KWV: New distribution means

Cape Town - The KWV Group, one of South Africa's largest producers of wine and spirits, will be looking to find new ways of distributing its 10- and 20-year old brandies as well as its KWV ports, sherries and muscadels in South Africa over the next 12 months, including the possibility of a black empowerment initiative, managing director Dr Willem Barnard said on Monday.

The move follows last week's ruling by the Competition Tribunal that listed wine and spirits producer Distell, in which KWV owns a 30% stake, can no longer market and distribute KWV's brands.

KWV has always marketed and distributed its brandies and fortified wines in South Africa through Distell's large network, while its wines sales have almost exclusively been confined to export markets.

As a result, it has no distribution of its own in South Africa and must look either to build one itself or seek a partnership with an existing group as a result of the Tribunal's ruling.

However, the company's options could be limited by pending controversial legislation in Parliament that seeks to limit all vertical integration in the local liquor industry.

This would prevent producers from owning their own distribution networks, meaning KWV would be proscribed from starting up its own distribution system, although it could create a new one in which it is a minority owner.

"According to the Tribunal ruling, Distell can continue to distribute our brands until June 2004," Barnard told I-Net Bridge on Monday. "This gives us a year to organise something for our existing brands. We will find a logistics channel for them, perhaps through existing operators without their own brandy brands such as Snell & Co, although we haven't yet considered what they would be. Also, since we are entering the local market for the first time it is natural to consider some form of black economic empowerment option - this is a priority being a South African company."

Following the Tribunal's ruling, KWV will also be taking over the merchandising and marketing of its brandies and fortified wines from Distell for the first time on July 1, in about 10 days' time.

While unexpected, Barnard said the group would "find some room" in its new 2003-04 financial year budget (also conveniently starting on July 1) to meet the responsibility without any undue disruption to its other activities.

The managing director added that KWV, as a 30% stakeholder in Distell, planned to do its best to stay well informed of Distell's financial performance and plans despite the Tribunal's ruling that it could not appoint any board members to Distell's board. It had no plans to sell its interest, he added, but rather would manage its investment as best it could.

At the same time, it was in KWV's best interest to keep Distell as a valued client (it purchases a significant portion of KWV's bulk brandy in South Africa), given its shareholding, Barnard noted.

Although unlisted, KWV will publish its financial results for the year to end-June 2003 at the end of September.