Can the SA discount wine model prevail?
What is supporting this business model is the ongoing glut of wine in the industry, as well as the overwhelming number of wine farms (600-odd) all trying to attract consumer attention.
While wine makers do not like discounting their wine, and better-known cellars would rather pour it down the drain than discount it, plain economics suggests that this business model could prevail for the foreseeable future. Here are the key players:
“The bottom line for some wine makers is that they need to move stock in order to raise capital for the next harvest,” says Johan Wegner, owner of Getwine.co.za.
In other cases a less well-known wine farmer may be prepared to take a hit in order to move the wine and benefit from the marketing exposure.
Wegner saw the opportunity for discounted wine sales in 2003 when a farmer asked him to move a surplus of unlabelled wine quickly. Getwine still sells unlabelled wine at big discounts, but this is no longer the biggest part of the business. Now it’s about finding great deals and offering these to customers.
CyberCellar is South Africa’s oldest wine retailer, having started out in 1998 with Kalahari.com. Although its focus is not discounted wines, the business did move into this area in order to boost foot-traffic.
A management buy-out of CyberCellar was recently concluded with the business model transitioning back towards its heritage, which is to offer customers the widest selection of wines available, at cellar door prices.
“We have grown our traffic by 300% in the past 12 months, but we believe that along with the discounted wines, customers want a rich experience and will pay a little more for better product curation, access to wider choices, good and reliable customer service, quick and free delivery and knowledgeable wine staff” says co-owner David Muller.
Arguably the most aggressive is Salewine.co.za, founded by Ryan Sowray who has worked across the wine industry for almost 20 years. His was the country’s first online flash-sale website for wines. A flash-sale means that every 72 hours or so, Salewine offers wines that are discounted – sometimes by as much as 70% – for the next 72 hours, or less.
“The business is small and I do the tasting myself. I focus on wines that I like and I think my customers will like.” he says. His business model is also moving away from pure discount to include wines that ‘Ryan Recommends’.
The latest to enter the market is 5ounces which was launched by Trevor Gosling, with Naspers e-commerce division MIH behind it. “I believe the e-commerce market is where South Africa will see some of the biggest commercial sector growth over the next five to ten years,” he says.
5ounces, a name derived from the imperial measurement for a standard glass of wine, also provides consumers with access to high quality wine (preferably wines with 4 Platter stars) at discounted prices via a ‘flash-sale’.
There is no denying that the game is hugely competitive. These sites are just the tip of the ice-berg. Johan Wegner estimates there are about 22 online wine sites operating in SA at any one time – although not all are discounters. Competition is tough, and with input prices – like petrol and toll fees – rising, margins are skinny.
Muller questions the sustainability of a pure discount model.
However, customers, who are spoilt for choice right now, would beg to disagree.
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