1
– 1 –
TEACHING NOTE
CASE 17
The South African Wine Industry in 2016
Overview
Moving into 2016, South Africa, the African continent’s most developed economy, was being battered by
the global weakness in demand for commodities. Unemployment was rising and a recession appeared
almost certain, but there was a bright spot in the economic picture: the South African wine industry.
South Africa was the world’s 8th largest wine producer, accounting for about 4 percent of global wine production.
South Africa’s fertile vineyard’s wine volume had increased 20 percent from 2012 to 2016, to approximately
Despite the positive trends for the South African vintners, there were troubling signs on the horizon. The South
African economy and infrastructure were having difficulties. The Rand was weakening against major currencies
For South African vintners, 2016 would be a year of assessment as they attempted to make sense of the conflicting
signals and set a course that would enable the industry to reverse its slide and reestablish an upward trajectory as
a significant international competitor, both in quantity and quality of wine.
Suggestions for Using the Case
Students should find the subject matter of the case to be interesting and eager to propose recommendations to
address the uncertain economic situation in the South African wine industry. This case can be used to illustrate
industry and competitive analysis concepts presented in Chapter 3 or international strategy options discussed in
Where Does it Go From Here?*
*This teaching note reflects the thinking and analysis of Professor David L. Turnipseed, University of South Alabama. We are most
grateful for his insight, analysis and contributions to how the case can be taught successfully.
:
Case 17 Teaching Note The South African Wine Industry in 2016
2
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
The assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
To give students guidance in what to consider, and what analytical tools to utilize in preparing the “South African
Wine Industry in 2016: Where Does it Go From Here?” case for class discussion, we strongly recommend
providing class members with a set of study questions and insisting that they prepare good notes/answers to these
questions to prepare for the class discussion.
You may also find it beneficial to have your class read the Guide to Case Analysis that follows Case 31 in the text
and is also posted in the Instructor Resources Center of the Connect Library. Students will find the content of this
Videos for Use with the “The South African Wine Industry in 2016: Where Does it Go From
Here?” case.
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
believe that the case is a good candidate for an oral presentation or written case assignment. Our suggested
assignment is the following:
Dr. Jack Keiser, Director of Marketing for the South African Wine Industry Board, has noted your skills in
strategic management and has retained your services to help assess the industry’s situation, and to make recom-
mendations for improving sales and industry profitability. What recommendations can you give the industry
members? Specifically, you have been asked to provide Dr. Keiser with a 4-6 page (double-spaced) report, along
with whatever charts and supporting exhibits you deem appropriate, that covers the following points:
4. The issues upon which you think Dr. Keiser and South African wine industry should focus their attention
to increase sales and improve profitability.
Case 17 Teaching Note The South African Wine Industry in 2016
3
You are expected to provide Dr. Keiser and the Board with a report that is thorough and thoughtfully prepared,
that reflects a strong grasp and application of the tools and concepts of industry and competitive analysis. Prepare
your report to the Industry Board outlining the 3-4 top priority issues that the members need to address and the
Assignment Questions
1. Prepare a PESTEL analysis for the South African wine industry. What does this analysis tell you about the
attractiveness of the external environment for companies operating in the industry?
2. What is competition like in the industry? Prepare a Porter’s Five Forces Competitive Strength analysis that
examines the strength of each competitive force. Which competitive forces seem to have the strongest effect
on industry attractiveness?
3. Identify the industry dynamics and forces driving change in the South African wine industry. What changes
do you expect in the industry over the next 3 – 5 years?
4. Identify the key success factors in the South African wine industry. What must every successful company
operating in the industry do to be competitive?
5. What factors might shape strategy choices for competing in international markets in the wine industry?
6. Based on your analysis of the industry and your answers to the preceding questions, what are your
recommendations for expanding sales and revenues for South African wineries?
Teaching Outline and Analysis
1. Prepare a PESTEL analysis for the South African wine industry. What does this analysis tell
you about the attractiveness of the external environment for companies operating in the
industry?
The South African wine industry’s macro-environment” comprised six principle components: Political,
Economic, Social-cultural, Technological, Environmental, and Legal/regulatory factors (PESTEL).
A PESTEL analysis of the external environment reveals a generally unattractive external environment for
South African wine makers.
nPolitical – The political aspect of the external environment was not attractive for wine producers or
nEconomic – The general economic environment was not attractive. The South African economy and
infrastructure were having difficulties. Economic growth had slowed to 1.5 percent in 2014 with
Case 17 Teaching Note The South African Wine Industry in 2016
4
nSocio-cultural – Generally favorable socio-cultural trends were a bright spot on the external environment
for South African wine producers. The increasing urbanization of the world population was expected
to have a strong positive impact on the South African wine industry. China and Nigeria were two of the
nTechnical – The technical sector of the external environment was unattractive for wine producers.
The information in the case describes the rudimentary supply chains of the wine producers, which the
nEnvironmental – The environmental situation was unattractive for South African wine producers. The
nLegal/regulatory – The case provided little information about the current legal/regulatory environment.
Many countries (including the U.S.) lifted sanctions against the South Africans as apartheid ended.
Case 17 Teaching Note The South African Wine Industry in 2016
5
2. What is competition like in the industry? Prepare a Porter’s Five Forces Competitive Strength
analysis that examines the strength of each competitive force. Which competitive forces
seem to have the strongest eect on industry attractiveness?
A Porter’s Five Forces Competitive Strength Assessment suggests that the competition in the South
African wine industry was low/moderate.
