liquor industry south africa

Introduction

• The liquor industry has been affected by consumers trading down to cheaper alcohol brands.
• Liquor producers have reported tough trading conditions, despite loadshedding having abated.
• Illicit trade in alcohol, which a 2020 report estimated accounted for 22% of total alcohol consumption, remains a key concern for the industry.
• The poor economy has limited growth opportunities in the sector.
• Producers are concerned about above-inflation increases in excise tax, declining wine consumption, poor logistics and pending liquor regulations.
• There is concern about production being concentrated in foreign hands following Heineken’s acquisition of Distell in 2023.
• Supermarkets continue to increase their hold over liquor retail.

Trends

• Affluent wine drinkers are increasingly looking for high-quality wines.
• Flavoured alcoholic beverages like ciders and coolers increased their share of the liquor basket.
• Slowing consumer spend has resulted in consumers either trading down (for example to box wine) or moving away from spirits like whisky.
• The emergence of online shopping has led to increased competition, with new online stores emerging regularly.
• The trend to low and no-alcohol alcohol options continues.
• Wine consumption has fallen. Wine sold in glass bottles has declined in recent years, while bag-in-box consumption has grown.

Opportunities

• Changing consumer preferences provide opportunities for innovation and the creation of new drinks and varieties to grow sales.
• Demand for products (including packaging) that are created sustainably.
• Growth in demand for healthy alternatives in no-alcohol and low-alcohol beverages.
• Growth in online sales, which are still relatively small, provides retailers and producers an alternative route to market.
• Liquor imports from the rest of Africa with lower import tariffs.
• The trend towards premiumisation, with growth in premium brands set to outpace affordable brands.

Challenges

• A long-term decline in the number of wine producers and area under vineyards, land reform and climate change challenges.
• Climate change and water security are a major challenge for the industry.
• Global decline in the wine drinking population.
• Health and social concerns, and proposed amendments to liquor regulations could result in a higher minimum drinking age.
• Logistics challenges have affected wine exports.
• Low economic growth and high inflation has constrained consumer spending.
• Rising raw material costs for alcohol producers.
• The illicit alcohol industry has grown.

Outlook

• Liquor sales have come under pressure as above inflation price increases affected consumer demand and led them to trade down.
• However, liquor retailers, as well as some producers like SAB, reported a recovery in H1 2024.
• A better wine harvest was expected in 2025, given more favourable weather in 2024.
• However, consumer demand for wine is expected to contract, before improved economic conditions and population growth create some demand pull.
• Wine export volumes are expected to remain constrained.
• Liquor retail sales were expected to show steady growth in 2024.

Introduction

• This report focuses on the South African liquor industry, including the manufacture, wholesale and retail of alcoholic beverages.
• Retail revenue in the liquor industry, which is still recovering from alcohol bans during the pandemic, declined in 2022.
• Competition is set to increase following the approval in March 2023 of Heineken’s €2.4bn acquisition of Distell and Namibia Breweries.
• The deal has increased the share of revenue that goes to foreign owned companies in the sector to more than three-quarters of total liquor revenue.
• The poor economic outlook and power cuts are likely to result in a slowdown in liquor sales.
• Illicit trade in alcohol remains a key concern.

Strengths

• South Africa has a strong beer culture.
• The South African wine industry has shown a commitment to ethical wine production and fair trade, as well as organic production.
• The wine industry has seen good export growth in recent years.
• Wine tourism is well established in the Western Cape.

Weaknesses

• Liquor is a discretionary expense which makes it vulnerable to negative economic conditions.
• Low domestic per capita consumption of wine compared to other wine-producing countries.
• The sector, particularly in the spirits and beer segment, is dominated by a small number of large producers.

Opportunities

• African market for wine, distilled spirits, ready to drink products, cider and commercially-brewed beer provides opportunities for growth.
• Celebrity liquor brands are gaining prominence.
• Changing consumer preferences provide opportunities for innovation and the creation of new drinks and varieties to grow sales.
• Demand for products (including packaging) that are created sustainably.
• Growth in demand for healthy alternatives in no-alcohol and low-alcohol beverages.
• Growth in online sales, though niche, provides retailers and producers with an alternative route to market.
• Growth in recent years of the black middle class provides opportunities for premium and niche brands and wine.
• Heineken’s acquisition of Distell could lead to more competition, particularly in beer and cider. Winemakers believe it could help boost wine sales in the rest of Africa.
• The trend towards premiumisation continues, with growth in premium brands set to outpace that of affordable brands.
• There has been strong growth in gin, liqueurs and ciders.

