (there’s that word again). Two thirds of this must be spent on enterprise development – made up of production and marketing – and a third of the remaining 35% on ownership. Even if you just look at what is made available directly for ownership you can see it represents over 10% of the transformation budget

    Su Birch | 23 January 2025

    Well said, Michael.
    I think that in terms of the Marketing Act, SA WINE can not hijack funds for other purposes than export promotion.

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