Tuesday 16 January 2018

Jameson squeezed as South Africans toast local brandy

A woman walks beneath copper brandy stills at the KWV distillery in Paarl near Cape Town, South Africa. Photo: Reuters
A woman walks beneath copper brandy stills at the KWV distillery in Paarl near Cape Town, South Africa. Photo: Reuters

TJ Strydom

Klippies and Coke. Ricky Louw. Karate Water.

These are the orders ringing out in bars across South Africa as thrifty consumers switch from imported, big-brand whiskey to locally produced brandy.

The trend, fuelled by a stagnant economy that is strangling spending, has led to the first increase in brandy sales for more than a decade, and falling sales of pricier whiskey.

This is an unexpected reversal in a country that multinationals Pernod Ricard, which owns Jameson, and Guinness-owner Diageo targeted as a lucrative growth market for their whiskey brands, and where they had enjoyed years of surging sales.

Pernod Ricard sells more Jameson in South Africa than anywhere else apart from the United States. Brandy still lags behind its rival in the contest to be the number one spirit by some distance - about 32 million litres are drunk a year versus nearly 39 million of whiskey - but the gap has almost halved since 2014.

Most brandies retail for around €7 for a 750ml bottle, compared with around €11 for Diageo's Johnnie Walker Red Label and €17 for Pernod Ricard's Jameson. It's a significant price difference in a country where the minimum wage is less than $2 (€1.70) an hour.

"At my local, a double brandy is the same price as a single Jameson," says Fred Bester (36), a sales consultant ."That's why I now drink brandy."

The international companies, however, are fighting back. They are shifting focus to more affordable whiskey brands and stepping up marketing drives.

At the turn of the century, brandy was the number one spirit by a stretch in South Africa, with around 40 million litres consumed a year, almost twice the amount of whiskey.

Over the following years robust economic growth averaging nearly 5pc gave rise to a burgeoning middle class with more disposable income. Sales of more imported whiskey rocketed while brandy demand shrunk.

Slowing economic growth over the past three years has hammered household incomes. Whiskey consumption dropped, falling from a high of 43.2 million litres in 2014 to 38.7 million in 2016. Consumption of brandy increased for the first time since 2005 last year, to 32.1 million litres, from 31.6 million in 2015.

The surge in local brandy sales is also supporting the local wine industry because South African regulations require brandy producers to use wine as their base product.

"Wine producers earmark grapes specifically for wine that goes to brandy producers and they usually get paid quite quickly, which is good for cashflow and supports thousands of jobs," said Christo Conradie of industry group Vinpro, which represents 3,500 wine producers.

The chief executives of two of the largest three brandy producers - Distell and KWV - said the rising sales trend has continued since last year.

"Brandy sales have recovered and it has definitely been the weaker economy playing a role," said Distell's CEO Richard Rushton.

Boyce Lloyd, CEO of KWV, said the economic slump had fuelled a "renaissance" for the spirit. (Reuters)

Reuters

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