Wine across America Blog - Los Angeles

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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 somebody’s 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.

Wine across America – California Dreaming!

The late night arrival of Team South Africa on the East Coast with an additional 3 time-zone changes was a minor shock as the road-show rolls on. After 3 months of non-stop rain that has been seriously affecting budding and shoot-development in California, the skies finally opened on the day of the Wines of South Africa tasting downtown, a stones throw from the eponymous Embarcadero. By many accounts, this tasting has been the most successful of the tour to date. Restaurateurs, retailers and eager consumers arrived in droves and kept everyone busy with an intense interest in learning more about South African wine. It is once again clear how closely linked tourism and wine are in selling brand South Africa. A large majority of the consumers had either been to South Africa or knew of someone that was going and this provided the key draw card, in my opinion. Americans have an embarrassment of choice and this is what has made America the enormous consumer culture that it is – or was it the other way around? The consumer, on the one hand, can be a little jaded and confused by choice. But if the message and the choice is communicated clearly and unambiguously to the consumer, they show an incredible willingness to open themselves up to trying something new. I have said this before – but feel that it is important to restate. Americans want us to teach them about our products and they want to buy them. We just need to start working on a clear message because at the moment our little wine industry does not have the financial or logistical clout to really get the message across. Sydney Harbour Bridge sells more Australian wine than you can imagine. ‘Finding Nemo’ and many other cultural icons has driven a whole generation to find Aussie interesting and exciting. We got close with Lion King – but it was really not there, was it?
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 – it’s 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!
I would like to pay tribute to the WOSA team for the effort and organization in putting this tour together – it has been an eye-opener for many producers and will be a catalyst for South Africa in this market. It is also a catalyst for greater cooperation in building South African wines in the US by building brand South Africa. One of the great minds behind doing just that is Yvonne Johnston at the SA International Marketing Council. It has been said that a bottle of wine in every wine shop and on every wine list in America will act as a positive reinforcer for Brand South Africa’s generic image. The wine industry has a lot to offer our marketing drive and we should not play second-fiddle. Tourism and many other SA industries engaged in marketing all have an excellent opportunity to harness synergies by partnering with WOSA – wine is exploding in America and we are in the right place at the right time – but there will not be more than one chance to get it right.

The Wines of South Africa tour heads West

I have now arrived along with Team South Africa in beautiful (and chilly)
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
impact.
Another debate was raised in Chicago. The question about the coordination of
South Africa’s marketing efforts was discussed and it was felt that we
should be seeking greater cooperation between South Africa’s 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 Africa’s
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
discovered.
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?

The WOSA tasting in NYC

The WOSA tasting in NYC

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A brief video showing the space and the excellent attendacne at the WOSA New York City show a couple of days ago.

Pennsylvania, New York and Illinois - the train continues rolling!

Great excitement for South African wine is that the head winebuyer for the PLCB (Pennsylvania Liquor Control Board) has decided that it is about time that South Africa is featured as wine of the month and October 2006 it will be. After an excellent lunch with Steve Pollack, Mark Hazurand the guys from the Wine Merchant a broad agreement was made on how to proceed. Pennsylvania is a monopoly state and over 150 wine stores and outlets are owned and controlled by the State. This could be an opportunity? Steve has undertaken to assemble 125 store managers in one place for a whole afternoon in September for a South African seminar in which we can ‘educate’ them about South Africa, our geography, geology, climate and wines. I spoke to Rory Callahan and he has committed to presenting the seminar – he will need some backup. Bill Kohl who is the GM of the Harrisburg Hilton has agreed to make the conference facilities available to us in September at no cost and so we are all set. This is going to be enormous for South Africa! Well done Rory!
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 – 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 … 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 – 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 – 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 – 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 – 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.