The diversity of the brandies on offer in the South African market suit the cosmopolitan make up of the country's population. However, as Arnold Kirkby reports, a lot of work still needs to be done to reach the spirits potential.

The introduction of KWV into the South African market and decision by the competition authorities to pull the Martell brand out of Distell's portfolio have helped kick start a premium brandy segment otherwise struggling to rise above worrying levels of lethargy.

A fairly stagnant market still exists for the spirit despite the rising number of up and coming black consumers, who have increasing disposable income and are seeking high value, brand orientated products.

But it is a group of consumers which require a different market focus, with brandy previously targeting white males who mixed it with either Coca Cola or softened it with water.

Brandy production has been around in South Africa for more than 320 years, and the country has grown to be the fifth largest producer in the world - with more than 95% of the golden liquid consumed domestically - so a level of conservatism is to be expected.

There are three main sectors to the market, the super premium and premium, the proprietary and the cut-price sectors - with more than 40 brands fighting across the entire category. National off-consumption volumes average out at about 85% of the market and the rest is on-consumption.

A large portion of the premium products sold on-consumption go to the informal taverns or shebeens in the black townships, though more and more young urban blacks are gravitating towards trendy clubs.

Mixed into the milieu of high volume brandy makers and distributors are a group of about 11 estate brandy makers who make small amounts of high quality brandy and though they hardly register on the Richter scale in terms of volumes they enhance the super premium category with their presence.

According to the latest figures it appears that total year-on-year figures to the end of July 2004, show brandy is worth R2,097 billion, an increase of 8.2% over 2003. However, volumes have dropped by 3,8% to 31,5 million litres.

Proprietary brandy makes up just over 50% of the total market. Volumes of these have grown at 1%, while premium brands have grown by 3.4%. The cut-price volumes have dropped by more than 23%. 

A fall in advertising spend suggests these volumes will remain in the doldrums for some time yet. In the year to the end of June 2004, there was a drop to R29.3m from R33.1m the year before.

Distell put the lion share into advertising, but it also cut its spend from R24m in 2003 to R18.4m this year. It put the most funding behind its Klipdrift and Richelieu brands, with more than R5.5m apiece.

Edward Snell & Co put R4m behind its Wellington range, which is trying to elevate from the cut-price to proprietary level, because of the quality brandy in its mix. Meanwhile almost R3m has gone into boosting its Martell VO and Five Star brands since it returned to the Pernod Ricard fold.

When Pernod Ricard regained control of its Martell brand, it contracted KWV to produce the brandy for it, while it handled the marketing. It has moved rapidly to improve its standing since it got it back at the beginning of the year.

MD of Pernod Ricard's local operation, David de Maardt, said his marketers were gearing Martell VO back into the premium sector where it belonged, while the Five Star would continue fighting the proprietary segment.

"We have put a great deal of time and money into the brand over the past year with television adverts centred on rugby and soccer tournaments, as well as outdoor ads in certain areas and a concerted print campaign," he said.

KWV, however, sits in the middle of this complex industry. It previously served as a central co-operative, responsible for regulating the industry and disposing of excess wine and spirit on behalf of the industry, while ensuring strategic reserves were also maintained.

As such it produced about 50% of all brandy in South Africa - and still does. It, however, was previously not permitted to compete directly on the domestic market with its members, either with wine or brandy.

KWV changed its from being a co-operative to a company in 1997 and relinquished its vast regulating powers. Since launching its 5 year-old brandy, the company's share of the premium sector has shot up from 5.1% in February/March to 9.6% in June/July.

In spite of these impressive statistics, KWV Limited MD, Dr Willem Barnard, admits that there have been a few teething problems on route to market and that the company's penetration is lacking in certain regions.

"We have to work on this, but it is something we will overcome," he said.

Barnard said he had no problem with the way the company was structured with its marketing arm KWV International selling its KWV products, while its production arm, KWV SA, not only produced products for its own labels, but also supplied almost every other brandy company with at least a portion of its base brandy.