Tuesday, May 30, 2006
Wednesday, May 10, 2006
Todays PODCAST from
DOWNLOAD TELL A FRIEND PLAY
Distribution in America is the key to success. Like anywhere in the
world, route to market is always going to be the killer attribute that can
mean the difference between success and failure. Nowhere in the world is
this more apparent than in the United States where the neo-prohibitionist
hangover of federal liquor controls hangs thick in the air. Americans, it
seems, have reached an uneasy state of acceptance of this extraordinary
status quo where every facet of a wines journey to the end consumer pads
somebodys pocket. To recapr for those who are confised by these statements.
America (generally) has a 3 tiered system of wine distribution whereby the
non-American producer cannot legally sell wine to anyone but a wine
importer. The absurdity starts when you understand that no single person or
business entity may own both a distribution and import license. What this
means is that the importer cannot sell wine to the consumer or even the
retailer/restaurateur and can only sell wine toa distributor who in turn can
also only sell wine to the trade. Technically speaking, the only place a
consumer can gain access to imported wines is through the 3rd tier of the
channel which is the retailer or restaurateur. Once you understand the
vastness of the US market, it is understandable that perhaps this system
would have evolved independently as few companies have the infrastructure
and capabilities to own and distribute nationally with efficiency. But the
system really falls down in the sense that it suppresses free market
activities and that the larger National distributors have little in the way
of competition. As a result of this and to further entrench this skewed
power balance, the larger distributors are being consolidated at a rate
that is unprecedented and fewer distributors are controlling more of the
market. It feels sometimes that every medium-size distributor in the US is
simply waiting for the big guys to come along and buy them out. Might I be
over-dramatising this? Maybe, but this is the feeling on the ground.
So what does this mean for South Africa? Well, for every distributor that
gets purchased, this means fewer distribution slots for South African wines
exist and fewer small producers are able to participate in what becomes a
much larger structure. The larger a distributor gets, the larger the
supplier has to become in order to become a meaningful contributor to bottom-
line. The big brands become bigger and the smaller brands get squeezed out.
The consolidation of distribution and ongoing production fragmentation
continues apace. The two trends are not compatible and we will have to win
over some serious buyers to grow South African wine in the US usually at
the expense of another global supplier.
So where are the opportunities?
The federal and state regulators are slowly (very slowly) dismantling the
complex wine distribution laws, but a combineation of big business
(distributor) lobbying in Washington, a very religious and conservative
population and misplaced priorities is hampering this progress. A high-
profile battle between retail giant Costco and the state of Washington
recently threw up a couple of clues about the future when Costco won the
first step in the battle to allow it to ship directly from the producer. Of
course this judgement will go to appeal and will probably be held up for
years, but Costco is being aggressive and has set a valuable precedent which
any sensible judge cannot fail to respect.
Is this a good thing? Well, yes and no as it si being championed by the
mammoth retailers and you can be sure that they are not pursuing a
Samaritanian endeavour to make money for the supplier no, they are chasing
margin for their bottom-line because they know that through direct imports
and direct shipments, that they can leverage their massive nation-wide
distribution network to exponentially multiply their sales and balloon
already embarrassing margins.
Opportunities exist for South African suppliers to find routes to market
that narrow the gap between importer, distributor and retailer. In some
states, it is (kind-of) legal for the husband to own an import license, the
wife to own a distribution license and the kids to own multiple retail
licenses. It happens another symptom of an idiotic system. Many California
wineries drive a substantial volume of their sales through wine clubs and
direct shipments to customers. Of course there is a limited amount of states
that you can ship to directly, but this has been growing over the years. Is
there a business model here for South African wineries. Is there an
effective model for a South African winery to run a wine club for direct
sales to customers? The answer must be yes, but there has to be demand first
and brand South Africa must become more entrenched before this will work. So
the hard work lies ahead in this massive market opportunity that is the USA.
Monday, May 08, 2006
On the subject of repeating myself, If I hear another consumer complaining that the wines on the WOSA show are not available in the USA, I will scream. It is always going to be difficult to give new entrants an opportunity to show their wines, but perhaps we are putting the cart before the horse on this one. Perhaps these producers have had an opportunity to learn a huge amount about the US market and get a feeling for how to go about positioning themselves to enter the market, but it seems like an illogical and costly entry and market research solution. The tasting this afternoon in Costa Mesa, South of LA is being hosted by a prominent retailer called Hi-Time liquors. Once again the problem is going to raise its head as the consumers can only purchase the wines that the retailer stocks, and at best wines that have Californian distribution its a tough school.
Wow! The Costa Mesa Orange County tasting was a hit the consumers came out in droves and we were run off of our feet. This tasting must have rated as one the most intense and focused consumer wine tastings that I have ever been privileged to participate in. Wines poured, winemakers sweated, consumers listened and the wines of South Africa touched the perfect Southern California market. It was a monumental tasting and even impressed the organizers. I arrived a little more than 10 minutes before the tasting started ( a little late) and had to fight through about 100 people queuing at the door to get in. Big thank must go to Hi-Time Cellars for their excellent organization and boundless energy the show was great!
Thursday, May 04, 2006
San Francisco the flight from Chicago is only 4 hours, but takes in 3
times zones and even this short distance leaves you with jet lag after a
run along the Embarcadero, the waterfront of San Francisco I feel refreshed
and ready for another big day.
