A Recovery For Wineries In South Africa?

A Speedy Recovery For Wineries In SA?

Hidden Profits In SA’s Wine Industry And What You Can Do About It Today

In this article, I explore how wineries have been affected by covid and what cellars can do to leverage accessible emerging technologies to build advantages in the race for dominance in online-driven markets.

We have worked with cellars all over Cape Town and have cultivated winning methodologies that work and help bolster trade in an online world where consumers have the ‘Say’.?

Covid has reminded us of the importance of being ahead of the curve. The industry in SA suffered a loss with the onset of the pandemic.

Overview: The State Of Wine In South Africa

According to The South African’s article: SA has nearly 650 Million litres of unsold wine due to the alcohol bans–that is more than the equivalent of the total sales during the previous year.

This enormous surplus will affect market pricing and cause pressure to shift products ahead of the new harvest this season. With temporary trade shifts toward non-alcoholic beverages, we could see tight margins ahead. While many smaller cellars will suffer due to this squeeze, there is still hope with the level playing fields available via the use of digital platforms and accessible marketing technologies.

Meanwhile, the growing trade tensions between Australia and China could bolster trade and market share for SA wines in Chinese markets. This is where digital resilience in supply- and value chains starts shining with exports and global markets.

China is just an example of many opportunities emerging amongst the disruption in global economies and as SA positions for a larger market share globally with the unbottling of demand.

According to “The China Africa Project”, SA only captured 0.9% of the Chinese wine market in 2019.

“We need to think long-term. Whilst in the short term the demand for wine is still recovering, the long-term payoffs of entering the Chinese market, whilst there is a gap, will bring phenomenal gains for the domestic industry back in South Africa.”

?– Marcus Ford, Wines of South Africa

With growing consumer centricity, the consumer privacy renaissance and eCommerce platforms booming in growth - entities have all the more reason to start building online trade capabilities ahead of competitors.

To fully grasp the scope and impact on the industry and how digital technologies create room for new platform ecosystems we first have to look at the value chain and emerging digital technologies at various stages of this chain.

Wine Industry Value Chain In South Africa: Simplified

1. Viticulture

It all starts with grape growers and suppliers. Viticulture is the growing and harvesting of grapes. When only growing grapes for winemaking it's called viniculture. Core aspects of this link in the chain include cultivation, pest control, pruning and harvesting. This is a very labour-intensive stage. Equipment, tools, soil and transport are key aspects to manage to optimally produce at profitable margins for these suppliers.

Since Agri is fairly new to digital technologies these processes are not as digitalised as farther down the chain. Key technologies unlocking value here includes farm management solution software, IoT technologies, drones and satellite capabilities, data mining and electronic mechanical equipment used for optimizing operations and harvesting.

2. Vinification

Once picked these grapes now have to undergo the all-essential winemaking process. Vinification is the process of turning grape/vegetable extract into wine by fermentation.

Various modern technologies are used in the fermentation and winemaking process and the main tech used are mechanics and electronic machinery. These machines produce data that could be used in the optimization of the fermentation process and create room for IoT devices and data mining.?

Key technologies: Vinification management software and artificial intelligence can be used to unlock efficiencies and leverage the data collected in IoT devices. Wines are blended, stored and left to mature before preparing to enter the retail markets and the homes of the consumers.

3. Warehousing

As soon as the perfect blend has been produced, the bottled or bulk liquids need to be stored safely and securely before further distribution and retailing.

There are many ways in which these processes can be optimised. Cost reduction can be obtained with operations optimizations including shipping liquids in bulk before bottling, increasing the throughput capacity of logistics providers, logistics collaboration, E-certificates to eliminate paper etc.

What rings true is the fact that digital innovation unlocks hidden digital-enabled value. Take investing in a digital logistics platform as an example. This enables digitalised logistics management capabilities that leverage data and machine learning for further operations optimizations and enables once-hidden profit optimizations for every cellar today.

4. Retailing

With South Africa having such a surplus of unsold wine recently – the boom of the eCommerce industry enables greater opportunity to enter the online market than ever before.

Further paradigm-shifting pressure on consumers was induced via recent lockdowns and the Covid pandemic.

“Digital challengers are positioning to capture the online wine market in a race for dominance with platform business models” – Tiny Optics

Information is now only a split-second-fingertip away from any consumer with an internet connection. Customers know what they want before they purchase online.?

Furthermore, Online Shopping increased by 66% in South Africa alone, in 2020, according to a Business Insider article.

Key technologies: Investing in online eCommerce platforms today will prevent the depletion of earnings in the future. The new digital economy is fast-paced and agile approaches in reimagined business models are needed to build new competitive advantages.

5. Consumption

As soon as bottled wine reaches multiple demand points in global markets, a strong support and customer service function can assist in building all-important loyalty.

