"People always complain when they see foreign investment" - How overseas money is changing South Africa's wine fortunes - Focus - Cape Wine 2018

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Even South Africa's famous wildlife is conspiring against the country's wine industry. At a dinner in Cape Town this week, Accolade's head winemaker for South Africa, Gerhard Swart, revealed that baboons, driven hungry by a three-year drought, had eaten up to five tonnes of Accolade's grape harvest.

French wine group Advini has bought three South African wineries in the past four months

French wine group Advini has bought three South African wineries in the past four months

This baboon tale is indicative of the fortunes South African wineries have faced in the past few years.

As the global wine industry comes to Cape Town for this week's Cape Wine trade show, the country's wine industry is in worse shape, in some aspects,  than when the exhibition was last held three years ago. The drought, which has resulted in restrictions on public water supplies and has left many residents in the Cape short of bathing water, has pushed down grape harvests by 15% on average and as much as 40% in some areas, according to Accolade, which owns the South African Kumala and Flagstone brands.

Meanwhile, statistics unveiled this week by the Wines of South Africa trade association place the country at the bottom of a global list of exports price-per-litre. At the start of the exhibition, WoSA chairwoman Carina Gous said this lack of profitability is threateing the South African wine industry's survival.

The domestic market, which accounts for about half of the country's wine output, is also under pressure. As unemployment hits an official 27% (some estimates put the actual figure at 40%), one industry source tells just-drinks that 84% of wine in South Africa sells for below SAR34 (US$2.30) a bottle.

South Africa's travails, however, have coincided with an increase in recognition of the quality of its wines. Long derided as a bulk wine supplier (bulk still accounts for most of the country's wine sales), South Africa is seeing international consumers wake up to old vine heritage and diversity at the higher end.

Paarl organic winery Joostenberg's Elmerie Joubert grew up in the US, but was amazed on a recent trip to New York by the intensity of interest in South African wine. "I really felt the difference this time," Joubert tells just-drinks. To underline this, wine writer Tim Atkin this week awarded a perfect 100 to the Simonsberg region's Kanonkop Paul Sauer 2015, the first time Atkin's has given the unbeatable score to a New World wine.

These days, you can buy a 40-hectare winery in South Africa for the same price as a London apartment

As these two trends combine - a challenged wine industry and improving prestige among consumers - international money is becoming increasingly active in the South African wine industry. It's a simple equation - as land in prime wine regions in California, Bordeaux and elsewhere becomes prohibitively expensive, high-end wineries looking to grow are moving into South African regions where they can get quality acreage at comparatively low prices. The outlay is even more attractive following the South African Rand's fall against global currencies, which last month saw the currency drop to a two-year low against the US dollar. As one person at Cape Wine tells me, these days, you can buy a 40-hectare winery in South Africa for the same price as a London apartment.

Overall figures are hard to come by but, in the last four months, high-end French wine group Advini has bought three South African wineries, most recently a majority stake this year in Stellenbosch Vineyards, while in May, San Francisco-based investment fund Eileses bought terroir vineyard Warwick Wine Estate. A week later, the group snapped up the bigger Uitkyk Wine Farm from Distell

Meanwhile, over the past four years, California's Jackson Family Wines has been upping its investment in its South African Capensis brand, which is now in its third vintage. JFW plans to increase its presence in the country by ramping up its in-house winery operations rather than using third-party suppliers.

Destiny calling?

According to AdVini's director of South African operations, Naretha Ricome, it was "destiny" that brought the French group into Africa. When French wine firms Jeanjean and Laroche merged in 2010 to create Advini, there were questions internally over what to do with the Laroche-owned L'Avenir, a South African winery with French heritage. Ricome convinced Advini to keep itthe asset, and the winery's success in France saw Advini expand its South Africa presence this year with three more vineyards, Stellenbosch Vineyards, Ken Forrester Vineyards and Le Bonheur Wine.

But, while fate may have got Advini started in South Africa, more concrete considerations ensure continued interest in the country.

"Here, you can buy the most magnificent wine estates and have a return on it in a shorter amount of time than you would in France or any other country," Ricome says, adding that expanding in South Africa has allowed Advini, which doesn't lease grapes, to shake-off growth limitations back home.

"Wine plantings in France are decreasing but consumption is increasing," she explains. "Where you have a model that is based on having land, you need to secure your land. [Advini] know that the only way the company can be sustainable is if they put a foot down in another wine-producing country."

