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Interview: Treasury Wine Estates’ Strategies For Growth

February 17, 2012

In May of last year, Treasury Wine Estates officially began trading on the Australian Securities Exchange in Sydney, launching as a stand-alone wine company after separating from Foster’s Ltd. Since then, Foster’s has been swallowed up by SABMiller in a deal struck last September worth just over $10 billion, while Treasury continues to focus on building a global wine business.

Earlier today, Treasury released results for its first fiscal half-year as an independent player. For the six months ended December 31, 2011, the company’s sales volume fell 6.2% to 16.9 million cases from the year-earlier period, while net sales declined 7.4% to A$858.1 million ($923m). In the Americas region, sales dropped by 10% to A$388 million ($417m) during the six-month period, although Treasury said Americas volumes stabilized somewhat, declining just 1.1% to 8.2 million cases. The biggest problems for Treasury came in its Europe, Middle East and Africa region, where volumes fell by 23.9% to 3.7 million cases and sales dropped 21.2% to A$131.4 million ($141m). Elsewhere, volumes in the Australia-New Zealand region fell by 1.7% to 4.5 million cases, while sales slowed 0.1% to A$297.4 million ($320m).

Even after a challenging first half, Treasury remains in an expansive mood, as its top executives say they’re more interested in making acquisitions than in being acquired. With a rich range led by Beringer, Penfolds, Lindemans, Rosemount, Wolf Blass, Etude, Stag’s Leap, Chateau St. Jean, Wynns Coonawara, Devil’s Lair and many others, the portfolio is well-positioned to pursue global growth. SND recently spoke with David Dearie, Treasury’s CEO, and Stephen Brauer, Treasury’s managing director for Beringer, about the road ahead.

SND: Treasury Wine Estates began trading as a stand-alone company last May and has now released its first set of results. How would you assess progress thus far?

Dearie: We’ve been busy getting the right team in place and selling the idea of wine as a growth prospect—telling investors why we think beverage alcohol consumption increasingly will move to wine over time, and how we can achieve strong branding on a multi-country basis. There are some ongoing challenges, particularly with the strong (Australian) dollar and other economic issues. But it’s like we’re in a wonderful start-up company, which just happens to come with great brands and $2.5 billion in annual sales.

SND: How have things changed operationally since the separation from Foster’s?

Dearie: Foster’s never really had a global wine business, but rather managed four separate wine units under the corporate umbrella. We’ve brought those units together, and that’s a huge operational change.

SND: Treasury has around 50 brands. Would you consider selling off any of them in order to streamline the portfolio?

Dearie: The old Foster’s board conducted a review of the wine business back in 2009 and identified some brands as the tail. We sold off some of those brands or entered them into joint ventures. Some people would argue we’ve got too many brands, but I would say we haven’t got enough. We could add more. But right now the focus is on driving the current portfolio.

SND: So would you consider becoming an acquirer?

Dearie: We generate a lot of cash, and we need to decide what to do with it. So acquisitions are very much on our mind. We’ll move when the time is right. And future deals might not only involve brands—they could be for land or potential routes to market. We’ve got cash, and we’re looking. Despite (Australia’s) oversupply of recent years, we’re actually short on some high-end premium wines. We’ll pursue the necessary investments to ensure future supply by replanting, establishing new contracts and by making acquisitions.

SND: Why did Treasury switch last year from a regional to a more brand-centric structure, establishing new managing directors for Beringer, Penfolds, Lindemans, Wolf Blass and Rosemount?

Dearie: I felt that we were disconnected as an organization. In Australia, I had set up extended brand teams—viticulturists, winemakers and sales, marketing, finance and production staff, bringing them together to talk about brands. This fundamentally changed the mindset from being production-driven to being consumer-driven. Success for me is in the power of brands. We’ve got some iconic labels, but we previously hadn’t focused enough on telling their stories. Under the old structure, global brand directors were hidden within the organization. Now we have brand leads, regional leads, supply leads and functional support—all the key decision-makers—around one table.

SND: Does the brand approach still work with wine?

Dearie: I keep hearing that people don’t like wine brands, and I just don’t believe it. Our research shows that consumers love drinking wine but find the shopping intimidating. Brands are important in the buying decision, and I want our brand managing directors to think of themselves as brand owners—with balance sheet, P&L and global responsibility, including for long-term strategy. Our brand managing directors oversee one brand in multiple markets, while the regional managing directors manage one market and multiple brands. That means two smart people are looking to maximize opportunities.

