July 14, 2020 / 8:28 AM / 21 days ago

South Africa's Distell plays chess to beat lockdown wine glut

CAPE TOWN (Reuters) - At a centuries-old vineyard overlooked by South Africa’s Drakenstein mountain, the country’s biggest single wine exporter Distell is battling a problem of plenty.

Prestigious wines, such as Nederburg, are bottled at the vineyard in Paarl, just outside Cape Town, and shipped locally and worldwide.

But the shipping can’t keep pace with the combined impact of an abundant harvest and lockdown disruption that has led to a glut that sits maturing in French oak barrels or stored in metal vats at wine estates.

South Africa, one of the top 10 wine producers, has around 240 million litres of stock across the industry, said executives at Distell, which itself has 40 million litres.

“It is a massive problem... that could take at least two years to resolve,” Distell CEO Richard Rushton said.

He told an investor call in June the impact on prices in the industry could be severe and said the company had lost some of its listings in wine outlets abroad as exports were halted.

South Africa also banned domestic alcohol sales as part of lockdown restrictions begun in March. Early in June it allowed sales during limited trading hours, but President Cyril Ramaphosa reimposed a sales ban from July 13 as new infections surged.

Industry body Vinpro said some 3 billion rand ($177.54 million) in sales had been lost in the first nine weeks of restrictions. Exports have resumed, but there is a backlog in the Cape Town port, it said.

Rushton said Distell hoped online sales would help and it has also begun producing alcohol-based sanitisers.

Even in the best of times, managing wine stocks in finite cellar space requires thinking a few moves ahead, but not usually as many.

“When you start off with oversupply, then it’s chess from day one,” Distell’s head winemaker Niel Groenewald said.

He faces a situation unprecedented in his two decades of experience and perhaps since the founding of the Nederburg estate in 1791.

($1 = 16.8972 rand)

Reporting by Wendell Roelf and Emma Rumney; Editing by Olivia Kumwenda-Mtambo and Barbara Lewis

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