You are here: Covid-19
by Nick Wilson and Jane Steinacker
Published by Business Live on 19 July 2020
Legal action on the cards as industry faces crisis and complains it was not consulted.
Distell, the world's second-largest cider producer, plans to exhaust every possible communication channel in the coming weeks in its bid to get the alcohol ban lifted, with CEO Richard Rushton saying the industry faces an "unprecedented crisis".
Distell is also seeking legal advice on the ban, "the fact that we have not been consulted at all", and whether this could be "considered fair and reasonable", Rushton said.
SAB is also trying to find a solution. Zoleka Lisa, vice-president of corporate affairs at SAB, which is owned by AB InBev, said the company had engaged with government departments "to try [to reach] a solution that safeguards as many livelihoods as possible from a health-care perspective as well as an economic one". It was "unclear whether we'll be pursuing any legal action as of yet".
Rushton said Distell, which is Africa's biggest wine, cider and spirits producer, making Nederburg wines, Savanna cider, Klipdrift brandy and Amarula liqueur, intends asking its biggest shareholder, the Public Investment Corporation (PIC), to help it "engage" with the government.
The PIC, which has a 30% stake in Distell, held on behalf of the Government Employees Pension Fund, did not respond to a request for comment.
Rushton said: "We tried reaching out to the PIC during the first round of bans and we will approach them again because they are a shareholder that is materially impacted by the drop in our share price and the loss in income from dividends. We are unlikely to pay dividends this year." "I got the shock of my life. The ramifications of this decision are enormous" (Sean Robinson, Chair of Liquor Traders Association of SA).
This week, Distell's share price fell 10.15%, and since the start of the lockdown is 7.64% lower, while AB InBev's share price has risen 18.37%, given its larger international exposure.
Lisa said SAB will be "affected in insurmountable ways" involving its own employees and the beer industry's value chain.
SAB's supply chain incorporated 3,739 suppliers, of which 1,345 were SMMEs supporting more than 140,000 jobs. SAB also sourced agricultural inputs from about 1,277 farmers, including 757 "emerging farmers".
Rushton said though the ban affected Distell's profit and debt levels, it had planned a number of scenarios around demand and the spread of Covid-19 and the consequent risk actions it would have to take.
"We are, right now, as we speak, implementing some of those risk actions. We are deferring further expenditure and revisiting all costs in the business that we possibly can to ensure the sustainability of the business.
"We are really concerned about livelihoods and it starts in our own business. Our own employees [are] understandably massively anxious about what this new round of bans may mean for them."
Rushton said retrenchments would be the "absolute last resort". Distell employs 4,500 people in SA and Southern Africa.
He said the ban would "create a massive structural crisis for the industry" and it was estimated that 80 small wine farms and wineries would close.
Vinpro spokesperson Maryna Calow said exports may be a saving grace for the wine industry, but only for those businesses that have contracts in place, as finding international buyers was a long process.
For retailers, the ban is devastating. "I got the shock of my life," said Sean Robinson, chair of the Liquor Traders Association of SA.
"Almost 50,000 taverns are now not able to trade. The ramifications of this decision are so dire and enormous."
The association is getting an opinion on taking legal action, but Robinson believes this should be in consultation with the other players in the industry, like SAB.
The losses for the government are also substantial. Rushton said 58c in every rand generated by Distell was paid as corporate and employee tax. In terms of the liquor industry, about R400m in tax revenue would be lost and 13,000 jobs were at risk for every week the ban is in place. This is compared to an estimated health saving from the ban of R1.3bn over eight weeks, according to a presentation in parliament.
Lisa said the first ban, which lasted nine weeks, cost the South African liquor industry about 100,000 jobs. "The longer we are unable to operate, the bigger the ripple effect," she said.