Change in politics is easy to spot. Donald Trump comes into power and the USA is forever changed. Brexit happens and the UK needs a new worldview. Change in business however is less easy to recognise, and even more difficult to anticipate.
More often than not when you are in the midst of change it is difficult to spot the vicissitudes that have already gone on around you, how they have already impacted on your business and in what measure they have done so. Most difficult of all is the ability to implement change when needed.
The wine industry is a natural cycle of harvest and rebirth, which surely predicates a patient and methodical approach to the business of selling wine? Brands build their credence over decades of steady progression through the ranks, don’t they? Family businesses have a core set of central values and closely held philosophies, isn’t that true? Success can only be achieved by a slow climb to the top, yes? Well, yes and no. Brands can break out of this slow Atlas-like progression by embracing the avenues of change that are around us in the market place.
When viewing a few global wine brands in a historical context, especially over the last five to ten years, one can see how these brands have adapted to change. If we look at Penfolds for example, this brand, which has been around since 1844, has had to reinvent itself time and time again, most recently in 2011 when it became part of the Treasury Wine Estates’ stable. Few would argue that this brand is anything other than a benchmark of global fine wine branding – a true icon. Similarly Robert Mondavi Wines, since their first vintage in 1966, have over the last 50 years constantly reinvented who they are as a brand, most especially after Constellation Brands bought them. This brand again is revered as one of the global wine brands’ elite. Finally by way of example, Antinori Wines, which have been around since 1385 (!) have constantly evolved with market conditions, including China where they are a leading fine wine brand.
In South Africa there are also many examples of brands that have evolved and adapted and continue to lead the way in many areas and markets. Kleine Zalze’s continued success in the UK is not an accident; it is a deliberate and hard worked for strategy which entails long hours in various, often odd, parts of the United Kingdom. Ken Forrester Wines’ recent sale of 51% of their business to AdVini didn’t occur by accident – Ken’s long periods of sales activity in the USA are well known, with shoe leather and face time his most important weapons (as well as excellent wine). And finally by way of South African example, the Krige family’s Kanonkop didn’t achieve success by dabbling in wines that didn’t remain true to their brand. They have absolutely focussed on the dirt in front of their winery. With apologies to the brands mentioned above, none of whom would toot their own horns as I have done, they are but three examples of brands that appear to be getting things right, but are also brands that have not stood still and waited for change. They have embraced it, in some areas led it, and above all, continue to evolve.
So what changes have occurred recently and how can wine brand-owners respond?
The most dramatic and recent change is the fact that the exchange rate seesaw of recent years appears to have slowed. The risk will always be that political instability will continue to place the ZAR in a volatile currency basket, as will many other economic factors. A clear response to this situation is to ensure that your US$ or Euro cover strategy is clearly understood by the cost generating elements of your business, as well as the revenue generators. They need to work in concert to reduce costs as well as drive revenue. Which form of cover to adopt is for you to decide and will always be risk dependent. If however in January of any given year your strategy for that year says that you wish to bank 15% net profit at year end, and an exchange rate benefit makes it 20% in December, then the 5% windfall is just that – a windfall, not a bonus. This should be used as an investment opportunity not as a down payment on a flash 4X4!
Social Media has been the rage for a few years now and is possibly the most dramatic marketing change in the history of selling things. However, how many brand owners have effective, revenue-generating, and customer servicing Social Media strategy and platforms? It’s all very well having a Twitter feed and Facebook page, but if these mediums are not helping to touch consumers directly, then what are they doing for you?
The costs of doing business with retailers/grocers have also increased, as have in-store competition and competitiveness. To be fair this isn’t a recent change but it has become more pronounced in the last few years. The margin squeeze suffered by retailers is reflected in their need to simplify their offerings and generate more return from their wine shelf space and recent years have seen an increase in these types of trading requirements. Retail is getting more challenging cost wise and the store owners cannot ignore major cost drivers such as utilities, fuel, and wages that continue to increase ahead of inflation. If your brand can’t bear the costs associated with selling your wines in retail channels, then don’t participate. Leave that channel to the big brands whose cost and volume dynamics require a retail/grocer led sales strategy. If however you can meet the volume demands, brand building and promotional costs, then make hay, but don’t moan if the beast bites back. There are alternatives however, such as Direct to Consumer platforms, and the link with the previous Social Media point and commercial success is obvious.
Direct to Consumer sales represent a brand owner’s best margin opportunity; however how slick is your own Direct to Consumer sales process? Do you know every direct consumer’s history, their personal likes, and how often they have interacted with you? If not, why not? Who has responsibility in your organisation to correspond with your consumers? How important does this person think their job is and how are they rewarded? How welcome are customers who have taken their time to visit your brand home, or restaurant? How pleased are they with your customer service? How often do you visit their hometown to share your wines and stories?
The rise of the so-called “black elite” or “Mainstream” wine consumer is also a recent and welcome change to South Africa’s wine market dynamics; however, are Khayelitsha, Orlando, Alexandra, Tembisa, and Mamelodi on your sales call lists, or do you stop at Sandton and Sea Point only? Doing business in the old townships is as straightforward as doing business elsewhere. It requires one foot in front of the other, considered and engaging brand conversations, and competitive pricing.
A final change that is required, and is occurring slowly, is that brand owners need to be acting as brand owners, and not as producers. A brand owner has a brand plan, which has objectives and desired outcomes, associated costs, and key measurements of success. If you don’t have all of the above then your brand will drift. If the South African wine industry wishes to change itself most dramatically, then adopting a market led, not production led strategy is the only way to be successful. Paying winemakers (if they are involved in commercial activities) and sales people, market related FMCG equivalent salaries, which include performance-based payments, should be the norm not the exception. Attracting and retaining talent is a key issue that the industry should be focused on.
Recent initiatives by VinPro to drive value rather than volume as part of the solution to delivering a profitable and sustainable South African wine industry are to be welcomed, however the wholesale calls for prices simply to be increased, are likewise not welcome. The market dictates price and the success or failure of your brand is based on your efficient engagement with it. This has not changed.
(This article written by Ross Sleet first appeared on www.wine.co.za )