- February 13, 2015
- Posted by: admin
- Category: KWV Holdings
SA’s wine industry needs a “champion” with access to global distribution and marketing channels, says Chris Logan of Opportune Investments, who punts a takeover of a local brand by luxury goods companies such as LVMH or Richemont.
“The local wine and brandy industry has continuously lost out to more astute competitors — first locally to South African Breweries and then to the global whisky brands and the global wine brands. To turn it around we need a champion.”
LVMH, the world’s largest luxury goods maker whose brands include Louis Vuitton, TAG Heuer and Dior, has a wine and spirits arm with brands such as Moët & Chandon, Hennessy and Glenmorangie. It supplies about 13% of LVMH’s revenues and 20% of profits.
“When LVMH buys brands, first of all the brands get all of LVMH’s marketing expertise, their industry skill and their global distribution. It’s just not a contest, they’ve got huge scale and distribution and really competent marketers.
“Then you’ve got South African wines who have never really outgrown just being good producers,” Mr Logan says, adding that French beverages company Pernod Ricard or drinks company Diageo could also look to acquire underdeveloped South African brands.
“LVMH and Pernod Ricard own top wine brands in Australia and New Zealand, why not SA.”
Both wine and brandy consumption per capita have fallen over the past 20 years in SA, with beer holding the lion’s share of the country’s drinks market while whisky has grown its share. Industry statistics show premium South African wines do not have the pricing power of their counterparts from Italy, France, Chile and other countries.
“If you look at KWV, it still remains a producer organisation. They’re producing the best brandies in the world, which go up against and often beat cognacs like Hennessy,” Mr Logan says, flagging poor marketing which offsets the quality of many local brandy and wine brands. “KWV is the only South African wine brand to be rated in the ‘world’s most admired brands’ by Drinks International, but this has meant little in terms of sales of wine globally.”
Wine and spirits companies KWV and Distell are indirectly listed on the JSE through Niveus Investments and Remgro respectively.
Mr Logan says if a luxury goods firm such as Richemont bought KWV, “it would be a huge fillip for the local industry and allow the luxury goods firm to have a profitable wine and spirits leg like LVMH does”.
“It would lift SA wine out of the low-margin trap it is in,” he said.
But a takeover of one of these companies by Richemont, which is worth about 57% of LVMH’s market value, would be likely not to be supported by shareholders, according to people familiar with the matter.
Richemont’s business includes jewellery, pens and watches under brands such as Cartier, Montblanc and IWC. Partly at the request of investors, Richemont restructured itself in 2008 from being a miniconglomerate into a “pure-play” luxury goods company when it separated its luxury goods business from its other interests. It spun out its British American Tobacco interest to shareholders and created the Reinet Investments vehicle to hold the nonluxury goods interests, meaning that adding a drinks arm would reverse this move.
SA’s wine industry, which exports more bulk commodity-like wines than packaged wines, has flagged low margins as an area of concern for the industry. Brand expert Jeremy Sampson says SA has a reputation for producing commodity-like goods “at the lowest price points”.
“When it comes to (some South African) brandies, they are the best in the world, so why aren’t they charging those price points?”
Other powerful drinks brands have special editions with packaging that adds to their “mystique”, says Mr Sampson, allowing high prices to be charged. “In SA there’s little understanding that with a powerful brand you get greater loyalty but you can charge a greater premium and that puts up your profit margin.
“There are so many tricks and methodologies which you can apply from luxury brands to alcoholic beverages, especially the brandies. Over time you can build up top end, luxury and premium brands.”
BDLIve – Nick Hedley