Threats

• A slowing economy and high inflation means consumers could reduce spending on alcohol or trade down to more affordable liquor.
• Climate change could affect grape and barley production.
• Decreasing wine consumption, particularly among youth who are opting for certain spirits and low or no-alcohol options.
• Economic difficulties and the pandemic have suppressed consumer spending.
• Fluctuating exchange rates makes the market very unpredictable to exporters.
• Inputs costs are rising faster than in previous years, driven by loadshedding and a shortage of locally-produced inputs which means producers must rely more on imported materials.
• Liquor legislation becoming more restrictive in terms of the minimum drinking age, advertising and liquor trading hours.
• Loadshedding is driving up costs, while making it more difficult to harvest grapes and produce wine.
• More stringent government tax and excise policy which will lead to higher retail prices and lower margins.
• The growth of the illegal and illicit liquor market, which steals market share from the legal liquor industry.
• The threat of future unrest driven by political and economic uncertainties.

Outlook

• Poor economic growth and high inflation could affect liquor sales as consumers cut back or trade down.
• Some segments will take share from other categories, as gin has taken share from wine, beer and other spirits.
• Global supply chains are improving and slowly normalising.
• A smaller wine grape crop is expected in 2023 due to poor weather and loadshedding.
• Rising input costs are expected to remain a concern.
• While winemakers have experienced decreasing profitability due to increasing costs and low wine prices, average bulk wine prices are expected to increase in 2023 and 2024.

Introduction

This report focuses on the South African liquor industry, including manufacture, wholesale and retail. Since the onset of the pandemic in March 2020, the liquor industry has been subjected to four liquor bans and several periods in which liquor trading was restricted by the government. The South African Liquor Brand owners Association (Salba) estimates that the bans and trading restrictions cost the industry R45.1bn, or 15.8% of projected sales from March 2020 to July 2021. Based on these figures, retail sales were about R180bn in 2020. As a result of the restrictions and bans, total local liquor consumption (including Botswana, Lesotho, Namibia and Eswatini) decreased by 18% to 3.59 billion litres in 2020. The pandemic has also accelerated growth in no-alcohol and low-alcohol beverages, and led to an increase in ecommerce sales. The ongoing trend in premiumisation continues across all categories. Wine experts warn that with the continuing decline in new plantings as a result of farmers coming under increasing financial pressure, the industry may soon find itself facing shortages of some varietals.

Introduction

Strengths

• South Africa has a strong beer culture.
• The South African wine industry has shown a commitment to ethical wine production and fair trade, as well as organic production.
• The wine industry has seen good export growth and is making inroads as a global player.
• Wine tourism is well established in the Western Cape.

Weaknesses

• Liquor is a discretionary expense which makes it vulnerable to negative economic conditions.
• Low domestic per capita consumption of wine compared to other wine-producing countries.
• The sector, particularly in the spirits and beer segment, is dominated by a small number of large producers.

Opportunities

• African market for wine, distilled spirits, ready to drink products, cider and commercially-brewed beer provides opportunities for growth.
• Changing consumer preferences provide opportunities for innovation and the creation of new drinks and varieties to grow sales.
• China’s trade tariffs on Australian wine offer South Africa an opportunity to boost wine exports to the East.
• Demand for products (including packaging) that are created sustainably.
• Growth in demand for healthy alternatives in no-alcohol and low-alcohol beverages.
• Growth in online sales, though niche, provides retailers and producers with an alternative route to market.
• Growth in recent years of the black middle class provides opportunities for premium and niche brands and wine.

Threats

• Continued liquor bans and liquor trading restrictions are threatening the survival of the sector (including wine tourism) and have resulted in prices for wine declining.
• Economic difficulties, with the pandemic having suppressed consumer spending.
• Fluctuating exchange rates makes the market very unpredictable to exporters.
• Liquor legislation becoming more restrictive in terms of the minimum drinking age, advertising and liquor trading hours.
• More stringent government tax and excise policy which will lead to higher retail prices and lower margins.
• The growth of the illegal and illicit liquor market, which steals market share from the legal liquor industry.
• The threat of future unrest driven by political and economic uncertainties.