Brauer: For the Beringer team, that’s a radical, groundbreaking shift, because it instills a global view to Beringer’s potential. Up until now, every conversation about Beringer has focused on North America, where the brand does about 95% of its business. Beringer is thriving in Canada, but we’ll now also look to Asia, Europe and Australia.

SND: Looking at Australian wine, what are the category’s biggest challenges going forward?

Dearie: On the supply side, Australia needs structural reform. Everyone got caught up with chasing volume, and that damaged Australia’s image. The old Foster’s board deserves a lot of credit for getting our supply into balance. As I mentioned, if anything we’re now short, even with the industry in oversupply. But in general, we need to educate consumers about Australia and tell its regional and terroir-based story. In most markets, Australia really doesn’t stand for anything—I don’t think the consumer really knows what it is. We’ll have to work hard to explain that Australia is more than just value wines. We want to take our regional brands to the world—labels like Wynns Coonawara, Devil’s Lair from Western Australia or Heemskerk from Tasmania. Meanwhile, foreign exchange rates are having a big impact, particularly on entry-level wines. At the higher end, you can mitigate that by moving to higher price points—and that’s often where wine is growing fastest. In the U.S., we’ve established a unit called the Heirloom Group which is dedicated to our high-end wines on-premise. We have a similar unit in Australia called the Lighthouse Group, which calls on high-influence on- and off-premise accounts. And in the U.K., we’ve introduced a unit to focus on wines priced at £15 ($23.50) and over.

SND: How have you been moving to restore growth to the Beringer franchise?

Brauer: Eighteen months ago, we simplified its architecture, differentiating the tiers so that when you walk into a store you can distinguish between Beringer Blush, Founders Estate and Knights Valley. We’ve concentrated on Beringer’s DNA, which is focused on Private Reserve and Knights Valley. They’re both doing quite well, and we’re thinking about what’s needed to expand our sourcing. Probably our biggest challenge is reinvigorating the White Zinfandel franchise and the rest of the entry-level portfolio like Founders. We want Beringer to meet the needs of every wine occasion. Our other focus is on modernizing the wine style. Our Beringer Cabernet Sauvignon Knights Valley 2009 recently received a 91 rating from Wine Spectator, while the Reserve scored a 94. Those are great examples of a more modern, fruit-forward style.

SND: Where do you see the best areas of progress in the U.S market?

Brauer: The clear areas of progress are in our luxury business—driven by Beringer Private Reserve, Stag’s Leap, Etude, and the Penfolds Bins. But we’ve also renewed our focus on the commercial and Foundation tiers—Beringer Blush and the other entry-level Beringer wines, as well as Beringer Founders, Lindeman’s, and Rosemount. Lindeman’s is the now fastest growing Australian brand in Nielsen channels. The other attractive growth area is in the so-called light and refreshing commercial tier. Beringer was a bit late in the game with Moscato, but we’re now seeing nice growth. We recently rolled out Beringer Pink Moscato ($6.99), following last year’s launch of Beringer Red Moscato ($6.99). (For more market intelligence on Treasury’s U.S. innovation initiatives, see the previous SND story on Treasury’s new brands that ran on January 31).

Treasury Wine Estates Americas – Top 10 Brands*
(thousands of nine-liter cases)
Calendar Year Percent Change
Brand 2009 2010 2011 2009-2010 2010-2011
Beringer 7,010 6,650 6,330 -5.1% -4.8%
Lindemans 2,300 1,815 1,650 -21.1% -9.1%
Stone Cellars 1,355 1,175 910 -13.3% -22.6%
The Little Penguin 945 790 675 -16.4% -14.6%
Meridian 930 710 610 -23.7% -14.1%
Chateau St. Jean 550 455 505 -17.3% 11.0%
Penfolds 635 515 410 -18.9% -20.4%
Castello di Gabbiano 370 340 345 -8.1% 1.5%
Rosemount Estate 580 430 320 -25.9% -25.6%
Cellar No. 8 185 215 245 16.2% 14.0%
Total Top 10 14,860 13,095 12,000 -11.9% -8.4%
* US depletions

Source: IMPACT DATABANK

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