Enhancing competitiveness of wine through empowerment labels : a case study of wine prices and consumer preferences at two wine retail outlets in the KwaZulu-Natal Midlands.

Abstract

South Africa’s history of the disempowerment of black people (Africans, Coloureds, Indians, and Chinese), presented the post apartheid government after 1994 with problems of policy formulation around empowerment of the previously disadvantaged groups (PDGs). In the wine industry, one possible way of addressing inequality in the access to economic resources and racially skewed land redistribution is through empowerment labelling of wine. Empowerment labelling of wine may promote competitiveness of wine businesses owned by the PDGs. This will help to address inequality problems in the sector. Skinner (2007) demonstrated that empowerment labelling can benefit South African wine firms in international wine markets because empowerment and Fairtrade labelled wines benefit from import preference in most European Union (EU) countries. This study investigates one possible way in which empowerment labelling may benefit wine firms on the domestic markets for wine. Several wine brands with empowerment attributes are currently traded in domestic wine retail markets in South Africa. Very few of these wine brands are broad-based black economic empowerment (BBEE) brands. If South African wine consumers value black economic empowerment in the wine industry, empowerment attribute labelling may be used to identify empowerment products, and thereby promote the competitiveness of Black Economic Empowered wine businesses. This study sets out to quantify South African wine consumers’ willingness to pay (if any) for empowerment labelled wines. Data for the study were collected in 2007 and 2008. Two methods were used for this purpose using two case studies in the KwaZulu-Natal Midlands. The first method used a revealed preference technique to determine whether a price premium exists on the current wine prices or not. Using the hedonic price analysis technique, linear and log-linear hedonic price functions for wine for two wine retail outlets in the KwaZulu-Natal Midlands were used to estimate the price premium paid for empowerment attributes in this domestic wine retail market. Explanatory variables which were found to influence wine prices were Platter’s Wine Guide quality rating, Reputation of the winery, and BBEE. Tests on the statistical fit of the models using the Park Test and residual scatter plots indicated that the log-linear model had better data fit. These two models could not be compared using the more traditional R squared and F-statistics as they had different dependent variables. The second method used a stated preference technique to estimate wine consumers’ willingness to pay for empowerment attributes of wine in the Kwazulu-Natal Midlands. Personal interview surveys of consumers at a wine cellar were conducted. The monetary value of these consumers’ willingness to pay was quantified using conjoint analysis and the conditional logistic model. Although the revealed preference techniques for consumer willingness to pay for empowerment labels showed that a negative price premium exists for these wine attributes, the stated preference technique revealed a positive willingness to pay for empowerment attributes. The monetary values could not provide the actual willingness to pay as they tended to be close to the hypothetical price of wine used in the questionnaire. This might be attributable to the prices used in the questionnaire not capturing the average actual wine prices for this specific wine retail outlet. Therefore, the monetary values were used as indicators of the ordering of attribute importance by the consumers. The results also indicated that an information gap between consumers and producers may exist. This implies that, provided that consumers are made aware of these attributes, there may be potential for wine producers to earn a price premium on empowerment attributes. Further research is required to determine whether South African wine consumers (a) value empowerment attributes (using stated preference techniques), and (b) are aware of wine brands that have empowerment attributes. The results of this study would aid government in formulating policies that promote the competitiveness of empowerment attributes such as giving machinery or inputs procurement rebates to wineries that are broad-based empowerment compliant, and in so doing, improve the economic position of previously disadvantaged groups.