Key technologies: Rich media and online experiences help harness loyalty. Consumers are drawn to human-like interaction and immersive experiences. Augmented reality, automation and accessible information help build customer lifetime values - ultimately bolstering cash flows and per unit economics.

A Reimagined Wine Business Model

The growing adoption of these technologies starts forming new so-called ‘digital sowing fields’ and cultivating these key capabilities to enable the future of tomorrow’s harvest.

Stakeholders engaged in the industry have to proactively consider these digital disruptions and pro-actively invest and consider how this will affect their business as a whole

To illustrate this we created a simple framework for approaching this new digital ecosystem

A Digital ecosystem framework for the wine industry’s platform business model of the future.

Deploying various digital technologies as mentioned will impact other core aspects of the business namely:

People & Culture

A people change plan is needed to align human capital with the implications of the digital platform business model. It all boils down to people and ensuring that operations and skills are onboarded along with change.?

At the end of the day, companies act as single organisms - having alignment from strategic management down to labour will prevent waste and inefficiencies. Career development and behavioural alignment must be addressed in the context of all stakeholders involved. Because labour is such an intensive input early in wine value chains - this needs top priority whenever the business models are changed and integrated with digital technologies.

Technology and IT Infrastructure

Building a strong IT infrastructure enables a foundation to grow a platform business. Just as soils and fertilizers are laid on developed top-layered soils, so must the technology infrastructure be laid to enable a sowing field for digital capabilities.?

IT, Engineering, Web Technologies, Data Science and Mining, Mathematics, Statistics, Marketing & Customer Experience are examples of skills onboarded into the ecosystems. Integrated platforms enable greater use of data throughout entire organisations and enrich collaborations and communication of insights necessary for lean growth.

Operations

Integrated and continuous planning approaches layer onto these digital ecosystems. This connects execution with real-time data and insights that promote marginal improvements with each step in the journey of the entire value chain. Smarter farming, wine production and a digitalised distribution ecosystem enable tactful planning and execution without misalignment at each link in the chain.?

Integrated commerce platforms enable increased throughput to various demand endpoints and market segments. This can be tracked and managed on a global scale and digitalised information and the ubiquity thereof in the value chain will in effect create greater room for marginal improvement for all stakeholders in the supply chain.

Consumer-Centricity

A consumer-centric approach and customer-led journey design will enable greater demand generation capabilities in global eCommerce ecosystems. Integrating various solutions with APIs and custom software bolsters trade and moves more stock at more profitable rates.?

Consumers are demanding personalised experiences. Actually enabling this however lies in the rich data sets scattered across various touchpoints in a customer’s journey in the online world. This inevitably leads to changing products based on customer preferences and adapting wine based on user-specific needs and interests with a bottom-up approach.

In Summary:

Change is inevitable, and being proactive in positioning for these disruptions is essential for any cellar or organisation in the wine industry today:?

1. Customer loyalty is captured via the adoption of customer experience and front-end focussed retail strategies in reimagined customer journeys.
2. Building platforms and investing in eCommerce capabilities ensure direct access to trade in consumer-driven digital sales and turbulent economic environments.
3. Optimizing processes and leveraging data to increase speed and agility, will prevent lagging.
4. Farmers, cellars and retailers need to do more than ‘dip their toes’ in the Technology and IT infrastructures. Business models and future revenue streams lie beyond business as usual in newly focussed portfolios.

Researched Sources:

Business Insider, (accessed 2022-02-07) “https://www.businessinsider.co.za/wine-surplus-in-south-africa-2020-12”

The South African, (accessed 2022-02-13) “https://www.thesouthafrican.com/news/640-million-litres-of-wine-south-africa-unsold-alcohol-ban-why/”

Prezi, (accessed 2022-02-26) “https://prezi.com/y3n6zprarvs0/value-chain-of-wine/”

The China Africa Project, (accessed 2022-02-25) “https://chinaafricaproject.com/analysis/the-pandemic-and-geopolitics-have-created-new-opportunities-for-south-african-wines-in-china/”

Second Bottle, (accessed 2022-02-24) “https://www.secondbottle.co/wine-making-technology-modern-tech/”

Business Insider, (accessed 2022-02-21) “https://www.businessinsider.co.za/sas-online-retail-has-more-than-doubled-in-two-years-but-the-best-is-probably-over-2021-5”

Forbes, (accessed 2022-02-28) “https://www.forbes.com/sites/lizthach/2021/12/30/what-are-the-future-digital-technology-trends-in-wine-new-oiv-study-reveals-answers/”

Strategy& PwC, (accessed 2022-02–28) “https://www.strategyand.pwc.com/gx/en/insights/industry4-0/global-digital-operations-study-digital-champions.pdf”