Inherent in the process is the targetting of export markets and increasing prices. After five years of investment in L'Avenir, Advini has rasied the price of its entry-level wine from EUR10 to EUR17 a bottle while also introducing a EUR40 single vineyard variant. In the US, meanwhile, Jackson Family Wines sells its Capensis brand for US$85, which puts it at the very top of the pricing ladder in the country for South African wine.

"Margin is not a bad word," says Jackson Family Wines CEO Rick Tigner. "To be sustainable, you have to be profitable, especially at a time when you are losing vineyards here."

Ricome concurs. "It's not just that the vineyards are beautiful and people play rugby here," she says of Advini's entry to South Africa. "There is an economic fact. This is the wave, and they are getting on it."

"Some think that the land should stay in South African hands"

Within the South African wine community, however, the issue of foreign investment can be sensitive. "It's a controversial topic," admits Warren Granat-Mulder, an account manager with the Northern Cape's Orange River Cellars. "Some think that the land should stay in South African hands."

Blaauwklippen Vineyard's Fanie Fousie, whose winery has recently been taken over by a South African businessman, voices a common concern: Foreign investment "risks changing the heritage of South Africa's winelands".

For those on the receiving end, however, it is a different story. "We need this sort of investment," says Jacqueline Lahoud, business director for WineMag, an online South African fine wine publication that was bought by Eileses at the same time as Warwick Wine Estate. "We need someone who has money to come in and buy someone like Warwick and say that the output is too small. That's one of our biggest problems in South Africa - most of our vineyards are too small. All our small suppliers, they have an allocation and then they're out. It's just crazy."

For Dirk Coetzee, head winemaker at Advini's L'Avenir and, at 33, one of the leading lights in the next generation of South African wine talent, the takeover has given him the money and time to focus on producing the best quality wine he can. And, rather than diluting the country's wine heritage, he says Advini is keen to instead turn it up to the maximum. After all, it's the country's terroir that distinguishes Advini's South African wines to consumers.

"People always complain when they see foreign investment," Coetzee explains. "But, they are actually investing in our soil. You can either have a foreign investor that actually builds up the industry, or have a South African investor where the soil moves backwards."

Land reform

There is one cloud on the horizon. Next year marks South Africa's sixth general election since the end of apartheid. In the past few months, the ongoing issue of land redistribution - to right the wrongs of more than five decades of white rule - has re-emerged as a political talking point. In February, Parliament passed a motion that could lead to land being taken from its owners without compensation.

This redistribution threat is one of the reasons that Jackson Family Wines hasn't added to its 2014 purchase of Fijnbosch Vineyard, a 50-hectare land in the Stellenbosch mountains that contributes to the majority of its Capensis blend. The company leases the other grapes it uses, which for the current 2015 vintage came from a total of four vineyards, including Fijnbosch. Of the company's future plans in South Africa, Tigner says: "We're not going to buy a winery, we're going to lease a winery, especially with all the problems going on here."

In contrast, Advini's business model means it will always look to own its own vineyards, However, Ricome says the company is keeping a close eye on the land reform situation. "They [Advini] are very much aware of how it works in South Africa and what your contribution must be," Ricome says.

WineMag's Lahoud agrees: "It does raise concern, and it raises concern because there isn't clarity on the issue." However, she adds that where there are productive farms, land reform is not going to happen.

"The Government isn't off-the-wall crazy," she says. "Of course, there are elections coming and there's nothing like rallying the troops. "I'm not saying none of it takes place. There are areas of land that should be redistributed, but the government hasn't even started gauging what should and what shouldn't. You need to do all of that first."

The land reform issue doesn't appear to have had much effect on enthusiasm for foreign investment. All the companies I spoke to said they are looking to increase investment. JFW is looking to build its own operations in the country to help it crush grapes, while Ricome said Advini is unlikely to stop acquiring new South African vineyards.

"If you look at the growth, you will understand why they won't stop," adds L'Avenir's Coetzee, whose 40-hectare, 120,000-bottle vineyard has seen its sales grow on average 35% a year since Advini took over. 

Eileses is also looking for other opportunities in the country's winelands, Lahoud confirms. Other foreign investment is sure to come into the market, she believes.

"Sure, we've got our problems in South Africa," Lahoud says. "But, when these opportunities come along we need to celebrate them."

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