Outlook

In the already tough current environment with consumer spending under pressure, the South African liquor industry faces a difficult future if the government continues to use liquor trading restrictions and bans to limit the spread of the pandemic. While the most recent ban was lifted on 25 July 2021, the industry was still limited to restricted trading from Mondays to Thursdays only, with restaurants and bars restricted to selling alcohol before curfew. Further bans and restrictions are dependent on when the next wave hits (which some predict will be in December 2021), which in turn is dependent on the country’s ability to speed up the vaccination rate. Brewer Heineken expects global volumes and sales to not exceed pre-pandemic levels in 2021. Local brewers could face shortages of raw materials, as farmers signalled their intention to plant a barely crop that is a third smaller than the current year. Raw materials costs such as aluminium and sugar are also climbing. With the number of new plantings of grape vineyards falling year on year, as financially-distressed farmers cut back, the wine sector could face a shortage of some varietals in the next five years, forecasts industry body Vinpro. Wine export council Wines of South Africa says given the bumper wine harvest in 2021, South Africa could grow wine exports (excluding to Botswana, Lesotho, Namibia and Eswatini) to 400 million litres in 2021 from 319 million litres, although still down on the 420 million litres exported in 2018 and 2013’s over 500 million litres.

Outlook

Introduction

This report focuses on the entire South African liquor industry, including manufacture, wholesale and retail, which is valued at between R106bn and R129bn depending on the source and may be closer to the upper band due to premiumisation and craft products which accrue higher value sales. Total local liquor consumption increased by 0.7% to 4.27 billion litres in 2018 compared to 2017, and growth in value exceeded growth in volume as per capita consumption declined. The industry is considered mature and dominated by large global companies that provide shareholders with long term positive returns. By this measure the top global beer industry players in 2019 were Molson Coors, Ambev (Brazil) and Anheuser-Busch InBev (AB InBev). The top liquor players, those which produce and distribute beer wine and spirits, all have strong brands, which gives them pricing power, (the ability to continuously increase prices) which is enhanced through premiumisation. However mature markets also display slow growth as disruptive new and innovative entrants and products enter the industry. The global industry was said to be worth US$1.5-trillion revenue in 2019.

Strengths

• South Africa has a strong beer culture.
• The South African wine industry has shown a commitment to ethical wine production and fair trade, as well as organic production.
• The wine industry has seen good export growth and is making inroads as a global player.
• There is an aligned and focused statutory levy system for the industry supporting activities like generic marketing.
• Wine tourism is well established in the Western Cape.

Weaknesses

• Liquor is a discretionary expense which makes it vulnerable to negative economic conditions.
• Low domestic per capita consumption of wine compared to other wine-producing countries.
• South Africa’s global position means there are large distances to export markets.
• The large number of producers in the wine industry makes it hard to build brand “South Africa”.

Opportunities

• African market for wine, distilled spirits, ready to drink products, cider and commercially brewed beer provides opportunities for growth.
• Changing consumer preferences provide opportunities for innovation of new drinks and varieties of existing drinks to grow sales.
• Changing consumer trends towards organic and ethical wine in both national and international markets.
• Growth of the black middle class provides opportunities for premium and niche brands and wine.
• Preferential market access under the Economic Partnership Agreement with the EU increases export opportunities for bottled wine.

Threats

• Continued economic difficulties locally and in South Africa’s main trading partners for liquor exports.
• Fluctuating exchange rates makes the market very unpredictable to exporters.
• For craft brewers lack of effective distribution and real estate to operate in.
• Liquor legislation becoming more restrictive in terms of the minimum drinking age, advertising and liquor trading hours.
• More stringent government tax and excise policy which will lead to higher retail prices and even lower margins.
• The growth of the illegal and illicit liquor market, which steals market share from the legal liquor industry.

Outlook

Investment in the industry continues to fund expansion and innovative, agile and resilient players will survive, regardless of size. However, consolidation is increasing and merger and acquisition activity is forecast to increase. Players will be challenged to continue innovating to maintain volumes and profitability and must accommodate changing consumer requirements for increased health and wellness, address climate change impacts and sustainability, premiumisation, convenience and digital channels and increase access to new products, brands, segments and geographies. There are those who contemplate a world without alcohol by 2050, something difficult to comprehend given the size and scale of the industry and how much a part of our lives it represents.

Introduction

This report focuses on the entire South African liquor industry, including manufacture, wholesale and retail, which is valued at between R106bn and R129bn depending on the source. The industry is considered mature and growth is largely organic. Total 2017 liquor consumed was almost 4.24 billion litres, reflecting growth of 1.9% over 2016 driven by an increasing population, aggressive expansion in retail liquor by the major industry players and product premiumisation. Growth is expected in 2018 despite the poor economic climate and will be aided by currency weakness reflected in rising exports. The wine segment is unsustainable at current input costs and the industry continues to contract and concentrate at various levels, driving further consolidation. The illegal and illicit liquor trade continues to have a major impact on the industry and the fiscus. Industry insiders estimate smuggled and counterfeit products have a 10% to 15% impact in the entry level sub R120.00 spirits category.

