Can craft distillers survive the months of prohibition? On the eve of an expected lifting of the alcohol ban, we assess the craft spirits industry.
South Africa’s national lockdown, which prohibited most industries from operating in its earlier stages, has undoubtedly had a crippling effect on the South African economy, and it may take more than a lifting of the alcohol ban – now widely expected – for some craft distillers to remain in business.
While multinational tycoon British American Tobacco South Africa – the largest manufacturer of cigarettes in the country – and the Fair-Trade Independent Tobacco Association have both pursued legal action to overthrow the ban, the big guns in booze have been surprisingly docile.
Leaders at Distell, for example – producers and distributors of wines, spirits and ciders – have chosen to consult with Government via the National Economic Development and Labour Council on safe ways to trade.
While the captains of industry litigate and negotiate, what of the little guy? In particular, the smaller, craft distillers who have neither the means for exorbitant legal fees nor the appetite to tackle Government in the courts, or indeed the influence to demand a seat at the table. How are they faring?
Lucy Beard, co-owner and distiller at Hope on Hopkins gin distillery in Cape Town, says, ‘It’s had a massive impact on our business. We stopped production completely for two months, have had to make staff redundant, have had difficulty getting paid by customers (some of our distributors still owe us money from stock supplied back in February and March), have had to put new product launches on hold and essentially went from being a successful business to one that is haemorrhaging cash.’
The saving grace for Beard was that hers was an established business: ‘We’ve had orders from most of our existing export customers, but the restrictions around travel and direct flights have meant getting samples overseas is a real challenge. We have now started pre-orders for some customers, [but] we’ve kept this quite small, to ensure we manage it properly.
‘We’re in the fortunate position of not having debt, so we hope that we will survive, having cut down our outgoings as much as possible. [However] our business will certainly never be the same again,’ laments Beard.
Also in Cape Town, Emma Wilson had the poor luck of launching Gertie’s Rum in March, just before the lockdown was announced, and she’d barely had the chance to get her product into stores. ‘Because we never had a chance to start trading, we never had a chance to employ anyone. However, we know that industry wide the losses are HUGE and [it’s] well publicised that jobs have disappeared, who knows if ever to return again.’
Of retrenchments, Wilson says, ‘It’s not so much the direct jobs in our case, but it’s the ecosystem of the business; we aren’t buying bottles, our contract distiller is not making product, our distributor can’t deliver, our printer is not printing labels or marketing material, our marketing agency is not promoting on social media, so it goes a lot further than people we would have directly employed.’
Whether Gertie’s Rum will crash and burn during take-off hangs in the balance. ‘It all depends on bad debts. We do have money outstanding that we haven’t been able to call in because our customers are not trading. It’s a question of whether they go bankrupt before they pay us,’ Wilson posits.
Marisa O’Neill of Sugar Baron – a field-to-glass rum distillery near Richmond, KZN – says they’ve only managed to keep the lights on because of other income streams: ‘Our business has come to a complete halt. We are able to produce sanitiser, but we are doing this as a community project, rather than a commercial one. We are fortunate that our main business is farming, and it pays the bills – if it wasn’t for this, there is no way our distillery would survive the pandemic AND the ban on alcohol.’
To even have a shot at survival, O’Neill has had to strip the distillery to its bones, and she echoed Wilson’s remarks on the knock-on effect this has for other industries. ‘We are doing everything in our power not to [close] by cutting back on all operations and all facets of the business.’
O’Neill will only start investing in production, marketing and advertising again once the markets open up. ‘Until then we are laying low and hoping that the government comes to its senses soon! At least we are able to do so. We know too many businesses that have had to close their doors already – it’s a sad and disconcerting state of affairs!’
Between Sugar Baron and Hope on Hopkins, six full-time employees and four part-timers have been retrenched.
‘If the situation continues much longer, we will also not be able to keep on our one and only full-time employee … the business risks having to close its doors if we are unable to start selling on the open market again – and this is the only way jobs can be saved too!’ O’Neill stresses.
It’s a dire state of affairs indeed, but that’s not to say that nothing’s been done to improve matters. South African Liquor Brand Owners Association (Salba), a non-profit that represents a number of liquor manufacturers and suppliers – has been calling on Government to lift the ban since May.
Salba has also twice successfully petitioned the South African National Treasury to put a hold on excise duties demanded of alcohol and other undesirables, with payments due in the April–May and August–September periods being deferred by 90 days.
Instead of being calculated on sale, the so-called ‘sin tax’ is demanded upon manufacture, meaning that distillers have to cough it up regardless of whether they’ve been permitted to sell their product or not – a fact that obviously put enormous pressure on these small businesses.
The reprieve was welcomed, but is it too little, too late? And is it fair to demand taxes at all? Craft distillers are still sitting in a situation where their livelihood has been outlawed, and overheads are piling up.
Of the excise-tax model, Trevor Bruns – co-founder of Whistler Rum near Ventersburg in the Free State – opines, ‘I think excise tax on local producers are ridiculous in general. We are competing with large international producers. These producers all have cashflow support from other, non-lockdown countries.’
O’Neill agrees: ‘It’s a completely ridiculous notion and one wonders why we should have to, given the current situation. That and the fact that we still have to pay the annual fees for both our micro-manufacturing and off-con liquor licenses, yet are unable to trade – it simply doesn’t make sense! We have no choice but to do so however, otherwise we risk losing our business and licenses completely!’
For Bruns, sanitiser has offered a lifeline rather than any pre-orders: ‘We’ve been able to produce some sanitiser that has helped … If it wasn’t for that, we would have closed our doors permanently [already]. Very little online sales during the lockdown.’
Sanitiser, alone, is certainly not enough to keep Whistler from drowning, though, particularly as the panic that had disinfectants of all types flying off the shelves starts to wane.
‘Sanitiser sales have slowed a lot over the past month or two. If we do not get back into alcohol trade ASAP there is a real chance of shutting down.’
This post first appeared on Daily Maverick on 14 August 2020.