Despite global recession and unfavourable exchange rates for exporters, approximately 70% of South African producer wine cellars maintained or improved their financial position in 2010.
“Many of these top performers use business intelligence (BI) systems to accurately forecast volumes and prices, thus ensuring quick, proactive response to market changes,” says Frans van Wyk, director, Advisory Services, PwC. The organisation recently reviewed the interim 2011 financial results of producer wine cellars in South Africa.
“BI systems are also important in communicating back up the value chain, so that primary producers can make informed decisions regarding the planting of cultivars,” says van Wyk.
The ability of wine cellars to realise good prices directly influences the financial position of the primary producers. According to the latest statistics, primary wine producers annually contribute approximately R12.2 billion (7.3%) to economic activity in the Western Cape.
A minority of cellars (17%) experienced serious financial problems and cash-flow deficits in 2010. To turn this situation around, they need to align strategic objectives with day-to-day activities.
“For example, they could reward personnel that focus on the profit drivers of the business,” says van Wyk. “By focusing on the appropriate business strategy, cellars can distinguish themselves from the rest.” If acute cash flow pressures arise, cellars should approach banks and business advisors urgently, as there is usually only a short window of opportunity in which to turn the business around.
In the medium-term, non-performing cellars will probably have to undergo drastic restructuring to remain economically competitive.
“We expect amalgamation to take place at marketing and branding level, resulting in cellars being able to focus on top-performing brands, and appoint the best marketing talent,” says van Wyk.
“Although quality of product and the climate will remain relevant, we expect market intelligence to be the deciding factor in success. To realise sustainable profitability, cellars will have to continually align their business strategy with financial reporting, business processes and employee remuneration.”