For many (admittedly impoverished) producers in South Africa whose wines sell for less than they actually cost to produce, this truism charts the way to penury. Some of these growers and estate-owners may think they are recovering on their full production costs. They are the ones who are surprised when the bailiff comes knocking. Others know they aren’t, but have no choice: they sell their fruit for the best price they can achieve, but it's not enough to cover their input costs as well as the amortisation of their assets.
The other side of the same coin relates to the super-high-priced wines, where there is a comparable disconnect between the cost of production and the on-shelf price. In theory, anything selling for over R120 per bottle should recover the most generous of input costs, though not the purchase price of the estate, or the staff overhead of a bells-and-whistles marketing team. There is another inexorable law in play as well: the further up the pricing pyramid you go, the less you sell. This means that the contribution to these marketing and sales costs takes a greater chunk of the on-shelf price the more stratospheric the tag (and the producer's pretensions).
All this explains why auctions are such an attractive proposition to the carriage trade. Except for liquidation sales, average pricing is high while marketing overhead is relatively low. Vendors typically pay zero to 15% commission and the buyers pay at least 10% to most auction houses. A R500 bottle will yield more than R400 to the producer. The consumer will pay close to R600. The same wine, sold through a distributor and retailer network would have to cover both margins and would sit on the shelf for longer to yield less net income.
With three auctions – all within a five to six week period over September and October – people are starting to wonder whether the bandwagon has taken off down a gravel road on a mountain pass: “can the market sustain the increasingly evident cash-flow needs of the ultra-premium sector” is a refrain being heard more and more often in places where the fate of the wine industry drowns out the ambient noise of the US President, Brexit, and the NHI.
The first point to make is that there's only one new auction and it's only new in that it's been some time since we've had any collector's wine sales in South Africa. The other two auctions have been a feature of the calendar for more than 30 years: they are the CWG sale (which dates back to the mid-1980s) and the Nederburg Auction, which has been with us since 1975, now re-designed and re-branded as the Cape Fine & Rare Wine Auction. There used to be collector's sales, conducted by Sotheby's and then by its successor in title, Stephan Welz and Company. These were abandoned in the 1990s because the turnovers never justified the cost of putting them together.
The Strauss/Wine Cellar collector's auctions are another attempt at developing a secondary/investor's market. In the 25 years or so since the Sotheby's sales, the market has grown. There's also another wave of emigration, which means that there are sellers disposing of wines and newcomers to wine wanting to acquire premium collections with a proper provenance. While the first of the Strauss sales (held in Johannesburg in June) saw much of what was on offer going to restaurant buyers, it's reasonable to assume that in the long term (once the Wine Cellar has thinned out its own stock-holdings through the salesroom) most of the trade will be between private customers.
As for the two other sales – both long-established and very much features of the annual calendar – it has been clear for some time now that demand (in terms of volume) has been declining. In its heyday, the Nederburg auction disposed of 55000 litres and the CWG 14400 litres. This year, in its new guise – as the Cape Fine & Rare Wine Auction – the former will offer 3000 litres and the latter 8700 litres. The Strauss September sale brought less than 2000 litres of local wine to the market. Add all this up and it's quite clear that the total offering over the September-October auction season in the Cape will see less literage coming to market than the 2013 CWG sale on its own. In volume, this is comfortably under 2000 cases.
There are two ways of interpreting this data: one says that the auction market is running out of steam, the other says that it's become more discriminating. It's certainly true that the urgency that went into auction shopping when there were fewer sources of rare and premium wines about is a thing of the past. With so many producers offering “rare” and “unobtainable” selections there are infinitely more places for fine wine buyers to shop (the positive spin) or for a fool to be parted from his money (the cynical view). Auction managers are aware of this, which is why the selections have become tighter, the selection process (both for the Guild and for Nederburg/Cape Fine & Rare) more rigorous and more transparent, and why the term “curated” is now as over-worked in the world of wine as it is in art, design, and catering.