Competitive pressures
created by the
jockeying
Competitive pressures coming from the
market attempts of outsiders to win
buyers over to their products
Substitutes for
Wine
Buyers of
Wine
pressures
stemming
from
supplier-seller
collaboration
pressures
stemming
from
seller-buyer
collaboration
Materials and
Ingredients
Used in
Wine
nCompetitive Pressure from Substitute Products: Competitive Force – Weak to Moderate
Beer and other alcoholic drinks were readily available substitutes for wine, and had a cost advantage
over quality wines. There were no economic switching costs. The competitive force for substitutes is
costs. Wine buyers were knowledgeable about wine quality and prices, but may have been relatively
insensitive to price. Wine did not represent a significant fraction of the average buyer’s purchases.
Case 17 Teaching Note The South African Wine Industry in 2016
6
nCompetitive Pressure from Potential New Entrants: Competitive Pressure – Strong
According to the case, there were several recent new entrants from Argentina, Australia, and New
nCompetitive Pressure from Suppliers: Competitive Strength – Weak to Moderate
There was little information provided in the case that directly addressed suppliers; however, one can
fairly accurately assess the competitive strength of the commodity and quasi-commodity supplies
increased dramatically. South African production was down which decreased the need for competition
among sellers. There was no indication of excess production capacity. Although the costs of switching
brands was low, brand (taste) preferences may have reduced the buyers’ propensity to switch.
3. Identify the industry dynamics and forces driving change in the South African wine industry.
What changes do you expect in the industry over the next 3 – 5 years?
Industry dynamics and driving forces:
nChanges in the climate, specifically global warming and a pervasive drought – the venters could only
adapt to the climate, but irrigation could solve the drought problem (at a cost).
nGlobal shifts in economic strength – which would drive change in the types and location of markets for
South African wines.
Changes in the industry over the next 3 – 5 years:
According to the case, the average global temperature was expected to rise by over 2 degrees Centigrade in the
21st century, and the county was in a pervasive drought. In fact, Science Daily (24 February, 2016) reported
that South Africa was struggling with the worst drought in 30 years, resulting in reduced yield for crops
A pattern of increasing urbanization was expected to have a strong positive impact on the South African
wine industry. The urbanization trend showed the urban population increase from 35 percent in 1960 to 54
percent in 2015, and by 2050, 2/3 of the world’s population was expected to live in urban areas, according to
Case 17 Teaching Note The South African Wine Industry in 2016
7
South Africa’s largest wine export market was China, and according to PriceWaterhouseCooper’s 2015 wine
industry survey, China was likely to replace the US at the world’s largest economy by 2030 (measured by
Demographic shifts would require that the South African wine industry understand the implications of these
changes and consumer segmentation to take full advantage of this opportunity. One of three children born
worldwide by 2050 would be born in sub-Saharan Africa, and 62 percent of sub-Saharan Africans living
4. Identify the key success factors in the South African wine industry. What must every
successful company operating in the industry do to be competitive?
Key success factors for the South African wine industry are:
nDeveloping innovative new blends and varieties to keep pace with the industry.
nEstablishing and maintaining the high margin international distribution channels and outlets
5. What factors might shape strategy choices for competing in international markets in the
wine industry?
The international wine markets were changing and the South African wine industry should expect that it
would be required to change in order to remain competitive and increase its competitive strength. There
was no information provided in the case to suggest that the climate change is a short-term phenomenon, and
International markets were critical for the South African wine industry: the domestic profit margins were
very low whereas exported wines sold for a significant multiple. The growth in demand for South African
wines arose primarily from international demand. Exports played a key role in industry profitability, and
sustained production. Therefore, the need to increase exports should be a major factor in shaping the South
Case 17 Teaching Note The South African Wine Industry in 2016
8
South African logistics and costs of meeting the world demand for wine, plus the large number of low cost
producers in the world, limited the extent to which South Africa could continue to be adequately efficient
end to obtain better margin and provide more value for the consumer.
6. Based on your analysis of the industry and your answers to the preceding questions, what
are your recommendations for expanding sales and revenues for South African wineries?
There were several factors which, in combination, appear to offer South Africa’s wineries opportunities
to increase their sales and revenue. Despite a dip in global wine consumption during the recent recession,
the trend in consumption was positive, and there was huge growth in the Asian wine markets. The case
which suggested a weakening domestic market, especially for the more expensive wines. Also, the Rand
had weakened against many currencies, and made South African exports less expensive. The South African
wine producers expected their greatest vintage to come to market in 2015 – 16, and new varieties of grapes
were being developed that were expected to have market acceptance. These situations and events suggest
several recommendations:
nThe first step to increasing sales and revenues for South African wineries was to produce more of the
right type and quality wine. Efforts should have been made to increase yields from existing vineyards,
plant additional acres of grapes, and expand wine production. Irrigation may be a necessity to maintain
and grow yields.
nSouth African wine producers should carefully evaluate their international markets and concentrate on
the most lucrative, while not neglecting potential growth markets. The premium wine segment appeared
to be the most desirable market segment, and should be developed. Identification of the more profitable
markets would allow target marketing and concentration of sales in the most advantageous markets.
Case 17 Teaching Note The South African Wine Industry in 2016
9
Epilogue
South African wine sales to the United States grew in 2016: sales were up 14 percent by volume for the 52
week period ending July, 2016. More significantly, the sales revenue increased by 25 percent, indicating the
willingness of the market to spend more on South African wines.
“VinPro would like to express its concern in terms of the one-sided and biased approach that Heinemann
employed, as well as the potential detrimental effect that the documentary could have on the South African wine
industry at large. The legitimacy of several aspects of the documentary have also already been questioned, both
locally and in Scandinavia.
The South African wine industry employs in excess of 289 000 workers and a growing demand for South African
wines, as well as improved market access, is crucial to sustain and grow employment opportunities. Economic
sustainability also remains a key concern. Currently the return on investment in the wine industry averages at