Strengths

• South Africa has a strong beer culture.
• The South African wine industry has shown a commitment to ethical wine production and fair trade, as well as organic production.
• The wine industry has seen good export growth and is making inroads as a global player.
• There is an aligned and focused statutory levy system for the industry supporting activities like generic marketing.
• Wine tourism is well established in the Western Cape.

Weaknesses

• Liquor is a discretionary expense which makes it vulnerable to negative economic conditions.
• Low domestic per capita consumption of wine compared to other wine-producing countries.
• South Africa’s global position means there are large distances to export markets.
• The large number of producers in the wine industry makes it hard to build brand “South Africa”.

Opportunities

• African market for wine, distilled spirits, ready to drink products, cider and commercially brewed beer provides opportunities for growth.
• Changing consumer preferences provide opportunities for innovation of new drinks and varieties of existing drinks to grow sales.
• Changing consumer trends towards organic and ethical wine in both national and international markets.
• Growth of the black middle class provides opportunities for premium and niche brands and wine.
• Preferential market access under the Economic Partnership Agreement with the EU increases export opportunities for bottled wine

Threats

• Continued economic difficulties locally and in South Africa’s main trading partners for liquor exports.
• Fluctuating exchange rates makes the market very unpredictable to exporters.
• Liquor legislation becoming more restrictive in terms of the minimum drinking age, advertising and liquor trading hours.
• More stringent government tax and excise policy which will lead to higher retail prices and even lower margins.
• The growth of the illegal and illicit liquor market, which steals market share from the legal liquor industry.

Outlook

VinPro reports that unsustainable average gross income prevents wine producers from implementing necessary capital replacement. This may result in grapevines, buildings and moveables beginning to exceed accepted industry lifespan norms, threatening sustainability. The move to more profitable crops, the increasing age of vines and declining area planted to vines are indicative of an imminent structural shift, as local supply adjusts to meet global and local demand. VinPro forecasts that total hectares will decline to approximately 85,000 ha by 2022 resulting in approximate production declining to 1.30 million tons (2017 1.43 million tons) and a net wine volume reduction of 123 million litres. Continuing tight credit conditions, contracting real disposable income and low consumer and business confidence levels appear set to continue. Consumer spending is likely to remain depressed for the rest of 2018 and GDP growth is expected to be less than 1%. Increased export opportunities are possible as the currency continues to weaken. There are also opportunities in niche segments, although escalating input costs and declining consumer disposable income are almost a certainty. Investment in the industry segments continues, and innovative, agile and resilient players will survive, regardless of size.

Introduction

This report focuses on the entire South African liquor industry, including manufacture, wholesale and retail, which was valued at an estimated R106.1bn in 2016. This is expected to grow by 10.3% in value in 2017 despite the poor economic climate, although per capita consumption of alcohol grew by just 1.3% between 2015 and 2016. In general, the depreciation of the Rand impacted positively on liquor exports but with the adverse effect of raising input costs. The much anticipated merger between South African Breweries (SABMiller) and Anheuser-Busch InBev (AB InBev) was completed in October 2016 and is expected to result in more competition, more acquisitions and significant shifts in the market.

Strengths

• South Africa has a strong beer culture.
• The South African wine industry has shown a commitment to ethical wine production and fair trade, as well as organic production in the wine sector.
• The wine industry has seen good export growth and is making inroads as a global player.
• There is an aligned and focused statutory levy system for the industry supporting activities like generic marketing.
• Wine tourism is well established in the Western Cape.

Weaknesses

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• Liquor is a discretionary expense which makes it vulnerable to negative economic conditions.
• Low domestic per capita consumption of wine compared to other wine-producing countries.
• South Africa’s global position means there are large distances to export markets.
• The large number of producers in the wine industry makes it hard to build brand “South Africa”.

Opportunities

• African market for wine, distilled spirits, RTDs, cider and commercially brewed beer provides opportunities for growth.
• Changing consumer preferences provide opportunities for innovation of new drinks and varieties of existing drinks to grow sales.
• Changing consumer trends towards organic and ethical wine in both national and international markets.
• EPA with Europe increases export opportunities for bottled wine.
• Growth of the black middle class provides opportunities for premium brands and wine.

