The Liquor Industry in South Africa 2023

Introduction

This report focuses on the South African liquor industry, including the manufacture, wholesale and retail of alcoholic beverages. Retail revenue in the liquor industry, which is still recovering from alcohol bans during the pandemic, declined in 2022. Competition is set to increase following the approval in March 2023 of Heineken’s €2. 4bn acquisition of Distell and Namibia Breweries. The deal has increased the share of revenue that goes to foreign owned companies in the sector to more than three-quarters of total liquor revenue. The poor economic outlook and power cuts are likely to result in a slowdown in liquor sales. Illicit trade in alcohol remains a key concern.

Opportunities

African market for wine, distilled spirits, ready to drink products, cider and commercially-brewed beer provides opportunities for growth. Celebrity liquor brands are gaining prominence. Changing consumer preferences provide opportunities for innovation and the creation of new drinks and varieties to grow sales. Demand for products (including packaging) that are created sustainably. Growth in demand for healthy alternatives in no-alcohol and low-alcohol beverages. Growth in online sales, though niche, provides retailers and producers with an alternative route to market. Growth in recent years of the black middle class provides opportunities for premium and niche brands and wine. Heineken’s acquisition of Distell could lead to more competition, particularly in beer and cider. Winemakers believe it could help boost wine sales in the rest of Africa. The trend towards premiumisation continues, with growth in premium brands set to outpace that of affordable brands. There has been strong growth in gin, liqueurs and ciders.

Outlook

Poor economic growth and high inflation could affect liquor sales as consumers cut back or trade down. Some segments will take share from other categories, as gin has taken share from wine, beer and other spirits. Global supply chains are improving and slowly normalising. A smaller wine grape crop is expected in 2023 due to poor weather and loadshedding. Rising input costs are expected to remain a concern. While winemakers have experienced decreasing profitability due to increasing costs and low wine prices, average bulk wine prices are expected to increase in 2023 and 2024.

Report Coverage

This report focuses on the South African liquor industry, including the manufacture, wholesale and retail of alcoholic beverages. It includes information on the size, state and performance of the sector by category and across manufacture, wholesale and retail subsectors, information on notable players, developments, corporate actions, pending regulatory changes and influencing factors. There are profiles of 50 companies including the major players AB InBev, Diageo and Heineken, wine producers such as Fairview, Morgenster and Simonsig, distributors such as Vinimark Trading and retailers including the major supermarket groups and liquor outlets such as Picardi and Liquor City.

Strengths

South Africa has a strong beer culture. The South African wine industry has shown a commitment to ethical wine production and fair trade, as well as organic production. The wine industry has seen good export growth in recent years. Wine tourism is well established in the Western Cape.

Threats

A slowing economy and high inflation means consumers could reduce spending on alcohol or trade down to more affordable liquor. Climate change could affect grape and barley production. Decreasing wine consumption, particularly among youth who are opting for certain spirits and low or no-alcohol options. Economic difficulties and the pandemic have suppressed consumer spending. Fluctuating exchange rates makes the market very unpredictable to exporters. Inputs costs are rising faster than in previous years, driven by loadshedding and a shortage of locally-produced inputs which means producers must rely more on imported materials. Liquor legislation becoming more restrictive in terms of the minimum drinking age, advertising and liquor trading hours. Loadshedding is driving up costs, while making it more difficult to harvest grapes and produce wine. More stringent government tax and excise policy which will lead to higher retail prices and lower margins. The growth of the illegal and illicit liquor market, which steals market share from the legal liquor industry. The threat of future unrest driven by political and economic uncertainties.

Weaknesses

Liquor is a discretionary expense which makes it vulnerable to negative economic conditions. Low domestic per capita consumption of wine compared to other wine-producing countries. The sector, particularly in the spirits and beer segment, is dominated by a small number of large producers.