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Send  Share  RSS  Twitter  12 Jan 2009

VENTURES: Grapes of Wrath

 



Recent Western Cape Business News

A couple of years ago the scene was set for a grape packaging war with Stellenbosch-based upstart Vinguard set to take on industry incumbent Grapetek.

The battle was pitched over the packaging sheets used to prevent fungus in table grapes destined mainly for the export market.

It wasn’t much of a fight. Grapetek seemed to take the early rounds, and – as reported in a previous edition of CBN – the demand for the company’s Uvasys anti-fungal decay sheets for table grapes prompted a doubling up of production.

At the same time Vinguard – starved of working capital and large orders – just about faded away.

CBN previously reported that Grapetek was managing an impressive throughput of 140 million sheets (80 million for export). Such is demand that the company is now spending R10 million to double its capacity, says Grapetek director Pieter van der Westhuyzen.

At the same time John Daniel Holdings – the controlling shareholder of Vinguard – has raised R10 million from private investors. Much of the new capital will be used to bolster productivity at Vinguard, which for the past three years has struggled for viability.

Whether Vinguard really has the wherewithal to compete with the more established Grapetek is open to question. Firstly, packaging industry giant Mondi made a rather dire pronouncement on Vinguard’s prospects by recently selling its 37% stake in the company to JDH for a nominal R1.

This ‘give-away’ transaction was struck despite Mondi’s loans to Vinguard topping R3.7 million.

No matter what spin you put on the matter, when a business or part of a business is sold for R1 the seller clearly thinks very little of its ability to generate meaningful returns.

In any event, JDH directors contend Vin-guard’s market penetration has improved significantly in the last year.

They concede, however, that the company has been unable to capitalise on this market penetration due to a lack of working capital.

Not being able to raise finance to meet orders or extend credit terms meant Vinguard operated at a loss in the year to end June 2008. Turnover for that period was a meagre R4 million.

But with part of JDH’s R10 million in fresh capital earmarked for the grape packaging business, Vinguard has kicked off with full production “to meet the demands of its current sizeable order book.”

So it seems it’s a re-match between lightweight Vinguard vs heavyweight Grapetek. One suspects that Vinguard probably won’t score too many shots in the early rounds against the stronger Grapetek.

But if Vinguard can stay off the ropes and out of Grapetek’s reach, there might be a chance the Stellenbosch-based business can snatch some viable market share in what it regards as a R500 million a year global market.


 
 
 
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