Distell’s plan to win the UK wine market

Shareholders will hope it pays off.

CAPE TOWN - SA wine and spirits producer, Distell (JSE:DST), has acquired a stake in a small UK wine distributor BrandPhoenix in a bid to gain deeper penetration for its brands in the competitive UK wine market.

BrandPhoenix was launched ten years ago by three veterans of the wine trade and is today the brand owner of FirstCape, a joint-venture with five co-operative cellars and 200 supplying farms in the Cape’s Breede River Valley and one of the top selling SA wines in the UK.

The deal is part of a re-energised global expansion strategy that has seen the company establish strong trade and distribution networks in Africa, Europe, North America and Asia over the past decade. Despite these efforts, almost 73% of revenues are derived from the local market. International volume growth for the six months to February was virtually flat at 1.6%, and in the case of its wine business, actually fell.

In some well established markets, such as in the UK, Distell is refining its marketing strategy. “It is a difficult time for many wine producing countries. In the UK we have realised we have to do things differently,” says Carina Gous, head of Distell’s wine business division. “The market is changing: consumers are buying differently, retailers are consolidating, price points are adjusting.”

As a result of the challenges, some SA producers are pulling out of the UK wine market in search of other markets. SA’s overall share of the UK wine market is falling, she says.

For Distell, which produces a third of SA’s wines and sparkling wines, and is the tenth largest wine marketer worldwide, the pressure is on to reverse this.

“While tough trading conditions have prompted many producers from all over the world to retreat from the country, we believe the UK, as one of the world’s major wine importers, still offers exciting potential and profitability if managed correctly,” Gous says.

Distell will benefit from BrandPhoenix’s market knowledge, trade contacts and logistics capabilities. At the same time Distell’s broad portfolio, which includes Nederburg, Two Oceans, Durbanville Hills, Pongracz and JC Le Roux sparkling wine, will bulk up the distributor’s offering, making it more attractive to retailers.

BrandPhoenix director, Steve Rosser, said that the company is planning an aggressive growth campaign for SA wines in the UK multiple retail channel.

As part of this same, more aggressive strategy, Distell has assigned five of its leading wine brands to another UK distributor, Matthew Clark, this time to extend its presence in the country's on-trade. The distributor is already in discussion with several pub chains regarding listings, according to Distell. The SA company switched distribution from its previous distributor, Waverley TBS, in search of a bigger distribution footprint.

Distell is not alone in facing challenges in the UK. Other new world wine producers, such as Chile, are in a similar position.  A key factor is the fact that their currencies are relatively strong against the UK’s sterling and the euro. This is narrowing export margins and making offshore sales and related costs more difficult.

In its six months to February, Distell revenue grew 3.6% to R6.9bn on a sales volume increase of 2.8%. Domestic sales volumes increased by 3.2%, while international sales volumes grew just 1.6%.

While its brands are well established, volume and profit growth remain elusive. Now that the economy, and consumer spending, have returned to some semblance of growth, the challenge will be to grow volumes in both its local and international businesses.

The company produces three categories of alcoholic drinks: wines; spirits, notably brandy; ciders like Savannah and other ready to drink products, such as Amarula.

Perhaps like the immortal phoenix of Egyptian mythology, BrandPhoenix will prove to be the symbol of immortality, resurrection, and regeneration for the UK wine business.

Shareholders, who have seen the share fall from a high of R80 at the start of February, will hope so.