Trends, challenges and opportunity in the South African liquor Industry
The liquor industry, like the tobacco industry, has been a prime target for raising taxes (with little resistance from the public) and restrictive advertising rules. The country imposes what are called sin taxes because of liquor’s addictive qualities. Tobacco is more addictive and thus subjected to much more pervasive and brutal regulation than alcohol.
The country ranks fifth globally in terms of alcohol consumption per capita with approximately 30 litres per person consumption per annum.
The impact of restricting alcohol consumption and high taxes
Restrictions and high taxes, including excise duties, aimed at curbing high consumption and liquor-related harm are not very effective.
The readiness of people to pay whatever they can for these products is obviously a clear signal for the government that it can raise the level of sin taxes significantly without much pushback.
The problem, however, exists in that excessive taxes constitute another form of restriction and trigger illicit trade. The additional restrictions during COVID invigorated illicit distribution channels. But as the saying goes: “Things that have never happened before, happen all the time”, and illicit alcohol, which accounts for about 20% of the market in South Africa, is a dangerous product if the wrong alcohol is produced, as happened in Laos recently, resulting in several fatal casualties.
Excessive taxes result in illicit alcohol trade, reduced profit margins for legal producers, and heightened financial pressure on consumers.
Market segments of the liquor industry in South Africa
The consumption of liquor in South Africa varies based on factors such as socioeconomic status, cultural norms, and urban-rural divides. In more affluent urban areas, the trend is toward moderate consumption of premium alcoholic beverages like craft beer, fine wines, and spirits, often associated with social and leisure activities.
Lower-income and rural communities tend to consume cheaper alcoholic products, including home-brewed, partly due to affordability issues. The youth and young urban professionals show a growing preference for trendy, flavoured beverages and pre-mixed, ready-to-drink cocktails. At the same time, traditional African beer remains popular in rural and township communities, often coupled with cultural rituals and social gatherings.
The size of illicit liquor trade in South Africa
According to the WOW report on the liquor industry in South Africa, a report released in 2020 by the South African Liquor Brand Owners Association, the Beer Association of South Africa, and the wine industry association Vinpro estimates that illicit alcohol sales (counterfeit and unlicensed products) grew at a CAGR of 17% between 2017 and 2020. In 2020 illicit sales were estimated to be R20.5bn or 12.2% of total industry sales (which the report estimated at R177.2bn) which remains a key concern for the industry. This illicit trade includes smuggled goods, counterfeit alcohol, and homebrews, with significant public health risks and destabilisation of the legal alcohol industry.
Liquor imports and exports
The liquor industry’s trade surplus, as indicated in the graph, paints a positive picture despite the decline in wine exports, which dropped by about 17%, primarily due to logistical bottlenecks at Cape Town port and rail infrastructure issues. For the country to claw back and recover lost markets, it needs to improve its infrastructure network. The industry should be able to leverage its strong relationships with international buyers and recover its exports.

Despite challenges associated with taxes and regulation, smaller player can capitalise on various opportunities, by choosing niche markets such as craft beer, premium spirits, or traditional beverages while embracing sustainable practices like eco-friendly packaging or organic production methods, to serve growing consumer demand for responsible products. They can also leverage existing local networks and engage in community-based marketing to thrive in this competitive market that is heavily taxed.
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