Bloomberg News

Wal-Mart Wine Deal Erases Seven Sisters’ Apartheid Legacy

August 28, 2013

Seven Sisters

The seven sisters on the beach in Paternoster, a small fishing village where the sisters grew up. The village is an hour and a half north of Cape Town, South Africa. Source: Seven Sisters via Bloomberg

Vivian Kleynhans strides into the Spier Hotel nestled in Stellenbosch’s winelands, her winter boots clipping on the tiled floor. Looking at home in this four-star establishment about 25 miles east of Cape Town, she’s come a long way since her childhood in a remote fishing village.

“Growing up we were very poor,” says Kleynhans, 49. Thanks to Wal-Mart Stores Inc. (WMT:US)’s decision to import her wines, Kleynhans and her six sisters, who were once crammed into a two-roomed fisherman’s cottage along with her brother and parents, will soon make more money than ever. “Maybe the time has come for us to be able to take a break and enjoy life,” she said.

The change started when the world’s largest retailer bought a 52 percent stake in South African retailer Massmart Ltd. (MSM) in June 2011 for 16.5 billion rand ($1.59 billion). Worried that the U.S. company would swamp the local market while cutting jobs, South African antitrust authorities demanded Wal-Mart set up a supplier-support fund worth as much as 200 million rand.

Part of South Africa’s colored population, Kleynhans and her sisters weren’t given economic opportunities until apartheid ended. They grew up in Paternoster, a bay an hour and a half north of Cape Town, where picking mussels off the rocks was sometimes the only way to put a meal on the family’s table. Most of them didn’t complete school and have found it hard to make ends meet as adults.

“I inquired about the development fund through Massmart when I visited their head office in Johannesburg in 2011,” Kleynhans said. “The fund is supposed to develop small businesses and entrepreneurs in different industries.”

Seven Sisters

What she wanted to offer Massmart and its parent company was the wine brand she had been building since 2005. Through an arrangement with Swartland Winery, which is in the vine-growing region surrounding Paternoster, Kleynhans started buying bottled wine from Swartland and adding her label in 2007. Called Seven Sisters, the label encompasses seven wine varietals with each one carrying the name of one of the sisters.

The Cabernet Sauvignon is named after Carol, the oldest of the family at 55, while the sweet white wine is named for Odelia, the youngest sister at 40. Vivian’s Sauvignon Blanc 2012 was given three and a half stars out of five by Platter’s Wine Guide, South Africa’s largest such publication. The wine is “very good and promising,” according to the 2013 book, which described it as “grassy, with white pepper and spice.”

After two years of visits and talking with Massmart, Wal-Mart sent a global sourcing executive to see Kleynhans last year. “I was shaking, but we did the presentation and two weeks later we got the call from our agent and we spoke with Wal-Mart on the phone about supplying them.”

Game Changer

The seven sisters’s wines will now appear in as many as 300 of the world’s largest retailer’s U.S. stores from this month. Wal-Mart, which will be carrying five of the wines, chose Seven Sisters “because it will bring a new variety of wines to our customers and help meet their needs,” Katie Cody, a spokeswoman for the retailer, said in an e-mailed response to questions. “This product will help us meet our goal of sourcing $20 billion from women-owned businesses around the world for our U.S. business.”

Last year the retailer spent about $11.6 billion with women- and minority-owned businesses, it said on its website. While Wal-Mart has been selling wine since its first supercenters opened in the late 1980s, the chain’s share of the alcohol market has lagged that of the grocery market. There is now a plan to devote more shelf space to alcohol, promoting the products and discounting where possible.

Life Changing

“Working with Wal-Mart will change our lives,’ Kleynhans said. ‘‘For the first time I can say it feels like we have been doing the right thing.’’

South Africa’s wine production dates back to the 1600s, when the Dutch East India Company established a supply station in the Cape of Good Hope. Exports began to boom after Nelson Mandela became president in 1994, ending the boycott of South African products.

‘‘My entering the wine industry was not because of a liking of wine -- remember, black people were not part of this industry in the apartheid years, they were merely laborers,’’ said Kleynhans, who helped start an alliance for black vintners so that they could support each other in a white-dominated industry. ‘‘I saw this as an opportunity as an entrepreneur to build a business for my family. Today I appreciate wine.’’

While South Africa is the world’s eighth-largest wine producer, its per capita consumption, with people drinking an average of 7.3 liters in 2012, puts it far behind countries like Portugal at 43.2 liters and slightly behind the U.S. at 9.7 liters according to statistics collated by South African Wine Industry Information & Systems.

Taste Profile

‘‘We look for wines that meet the same quality and taste profile that our customers are looking for at a price that meets their expectations,’’ Cody said, adding that the South African wines will mostly retail for under $10. ‘‘We believe the five varieties of Seven Sisters we will be carrying fits those characteristics.’’

With the likes of the Soweto Wine Festival in its 9th year and increasing in size annually, there is a growing black market for wine producers in South Africa. The export market, though, has also grown with the rand’s 19 percent depreciation against the dollar this year helping to boost sales. Last year South Africa exported a record 417 million liters of wine, almost twice as much as the country was exporting a decade earlier, according to Sawis.

Soweto Festival

‘‘Vivian has been coming to the Soweto Wine Festival for the last five years -- she’s very proactive about promoting her wines,” Marilyn Cooper, head of the Cape Wine Academy and the festival’s organizer, said in a phone interview from Johannesburg on Aug. 19. “Stories like the Seven Sisters’ sell wine and they’ve been on the floor right from the beginning. She deserves to be rewarded.”

The seven sisters should receive their first significant check from Wal-Mart in November, said Kleynhans, who hasn’t had a holiday in 10 years. “That’s the first big money in two years to help us cover the holes.”

Since 2007 any profit made by the seven sisters was ploughed back into the business with the siblings not taking a salary, according to Kleynhans.

In time, more South African wine farmers may be able to strike deals with Wal-Mart. Massmart is flying 14 of South Africa’s 19 black-empowered wine producers to this year’s Soweto exhibition, according to Cooper, 63, in a bid to showcase more of what the country has to offer in new markets. Apart from the rand’s decline, the country has produced more wine every year for the past three, according to Sawis, and stock levels are rising.

Customer Options

“Because of our recent acquisition of Massmart in South Africa, we have the opportunity to review more suppliers in the region and will continue to do so,” Cody said. “We are always looking for new options for our customers.”

Through a land redistribution program, aimed at giving property to those who were disadvantaged during apartheid, the sisters were able to get 9 hectares just behind Spier, located in South Africa’s biggest winelands. While all of the sisters will work on the farm once it has been developed, they have struggled to find the money to build a cellar and a tasting room. The cash from Wal-Mart will help.

“It means so much to us,” Kleynhans, who lives in a makeshift cabin on the family farm, said. “It will take some time before we build up good revenue to be free from our financial burdens, but we are pleased with the potential we have in working with Wal-Mart.”

Muse highlights include Manuela Hoelterhoff on arts, Scott Reyburn on the art market and Laurie Muchnick on books.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Manuela Hoelterhoff at mhoelterhoff@bloomberg.net.


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