How to invest in South Africa’s ‘red gold’
South Africa’s wine market has drawn a lot of international attention, and it has the potential to be a great alternative investment opportunity for wine lovers.
As this South African industry continues to grow and gain international acclaim, wine can make a great, non-traditional investment—but it may not be for everyone.
Speaking to Kaya Biz, Winex founder Michael Fridjhon said that it’s important to think broadly when talking about wine as an investment.
For most people, especially those who enjoy wine, it’s more about adding value to their lives than just making money.
“If you’re thinking of wine purely as a commodity, then of course, there’s no sentiment, no feeling of attachment, no real interest in the quality.
“All you want to know is that, in the future, it will be worth significantly more than what you paid for it.”
“I think the downside of that, besides the obvious – which is that you don’t get to enjoy your hard asset investment – is that it’s quite a difficult investment to dispose of in the South African market.”
There are not a lot of places collectors can go to sell their wine, and the places that do, like auction houses, cut into the seller’s profits.
“The commission that they charge takes away a lot of the potential profit you may have made.
“So I think we should think of wine as a sentimental and emotional investment in the same way as we think of experiences and in the same way as we think of art.”
When investing in wine, Fridjhon said that people should start by buying the wines that they personally enjoy. When they realise that they have bought too much, they can look towards selling.
“There may come a time when you realise you have to rationalise what you’re holding, and that’s the point at which you hope that what you sell will do one of two things.”
In the first place, sellers can try to make a net profit on the transaction, or secondly, they can use that money to fund their future wine purchases.
“That’s an ideal way to look at wine investment,” he said. Buy it when it’s young, store it well under the right conditions, and later sell it for more.
That way, you get to enjoy some wine now, and down the road, the wines you’ve saved can bring in a return, allowing you to keep enjoying good wine in the future.
That way, “you really have done the best you can.”
“You’ve had the enjoyment of what you’ve chosen to consume and the pleasure of knowing that what you’ve deferred gratification over has yielded a dividend in more good wine running endlessly into your future.”
In 2023, South Africa’s exports of still packaged wines dropped by 17.3%, reaching 113 million litres. Total still red wine exports fell by 9.4%, making up 32.3% of all natural wine exports.
Despite the decline in volume, which totalled 306 million litres, the industry saw positive value growth, with total wine export revenues rising to US$540 million (R10 billion), even amid global economic challenges.
Fridjhon explained that there are a number of factors driving the current resurgence of the wine industry in South Africa.
First, it’s important to realise that the wine industry can be divided into two parts.
One part is focused on high-volume bulk wine production, which is heavily influenced by market trends.
“So, what we’ve seen is that there is an uptick in sales to China, and that’s because of our relationship with China.”
Last year, South Africa’s wine exports to China decreased, but the market remains an important growth area for the local wine industry and has steadily increased its market share since 2019.
“I think it could be much stronger if the Government of National Unity (GNU), the Department of Trade and Industry (DTI) start trying to do trade-related deals to ensure South African wine gets into that market duty-free as the Australians, for example, have done.”
At that point, he said that South Africa would see large volumes of relatively low-priced wine entering one of the biggest wine markets in the world.
On the other end of the spectrum, there is also the high-end market, which has seen remarkable growth over recent years.
Fridjhon explained that there has been an increase in the number of small producers over the last 20-25 years which has also driven the resurgence in South Africa’s wine market.
These “young, ambitious, technically competent” winemakers seek out fruit from vineyards which are sometimes quite old and obscure, “many of them with old vines where the concentration of fruit is a lot better”.
“These are the wines that are gaining profile internationally. So in the sort of markets of the world where the important wine critics look at countries and decide whether or not they are sexy… South Africa has a very high sexy index at the moment.”
“Most of the international critics are saying South Africa is producing the most exciting wines in the world.”
These wines are often produced in small batches, making them rare and sought-after.
However, there’s a downside. Because small-batch wines are rare, they’re hard to find, and once people have them, they’re not eager to sell.
“When you’ve got something that no one else has, it’s the one thing you are least keen to give up.”
If you do want to sell, you’d likely have to go through an auction house to “rationalise” your collection.
While it may still be a “new world” producer, South Africa has definitely earned respect, with several specific varietals gaining popularity on the local and global markets.
One of the most notable is Pinotage, which is unique to South Africa. But beyond that, South Africa has really made Chenin Blanc its own.
“We always had more Chenin Blanc vineyards even than France.” White grape varieties comprise 55% of South Africa’s vineyards, with Chenin Blanc being the most prominent, accounting for 18.4% of total plantings.
Over the past 20 to 25 years, there’s been a resurgence in this variety, especially with South Africa’s older Chenin Blanc vines, which has really drawn international attention.
Many international critics and judges are eager to taste South African Chenin Blanc because it combines an international grape with a uniquely South African touch.
In addition to Chenin Blanc, Cabernet Sauvignon is another standout. Red varieties cover 45% of South Africa’s vineyards, with Cabernet Sauvignon leading at 10.4%.
“Stellenbosch is Cabernet country, and Cabernet is pretty broadly recognised as one of the two or three most consistently exciting red grapes,” Fridjhon said.
Lastly, Chardonnay is another popular South African wine variety.
“I’ve spoken to a number of international wine judges over the last six months and their singular message has been that our chardonnays are now really rubbing shoulder-to-shoulder with the best in the world.”
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