But first, lets chat about Chicago. I had some very detailed debates about
the efficacy of the South African presence in the USA with Norman Cilliers
and Ken Forrester who are co-conspirators on this unabashed assault on the
USA. A lot of thoughts came out along with a lot of things that I wanted to
share. A question was posed about how many of the people manning the stands
on the WOSA roadshow actually have authority to transact business and take
any kind of meaningful business decisions. A lot of comment has been
received from consumers, retailers and restaurateurs that they have liked a
lot of the wines and upon enquiring about the producers distributor, were
told that the wines are not available in the USA. Now we understand that
many of the producers are looking for importers and distributors and that
this is a fishing expedition, it was seen as intensely negative from many.
Another thought was that there may be examples of people from South Africa
on the tour who were considering this as a mini vacation from the office and
really had very little likelihood of doing any business. I would encourage a
thorough evaluation of the process upon return to South Africa to see if
there has been any return at all from this trip across America. This is a
concern does this apply to other WOSA road trips? It was suggested in the
same debate that if a follow-up meeting was called for South Africa upon
return, how many of the tour participants would attend?
On the positive side, we had a very beneficial day in Chicago and saw a lot
of existing clients and customers as well as spent some valuable time with
our distributors who are doing a great job. Business was done, relationships
formed and strengthened and the Wines of South Africa made a very positive
Another debate was raised in Chicago. The question about the coordination of
South Africas marketing efforts was discussed and it was felt that we
should be seeking greater cooperation between South Africas marketing
agencies. A South African wine tour would be a perfect companion for a
tourism tour, a finance tour and perhaps even a Safari lodge tour of
America we have invested heavily in this tour and it is a certainty that
we should be cross-pollinating our efforts to a larger extent. The financial
economies of scale alone scream for this type of cooperation. What if the
big South African investment conference that was in NYC at the same time as
the WOSA tour had been in the same venue??? The missed opportunities hurt
the more you think about them. This is not a finger-pointing exercise. It is
however an effort to spark debate about the future of South Africas
investment into the world market with the greatest potential for South
Africa and our wines in particular.
Many producers have reported exceptional sales into the USA, but this could
easily be explained away with filling the pipeline the shelves are
starting to report increased populations of South African wines but are
they moving. The answer has to be yes, but too slowly. This is a consumer
issue and not an importer/distributor issue. Distributors will not take on
any more brands if the existing ones are not moving. This is what is
happening and we should welcome debate on this. This is not a rule, but a
generalization many producers are doing well but Brand South Africa is
NOT flying off the shelf. We need to coordinate our icons what about gold
and diamonds, table mountain, wild animals, Nelson Mandela, Charlize Theron,
Dave Matthews and many other wonderful SA icons that are yet to be
Another contentious question has to be raised about the (negligible)
representation of WOSA board members at this event. The board members on the
tour numbered one (excluding the hard-working CEO, Su) out of a possible
13. If this market is going to be successful we need the support of the
board and this is only going to come about if they understand the market and
this will only ever come about as a result of having been here. It is my
contention that in the next year we are going to have to raise our game
significantly through greater man-power, significantly increased funding and
national coordination if we are going to win the consumer over. Without a
thorough understanding of the complexities and challenges of the US market,
we cannot have strong leadership and without this we are dead in the water.
Despite these challenges, South Africa is gaining traction that will provide
us with a solid platform for our REAL marketing push. Lets call this a
scouting expedition shall we?
Wednesday, May 03, 2006
> The train to NYC was uneventful and a late arrival and check into the crappy Holiday Inn was not very exciting! My shoebox (hotel room) at $290 per night was a firm welcome to NYC gift and I realized that NYC is back after the horrors of 9/11. Boy this place is expensive.
> Back onto the train on Saturday and a great visit to Farmingdale, a vaguely charming town on Long Island. My train was delayed twice due to brush fires and I ended up taking a bus, another train and 2 taxis to make my way to Stew Leonards Wine Shop. I spent the afternoon doing a tasting and educating the guys on South African wine â they reported a steady growth in their South African sales, but mentioned that South Africa had not yet really dome anything significant to compel customers to reach for our wines. The shelves were also (at the bottom) languishing with expired vintages of wines that I cringed at. Perhaps our friends at the big winery in Paarl could do something to try to sell through some of the unsold back vintages polluting the South African category and taking up valuable shelf space around the country?
> Monday â¦ the big day and the WOSA tasting in the Puck building on Lafayette street was all ready to go. Wines of South Africa and the supporting contingent have to be congratulated for putting on a great show and showing a spectacular face to the buyers and trade of NYC. I was proud to be South African as I saw all the winemakers and agents in a beautiful venue, well dressed and with a wonderful selection of SA wines. The tasting started slowly and then started building until it was fantastically busy â it really was good and the trade poured in. For those that had dome some preparation, it was a great opportunity. I cannot speak for the participating producers without importers about the success of the day â but my gut feel is that it might have been a little less successful business wise? There was a good mix of sommeliers, waiting staff, wine shop owners/buyers and other wine buyers and they all seemed really interested. Pinotage was popular and I heard this remark a number of producers who were caught off guard. The fruity, yummy Pinotage wines that had a little sugar found favour with the patrons. You can agree or choose to disagree, but the fact remains that wines with higher extract, good concentration, some sweet oak, a little residual sugar and a smooth finish do wine the customer over in the US. Now, we can fight this, or we can accept it and listen to the market. This does not mean a wholesale corruption of winemaking philosophy and South African terroir â we should just make a point to understand our markets and adapt ourselves to this. This is not a global direction and w4e should treat this topic carefully and not just accept it. It could get heated if treated lightly. We should perhaps open this topic to greater debate and I intend raising this topic at a Rootstock forum some time this year. Anyone want to join in the debate? Click on the comment tab below to start the debate.
> I write this column from my airplane seat en route Chicago for the next installment of the WOSA tour â the windy city will meat the marauding South African wine industry on Wednesday and we can expect to meet some interested and influential customers. Stay tuned.