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Distell's new wine blend

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Distell's new wine blend - [http://s3.india.com/wp-content/uploads/2016/02/Wine-Main-Article-1.jpg] Distell's new wine blend - [http://s3.india.com/wp-content/uploads/2016/02/Wine-Main-Article-1.jpg]

Liquor conglomerate Distell looks determined to reinforce a profitable position for its wine division in a tough consumer market by reducing the number of brands.

In its recently released interim results, Distell noted heavy discounting and acceleration in consumer trading down trends in South Africa – where the company is the largest wine player with a sprawling portfolio of brands that include iconic brands Drostdy Hof, Nederburg, Fleur du Cap, Zonnebloem, Durbanville Hills, Allesverloren, Plaiser de Merle, Autumn Harvest, JD le Roux, Neethlingshof, Cellar Cask, Paarl Perle and Alto.

Distell CEO Richard Rushton said premium offerings were under pressure, and that a strategy review was being finalised. In an interim presentation to investors, Rushton said Distell intended playing to its strengths with a focus on high growth, asset efficiencies and “winnable opportunities”.

The most intriguing comment from Rushton was that Distell would simplify its portfolio, and “invest more resources in fewer brands…” This, contended Rushton, would increase operational efficiency “by building fewer brands in validated priority markets”.

In the interim period Distell’s wine bouquet accounted for 36% of total volumes (increasing fractionally) and 28.7% of sales (up 3.5%). Wine represented 29.4% of gross profits, but the growth of 2.4% markedly lagged the increases notched up by the spirits and cider/Ready-todrink categories (which saw growth of 19.2% and 5.2% respectively).

The real story – in recent years - of Distell’s recent wine segment is the remarkable success enjoyed by the 4th Street brand – which is pitched as a vibrant entry level tipple (and distinct from older ‘affordable’ wine brands like Drostdy Hof, Tassenberg, Autumn Harvest, Cellar Cask and Chateau Libertas).

It appears to be aimed at the ‘younger drinking market’, where Distell has enjoyed so much success with ciders like Hunters Dry and Savanna. The added benefit of 4thStreet’s success is that the brand effectively recruits new consumers to the wine category.

Rushton said 4th Street once again achieved strong double digit growth in the interim period, and the brand’s local market leadership momentum continued. He said 4th Street was now ranked as the world’s fastest growing wine brand.

Distell is certainly not resting on its laurels as regards 4th Street’s successes. Rushton indicated there would be a pack upgrade and new mix launched shortly. There are several other wine brands that had their performances highlighted in the interim presentation.

Rushton said the Two Oceans brand – also pitched at the more cost conscious wine drinkers - delivered growth across all focus markets with the local volume share up 0.8%. Interestingly Two Oceans is making serious inroads into the Canadian market where the brand ranked as the number one standard price wine in Ontario.

New initiatives include a Pinot Noir launch on Canada and a ‘fruity’ upgrade to be launched in Europe later this year. Premium brand Durbanville Hills also continued to grow across multiple countries.

Its global presence was bolstered recently by the launch of the Terlato range in the USA, the launch of Atlantic View (an off-trade offering) in the UK and a pending push into the Brazilian market.

There was also a successful launch of a Sparkling Sauvignon Blanc in November last year. The iconic ultrapremium brand Nederburg delivered good results with the German market seeing marked volume growth of 26% on the back of a pack upgrade.

Whether the focus on these handfuls of brands in the investor presentation suggests certain long-standing wine brands may be culled remains to be seen. At face value Distell does seem to have a few to many brands – and there may even be instances where the brands are ‘eating each other’s lunch’.

Some of the wine brands have been going for generations, so any decision to reduce the brand bouquet would be contentious – especially with major shareholder Remgro, whose founder and prime mover, the late Anton Rupert, had a hand in developing many of the well-known labels.

But if there are really proposals to reduce wine brands on the table, it will be fascinating to see if Distell discontinue and retain the brands… or whether there might be an inclination to sell off brands to other local liquor players?

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