Threats

• Continued economic difficulties locally and in South Africa’s main trading partners for liquor exports.
• Fluctuating exchange rate makes the market very unpredictable to exporters.
• Liquor legislation becoming more restrictive in terms of the minimum drinking age, advertising and liquor trading hours.
• More stringent government tax and excise policy which will lead to higher retail prices and even lower margins.
• The growth of the illegal and illicit liquor market, which steals market share from the legal liquor industry.

Outlook

The 2.3% decline in consumer spending on non-durable goods including alcoholic beverages during the first quarter of 2017 was a result of tight credit conditions, a contraction in real disposable income and low consumer and business confidence levels. Consumer spending is likely to remain depressed for the rest of 2017 as tough economic conditions continue, and GDP growth is expected to be less than 1%. Increased export opportunities for the liquor industry are likely to result from the recent appreciation of the Rand and the wine industry in particular is expected to benefit from an Economic Partnership Agreement with the EU which could add 100,000 jobs to the economy over the next ten years. However, stakeholders expressed concern over stricter government control on the legal age limit for the consumption of alcohol and a ban on all advertising of alcoholic products.

Introduction

This report focuses on the entire South African liquor industry, including manufacture, wholesale and retail, which was valued at an estimated R96.5bn in the 2014/2015 financial year. Challenging trading conditions in a depressed economy mean that on the whole, per capita consumption of alcohol decreased by 1% between 2014 and 2015. Although in general the depreciation of the Rand impacted positively on liquor exports, it had the adverse effect of raising input costs. Structurally, 2015/2016 saw some changes in the market with the announcement of the merger between South African Breweries (SAB) and Anheuser-Busch InBev (AB InBev) and the splitting of Brandhouse into a beer and spirits sector.

Strengths

• In the beer sector there are large companies with a global presence.
• South Africa has a strong beer culture.
• The relevant natural resources are readily available.
• The South African liquor industry is one of the global forerunners in terms of environmental legislation and industry commitment to fair trade, as well as organic production in the wine sector.
• There has been exceptional export growth and the South African wine industry is making inroads as a global player.
• There is an aligned and focused statutory levy system for the industry supporting activities like generic marketing.
• Wine tourism is well-established in Western Cape.

Weaknesses

• Lack of coordination and consolidation in the international marketing of wine.
• Lack of serious investment due to small margins.
• Liquor is a discretionary expense which makes it vulnerable to negative economic conditions when consumer spending is under pressure.
• Low domestic per capita consumption compared to other wine-producing countries.
• Price competition amongst South African producers and high unit costs renders the wine industry increasingly marginal, a “price taker” and economically unstable.
• Relative newcomer to the international wine market and has to compete with wine producers with established markets.
• South Africa’s global position means there are large distances to export markets.
• The BEE process put forward by government is still being implemented. Many wineries are still unsure or unaware of the full implications of BEE.

Opportunities

• African market for wine, distilled spirits, RTDs, cider and commercially brewed beer provides opportunities for growth.
• Changing consumer preferences provide opportunities for innovation of new drinks and varieties of existing drinks to grow sales.
• Changing consumer trends towards organic and Fairtrade wine in both national and international markets.
• Growth of the black middle class provides opportunities for premium brands and wine.
• Increase in demand for red wine globally.
• Increasing exports to USA, which is expected to be the largest wine-consuming nation by 2020.
• Social media presents new marketing channels.
• Wine tourism in other wine-producing parts of South Africa.

Threats

• Continued economic difficulties in developed economies and South Africa’s main trading partners for liquor exports.
• Fluctuating exchange rate makes the market very unpredictable to exporters.
• Liquor legislation becoming more restrictive in terms of the minimum drinking age, advertising and liquor trading hours.
• More stringent government tax and excise policy which will lead to higher retail prices and even lower margins.
• The growth of the illegal and illicit liquor market, which steals market share from the legal liquor industry.
• Threat of labour action which may disrupt operations and further increase input costs.

Outlook

A challenging global macroeconomic environment leading to constrained conditions and subdued consumer spending is expected to result in tough trading conditions. According to the Bureau of Economic Research (BER), real growth in consumer spending on non-durable goods including alcoholic beverages is expected to decelerate from 2.3% in 2015 to 1.3% in 2016. Although the short-term domestic outlook remains uncertain and pessimistic, the prospects for the liquor industry in the medium-term are more optimistic given some of the future duty-free market agreements for South Africa’s exports which could add a further 100,000 jobs to the economy over the next ten years. Stakeholders expressed concern over stricter government control on the legal age limit and the advertising of alcohol which could threaten growth, as could an increase in taxation.