Lead markets hold key to KWV's global aspirations
By Chris Brook-Carter | 9 July 2001
KWV has had more to do than most to overcome the prejudices associated with the South African wine industry and the inefficiencies of its apartheid era. Managing director Vernon Davis talks to Chris Brook-Carter about the success so far and the unveiling of phase two of KWV's strategic direction.
|Vernon Davis at KWV International's stand at LIWSF|
Vernon Davis, the softly spoken managing director of KWV International, sits in a small room off Olympia. Away from the busy throngs of this year's London International Wine and Spirits Fair, it's a welcome opportunity, I expect, for him to get off the stand and take stock of the last three days. Within an hour of the interview finishing he'll be back on a plane to South Africa to start finalising with the KWV board the plans for the second part of the company's drive to establish itself as a leading presence in the international market.
There is little time to pause for breath in the international wine world these days.
KWV, like Davis, has been busy this last year. The first part of a strategic direction set out when KWV International was established in 1995 has been completed "fairly quickly" Davis says with characteristic understatement. In fact the company has seen its entire direction practically transformed in this time period.
"Since the conversion from cooperative to private company specific changes have happened - the law was replaced by the market," Davis explains. "We used to have to do a certain function for the government. KWV's total focus now had to be on what the market wanted, this process started in 1996."
"The UK is a sophisticated market & a good one for our wines making around 20% of KWV International's exports"
"Certain important issues had to be addressed," he says on phase one. "A brand strategy had to be devised; our wines had to be benchmarked against leading global brands in various price segments; new wine styles and presentations had to be decided upon and we had to identify our market focus to achieve a meaningful presence in key markets."
He adds: "Increased globalisation of the world's beverage companies and more competition were factors that were also considered when the strategy was embarked upon."
These goals are all the more impressive when you take into account the work needed to make KWV competitive on the world scene. Like so many state-owned bodies there was a lot to do internally to transform the company so it could efficiently manage return on investment, cashflow and growth.
Davis admits KWV had the poor reputation that often, whether unfairly or not, comes with being a cooperative. "We were called a monolith," he says, "despite being only a small to medium size company. The service was poor out of South Africa and we were no exception."
|KWV cellar in Paarl|
But a recent company conference gave Davis and his management time to take stock of how far the company had come. It was agreed that KWV now had the brands and platform to achieve the significant growth that had always been the ultimate goal. And far from sitting back and admiring what it has achieved so far, phase two is due to launch with the new financial year in July.
"This phase comprises us increasing our market share in already identified focus markets with our core products," says Davis. To be pushing hard in all KWV's markets would be too expensive, he explains, so the plan is to go hard at the UK (which makes up 30% of his business), Germany and the US.
"[We are] therefore, investing in our main markets to grow them and thus obtain a return on investment. The company has streamlined its functions and personnel to ensure that product quality and service are paramount."
In a simple matter of economics these three markets were identified for their size, potential and profitability but all to varying degrees.
"We looked at all our markets and did an analysis of the growth of wine consumption, profits and barriers to entry," Davis explains. "The UK is in every respect South Africa's traditional market and this is especially for the wine industry which has long had a foothold there. It is a sophisticated market and a good one for our wines making around 20% of KWV International's exports.
"Germany has sheer volume and the New World is very small, so we saw an opportunity. The German market enjoys South African wines that are a synthesis of the New World wine style with a classical French undertone."
He goes on: "And, the USA is the most powerful economy on earth and has tremendous growth potential for South African wine."
However, each market also offers its own unique pitfalls so there is no guarantee of success. The UK is highly competitive, possibly the most competitive market in the world. Germany has yet to fully embrace New World wine and is highly price sensitive while the US market is a minefield all of its own. As Davis says: "If you can crack that market you will do very well but you can spend a lot and fail."
To this end the approach being taken is very brand led. The push will be driven by KWV's big three - Robert's Rock, Rooderberg and the premium Perold. Each will be backed by sustained marketing campaigns with an overall strategy from South Africa but with the tone being dictated by the individual markets.
"We are the most consistent South African brand builder in overseas markets and will continue to build our brands," Davis says.
Davis is reluctant to give away any figures on his final goals for the next five-year period because he says he "doesn't want to give any of my competitors any information that might be an advantage". However when pressed he says that while every market target is different, KWV International wants to grow volumes so "we take up the installed capacity of KWV cellars", which is 3.5 to 4m cases.
"We are the most consistent South African brand builder in overseas markets and will continue to build our brands"
Interestingly although the brands are clearly of primary importance, Davis does not rule out acquisitions in the future to help the drive towards this goal. "We are continually on the look out for joint ventures or strategic alliances in order to grow our portfolio and offer a wide, quality-based selection of wines in all price segments."
Indeed KWV International already controls the KWV brands from Chile and New Zealand and Davis says: "I foresee that the addition of third country brands will continue."
Davis says that apart from a few final board approvals the money (again he is reluctant to say how much) is now there to begin this more focussed drive. Davis appears well aware of the task that confronts him. He faces challenges from other New World countries which have something of a head start on the South African industry, and KWV still has to fight off reluctance by consumers and trade alike to embrace South African wines in the way Australian or even perhaps some South American offerings have been accepted.
"South Africa does have an image of a supplier of lesser quality world wines," he admits. "But what I personally find is that we are only lagging the Australians in what we can command for our prices."
While KWV can do a lot, Davis says, on its own to push its brands and South African wine in general, there is clearly a little frustration the company is not backed by the sort of generic support machine his Aussie rivals benefit from.
"Wines of South Africa (WOSA) is the generic wine promotional body for the South African wine industry in international markets. They have begun to make an impact in South Africa's biggest markets but much needs to be done to compensate for the years of isolation to inform people about South Africa.
"KWV International can do a lot on its own but we are an integral part of the SA industry and we need that generic push."
The good news for South Africa is that KWV clearly intends to take a lead in this matter, as it should as one of the figureheads in its country's industry, and success for the company can only help the entire South African industry.
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