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SA brandy industry: premiumisation path aims to revive fortunes

Speaking at a recent AGM KWV CEO Andre van der Veen noted that in the last 10 years brandy sales had slumped from 55-million litres a year to 33-million litres. He predicted sales would probably drop to 30-million litres this year.

Despite softer sales the brandy segment still represents a fair tot of the SA liquor sector with the total value of brandy sales in 2013 topping R3,5bn.

While volumes are under pressure brandy producers can at least look forward to bolstering their margins through a ‘premiumisation’ effort. The Wine and Spirits Board recently legislated revisions to the definitions of premium brandy. This key change – mooted by The South African Brandy Foundation back in 2009 – seeks to protect brandy’s position in the local market by enforcing stricter requirements on how two styles of brandy – vintage and potstill – are produced.

In a nutshell, potstill brandies – which previously could include a maximum of 10% unmatured wine spirit – must now contain 100% potstill brandy. Vintage brandy must now be aged in oak casks no larger than 340 litres for a full eight years at least.

The change should allow premium brandy producers to compete with top end producers of whiskies.

SA Brandy Foundation director, Christelle Reade-Jahn, says that top-end potstill brandy competes directly with single malt whiskies and cognac. “Single malts must be 100% malt spirit and cognacs must be 100% pot distilled.”

She adds the local brandy industry wanted similarly stringent parameters for what constitutes a pot stilled brandy to reflect the already extremely high standard of the offerings.

Chairman of the SA Brandy Foundation and Distell’s Luxury Brands director, Caroline Snyman, says the premiumisation of spirits was a global phenomenon also experienced in the South African market. “This has resulted in the introduction of a number of new potstill and vintage brandies of excellent quality to the South African market.”

Snyman maintains the brandy industry was key to the country’s grape-growing and wine-making industries. “For every one litre of brandy made, five litres of wine is required.”

Peadar Hegarty, vice-chairman of the SA Brandy Foundation and Strategic Director at KWV says brandy has had no relevant message to consumers in the past 10 years. “The consumption dynamic was largely brandy and Coke.”

Hegarty feels KWV could now participate meaningfully in both the lower end volume market and the high end premium market.

“The biggest volumes are for brandies selling for R100 or less but we are increasing our marketing efforts behind our five, ten, and 12 year old brandies.”

Hegarty believes the ‘price/volume’ game could change dramatically in the years ahead. “New consumer patterns have emerged in a growing middle class…we think it’s not impossible for KWV to sell up to one-million litres in our 10 year old brandy in the years ahead.”

Source: Cape Business News

Related reading:

Rules for SA premium brandy tightened